What Homebuyers Need to Know About Home Inspections and Home Appraisals
There’s no doubt buying a home is a complicated process. And with so many steps, it’s easy to feel overwhelmed and confused about what to expect along the way. One topic that often confuses many home buyers is home inspections versus home appraisals. What’s the difference between the two — and how do they work? Find out more below as we cover the basics.
What is a home appraisal?
So, you have to get a home appraisal… what’s that? Simply put, an appraisal is an unbiased professional opinion of how much a house is worth. Home appraisals are a standard step when buying a new home or even refinancing your current home. When borrowing money, lenders want to know you’re not over-borrowing — and home appraisals let them know the home’s contract price is appropriate. This is important, because the home serves as collateral for the mortgage.
Appraisals are done by an appraiser, a qualified professional, who completes a visual inspection of the outer part of the property. The appraiser also considers other aspects of the home — things like the floor plan, square footage, and amenities — and examines current market trends and the sales of recent properties in order to determine the home’s value.
Home appraisals are usually a required step and almost always paid for by the buyer. Unfortunately they also can cost up to several hundred dollars. Typically, your lender will order the appraisal for you, but this step of the process can vary so make sure to check with your bank.
The home appraisal takes place once the home is under contract. The appraiser considers everything from the number of bedrooms and bathrooms to floor plan functionality and square footage to determine the home’s value. If the appraised value comes in lower than the contract price, this can delay the home buying process.
In fact, a recent survey showed “appraisal issues” were the cause of 18% of real estate contract delays and 9% of contract terminations. Ultimately, banks won’t lend more than a home is worth. But buyers may have the option of challenging the appraisal or getting a second opinion from another appraiser.
Unfortunately, there’s no getting around getting a home appraisal. But don’t worry too much; so long as the home is priced right, the appraisal is usually just another step in the home buying process.
What is a home inspection?
A home inspection, on the other hand, is kind of like taking a home to the doctor.
While the home appraisal determines the value of the property, for the lender, the home inspection is done to evaluate the home’s condition, for the buyer. This step makes the buyer aware of any potential problems with the home, so they can determine how to proceed with their purchase.
The home inspection uncovers and identifies issues related to the home’s physical condition, safety, and more. A certified inspector evaluates every part of the home from the walls, ceilings, floors, windows and doors, to heating and cooling systems, mechanical and electrical systems, appliances, plumbing, foundation, basements, structural components, and more.
The home inspection report helps the buyer makes a more informed decision about buying the home and also makes repair recommendations, which the buyer can then use renegotiate the purchase price, ask for repairs, or even cancel the contract.
Finance pros Nerdwallet recommend: “A good home inspection report is extensive, containing checklists, summaries, photographs and notes. It may estimate the remaining useful life of major systems and equipment, as well as that of the roof, structure, paint and finishes.” The information included should recommended specific repairs and replacements, too.
Like home appraisals, a home inspection will also typically run the buyer a few hundred dollars — though it’s also on the buyer to find a home inspector and schedule the inspection. Even if the property owner says the home has been inspected, always get a home inspection yourself.
As always, being a smart buyer means being an informed buyer. Want to learn more about home buying and real estate? Visit VRM Mortgage for real estate resources, buyer’s guides, important information and more.