What’s the Difference Between a Home Inspection and a Home Appraisal?

July 27, 2020 | 
wooden cut out of a house with the question "how much is my home worth?" printed on it used to describe the difference between a home inspection vs appraisal

In the home-buying world, it’s easy to get confused by similar terms: home inspection vs. appraisal, real estate brokers vs. real estate agents, and mortgage lenders vs. mortgage underwriters, to name a few. Who knew so many professionals could be involved in a simple real estate transaction?

Of course, the truth is that no real estate transaction is simple, which is why so many specialties are involved.

When it comes to home inspectors and home appraisers, their job titles can sound alike — plus, both of them are neutral, third-party professionals who visit the property to do a kind of ‘inspection’. But they perform very different jobs, and it’s a good idea to have a solid understanding of the roles each play.

In this article, we’ll do a deep dive into the responsibilities of home appraisers and inspectors, how they’re different, and why both jobs are essential to the home-buying process.

The difference between a home inspection vs appraisal

Even though they sound similar, a home appraisal and a home inspection are two very different things. 

A home appraiser estimates how much money a property is worth, while a home inspector looks for problems with the physical systems and components of the house. 

Home inspections: Digging up the dirt

The home inspection process is a thorough review of the home’s physical structure that includes finding and documenting any issues present at the time of the inspection. An inspector will check all the major internal systems of the home as well as the physical structure, including:

  • Walls, floors, and ceilings
  • Foundation
  • Basement
  • Attic
  • Roof
  • Insulation
  • Heating and cooling systems
  • Plumbing
  • Electrical system
  • Installed systems (garbage disposal, dishwasher, sump pump, etc.)

A home inspection usually costs between $300-600, depending on the size of your home. An inspection can be an invaluable investment, especially if your home inspector finds thousands of dollars’ worth of needed repairs.

It’s better to know what kinds of costs you’re taking on upfront than to be surprised later — and you may be able to negotiate a lower price on the house or have the seller handle some of the repairs before you close.

When does a home inspection take place?

A buyer’s inspection takes place after the seller accepts the buyer’s offer on a property. Buyers typically have between 5 and 10 days to get an inspection. The timeline often goes something like this:

  1. The buyer hires a home inspector, who visits the property and thoroughly checks all the components listed above.
  2. The inspector communicates any issues to the buyer and provides a home inspection report that details all their findings.
  3. The buyer then decides what items (if any) they want the seller to correct before the home purchase is finalized. They work with their real estate agent to send their requests to the seller.
  4. The seller isn’t under a legal obligation to fix any of the requested issues unless this was pre-negotiated, but they may decide to grant some of the buyer’s requests, depending on how much leverage the buyer has and how reasonable the requests are.

How do you find a good home inspector?

Finding a quality home inspector may require some research. There aren’t universal standards across the United States. Many states require licensing for home inspectors, but some do not. It’s easy to discover home inspectors operating in your area by using this Find an Inspector tool.

Your real estate agent likely has a list of preferred home inspectors that they’ll suggest, but in the end, the choice is up to the buyer — some prefer to choose an inspector who does not have ties to their agent.

The walk-through: Home appraisals

Like inspectors, home appraisers also visit the property in person — but their job is much different: appraisers are there to determine the home’s value.

What happens during the real estate appraisal process?

A real estate appraiser will give the property a “walk-through” (a complete visual inspection of the property) and take photos of the interior and exterior, including a street view and a sketch of the outside of the building. They’ll make note of any aspects that would contribute to the market value, such as the number of bedrooms and bathrooms, square footage, and amenities.

Once the walk-through is completed, the appraiser gathers data about current market trends, the neighborhood, and recent sales of comparable homes in the area (called “comps”) to compile an analysis and estimation of the property’s worth. Their appraisal inspection report will include:

  • An appraised value of the property
  • A sketch of the exterior of the building
  • Photos of the front, back, and street in front of the house
  • An explanation of how the square footage of the home was calculated
  • A street map showing the appraised property and comparable sales in the area
  • Photos of the exteriors of any comparable properties used in the analysis
  • Any other relevant information such as public tax records, land records, and market data

Like a home inspector, the appraiser might also look for any conditions that need repair; however, they’re there to get the big picture of the house’s general condition as a factor in estimating the property’s worth. They’re not going to perform an in-depth inspection like an inspector would.

