Getting Home Appraisals and Home Inspections—Things You Should Know
Understanding the difference will help save money and protect you from making a bad investment.
Home appraisals and home inspections are two important steps in buying a home. You’ll need an appraisal before obtaining a loan, which means the lender requires it. Your lender will want to ensure that your property is worth your agreed price. An appraisal analyzes similar homes in your neighborhood and sets an estimated market value for your home based on comparable sales prices.
A professional appraiser will inspect the home thoroughly, looking at recent sales of similar homes and comparing features such as square footage or upgrades like new kitchens or baths.
The appraiser will also consider aspects such as location or access to major highways within their assessment process to estimate your property’s value. This way, banks will determine how much money they’ll lend against it (with 20% down) without going over budget on closing costs.
The lender requires a home appraisal to ensure the home you're buying is worth the price you agreed to.
A home appraisal determines the value of a home, and your lender requires it to ensure you can afford it. The lender will order an appraisal if you apply for a mortgage loan. An appraisal determines the market value of a property in comparison with other like properties in the same area (similar “comparables”).
An appraisal sets a market value for your home.
An appraisal is an estimate of the market value of a home, as well as an educated, third-party opinion on its quality.
Licensed real estate appraisers perform appraisals because they know their way around a property value. Appraisals have many purposes, including mortgage lending, tax assessments, estate planning, and financial analysis.
In assigning a value to your home, the appraiser will take into account the following criteria:
- Comparable sales recently completed in your area,
- The physical condition of your home,
- Quality of upgrades and repairs made over time
- The view potential from inside or outside the house.
An appraisal report estimates the property’s current market value based on several factors, including comparable sales. In addition to describing the property’s location, lot size, and square footage, it will list and describe any changes or upgrades to the home and its condition.
A home inspection is a professional evaluation of the condition of a house and its systems. Home inspectors check out the home for problems, like leaks, rotting wood, or issues with the foundation or roof. They also look for things that are in good condition, so you know what to expect as you move into your new home.
An inspector performs a home inspection and has been trained in various building systems such as heating and air conditioning, plumbing, electrical and structural elements.
While it will cover many aspects of your home’s condition, it doesn’t estimate its value like an appraisal does.
- A home inspection is optional but recommended by most real estate experts.
A home inspection is a thorough check of a home, inside and out. It can reveal serious problems that might not arise during an appraisal, such as water damage or inferior quality.
An inspection is conducted by a licensed professional who examines every part of the house, from roof to foundation.
Contractors usually perform inspections, but lenders or title companies don’t require them. Your lender may offer one with their loan package if you request it; you can hire someone else to inspect it.