If something doesn’t appear to be wrong with the HVAC system, for instance, the appraiser will assume it’s working as it’s supposed to. On the other hand, an inspector would turn the heating and air conditioning on and do a series of checks to be sure there are no problems.

How do you find an appraiser and how much does an appraisal cost?

Unlike home inspectors, all 50 states require an appraiser to be certified. You can check the federal database for the Appraisal Subcommittee (ASC) to find a registered appraiser who’s knowledgeable about your area.

Home appraisals for average, single-family homes typically cost $300-450, though a larger house or a more expensive location can raise the price into the $500-800 range.

Some exceptions: FHA and VA appraisals

If you’re getting an FHA loan or VA loan, you’ll be required to get an appraisal from a HUD-certified or VA appraiser.

An FHA appraisal is different from a standard appraisal in that they’re not only determining the market value of the property, but also doing a “health and safety” inspection to make sure the home meets HUD’s minimum safety standards. If the home doesn’t meet these standards, the transaction can’t go forward.

Similarly, a VA loan requires the buyer to get a VA appraisal to make sure the home is worth the agreed-upon price in the sales contract. A VA appraiser will also make sure the property meets the VA’s Minimum Property Requirements for safety and structural soundness.

One word of caution: these “health and safety” inspections aren’t a complete home inspection. In fact, HUD encourages buyers to get an independent home inspection – but unlike the appraisal, a full inspection isn’t required for an FHA loan to be approved.

Why should you get a home appraisal and home inspection?

A home inspection and home appraisal are both extremely helpful parts of the home-buying process, and it’s always a good idea to get both. Yes, there’s a cost involved, but it’s well worth it to make sure you’re making a good investment.

Benefits of a home inspection

It’s in the buyer’s interest to order a home inspection before closing on any property sale, even if it looks to you like the home is in tip-top shape.

You never know what damages might be lurking that even the sellers might not be aware of. There could be cracks or water damage in the foundation, leaks in the roof, a broken air conditioner, or faulty connections in the electrical system that you’ll want to know about before you finalize your home purchase.

Home inspection reports help you understand the home’s condition, make you aware of any risks or repairs needed, and can give you leverage when negotiating with the seller. For instance, if you know the roof needs to be replaced, you can ask the seller either to come down on price or replace the roof on their own dime.

Benefits of an appraisal for homebuyers

An appraisal will confirm the value of the property, so you can be confident you’re paying what it’s worth.

Almost all mortgages require a home appraisal — so if you’re like most buyers who’ll be using a loan to purchase a house, you’ll need an appraisal report before you finalize your mortgage agreement.

A property appraisal can also determine the price of your loan. A mortgage lender will consider the loan-to-value (LTV) ratio of the property, and one with a higher LTV ratio will be considered a high-risk loan. A property that’s run-down will often come with a higher interest rate than one that’s in better shape (and worth more).

What home inspectors need to know about home appraisals

As with all real estate professionals, it’s a good idea to have a clear understanding of the roles of different actors in the home-buying process. That way, you’ll be a credible source of information for your customers, and you’ll know who to point buyers and sellers to if they need something that’s outside your own scope of expertise.

Knowing where your own responsibilities end and other professionals’ begins means that you won’t be as likely to step outside the bounds of your professional role.

For instance, as an inspector, you’ll know that giving your customer an estimate of what you think the house is worth is unwise. That’s the appraiser’s department. If a customer asks you, you’ll know to tell them they should consult a licensed appraiser to give them a professional opinion.

It’s important for home inspectors to understand the similarities and differences between inspections and appraisals. Knowing the scope of your own expertise and what other professionals can do will be helpful to your customers (and keep you out of trouble).

Two sides of the same coin

And there you have it! Simply put, a home inspector combs the property for any potential issues, while an appraiser reviews the property to determine its fair market value.

It’s important to remember that while home inspectors and appraisers have two very different roles, both professions are essential to a successful real estate transaction.

As a home buyer, it’s helpful to know you can trust neutral inspectors and appraisers to give you essential information about a home’s defects and monetary value, respectively, so you can decide whether to purchase the property.

From the perspective of the experts, it’s important for inspectors and appraisers to understand the scope and limitations of their own realms of expertise while having a good idea of the responsibilities of the other real estate professions, so they can direct home buyers and sellers accordingly.

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