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The Difference Between A Home Appraisal And A Home Inspection

May 19, 2021 written by FlashHouse

The home selling process is incredibly stressful. In fact, more than a third of Americans admit that selling their home drove them to tears at least once during the process.

While you might assume that buying a home is more stressful than selling, especially in a strong seller's market, that isn't necessarily the case.

Getting a grasp of what the different aspects of the home buying and selling process consist of can help to calm some of your nerves. Two of the most important events that occur in escrow are the home inspection and the home appraisal.

What's the difference between an inspection and an appraisal, and how are they similar? Let's take a look at what you need to know.

A Home Inspection and a Home Appraisal: What's the Difference?

When you are buying or selling a house, it can feel like there is an infinite number of complicated steps to the process. If this is your first time purchasing a home, you might assume that "home inspection" and "home appraisal" are two different terms that refer to the same process. However, they actually refer to two completely different events and they have different purposes.

The primary difference between an inspection and an appraisal is that an inspection deals with the condition of a home while an appraisal deals with the value of a home.

Inspection

An inspection is an event when the condition of the home is looked at closely by a professional. A licensed home inspector will go through the home comprehensively over the course of multiple hours in order to review the home's condition. They will do this both by testing the major systems as well as visually inspecting the home.

The inspector will then provide recommendations to the buyer after they have completed the inspection regarding aspects of the house that should be replaced or repaired before the closing occurs. Depending on where you live and how big the home is, home inspection costs can range between $250 and $700.

Appraisal

On the other hand, an appraisal is a general assessment and walk-through of the home in order to determine the fair market value of the property. A licensed professional appraiser will use other nearby comparable sales in order to help determine what the appraisal value of a home is.

The majority of an appraiser's work is done in their office in the form of comparing the house's location, features, and finishes with other recent sales in the same area. However, they do visit homes in person as well. Home appraisals cost somewhere around $400, but this can vary a bit depending on how large the home is and the location.

Are Inspections Required By Lenders?

Inspections are strongly recommended, but lenders do not typically require home inspections when providing conventional financing. If you are using a VA loan or an FHA loan to purchase a house, though, there typically is an inspection requirement.

Are Appraisals Required By Lenders?

Most lenders will require appraisals as a part of the process of approving financing. This is because lenders are motivated to protect their investment by making sure that they aren't giving out a loan for more money than the home is worth.

Do You Have to Get an Inspection and an Appraisal If You're Buying a Home in Cash?

When you're buying a house in cash, there's no rule that you have to do an appraisal or an inspection. Some cash buyers, particularly real estate investors, might choose to waive the appraisal or inspection. They might do this to be more competitive against other offers, if they want to close quickly, or if the home is being sold "as is."

What Are the Similarities Between a Home Inspection and a Home Appraisal?

Though appraisals and inspections are two separate occurrences, that doesn't mean there aren't some similarities between them. Let's take a look at some of the similarities.

Buyers Typically Pay For Both Inspections and Appraisals

In most circumstances, the buyer will be responsible for paying both the home appraisal cost and the home inspection cost. Their lender will hire the appraiser while the buyer themselves will hire the inspector.

The Professionals You Hire Are Licensed

Both home appraisers and home inspectors require training and licenses. It is their role to act as impartial third parties during the process, and they don't represent the lender, the buyer, nor the seller. They are paid to offer their professional opinion about the value of a home or the condition of a home, respectively.

Both Inspection and Appraisal Occur During Escrow

After an offer is accepted on a home, the home inspection typically occurs within the first week. The general rule of thumb is that the sooner you can do the home inspection the better because it allows more time to fix any issues that are found in the inspection report or to have further negotiations with the seller of the property.

The home appraisal also happens during the escrow period. Usually, this happens a week or two before the closing of the sale.

Negotiations Might Result From Either Appraisals, Inspections, or Both

If the offer on the home includes contingencies for both the inspection and the appraisal, the buyer has the opportunity to renegotiate based on what is discovered during these processes.

For example, if the appraisal value of the home comes back lower than the offer price, the buyer can negotiate with the seller about how to cover the difference between the offer price and the appraised price. If there are significant repairs or necessary replacements found during the inspection, the buyer can request credits, repairs, or take the opportunity to back out of the deal.

What Happens During a Home Inspection?

After a buyer and a seller sign a contract, scheduling a home inspection is one of the first things that the buyer is going to want to do. In markets that are particularly low-inventory, buyers might choose to hire an inspector before they make an offer on a home.

Buyers should look for inspectors that they trust. It can be a good idea to ask friends or family members for inspectors they've worked with, ask for a recommendation from your real estate agent, or do some research online to find a reputable inspector.

Home inspections typically take about three or four hours, but they can take longer than that. The home inspector will visually check you home while also test the functionality of the key systems in the home, including:

  • Roof condition
  • Plumbing
  • Drainage
  • HVAC
  • Appliances
  • Foundation
  • Water damage and mold

Inspections are usually attended by the buyer and their agent. This gives buyers the opportunity to get more familiar with the home and any potential red flags.

After the inspection is completed, the buyer will receive a written report that summarizes what they found.

What Happens During a Home Appraisal?

During the appraisal, the home will be evaluated by a licensed appraiser. After doing a walkthrough of the home and looking at other comparable recent sales, they will estimate the value of the home. The cost of the appraisal is usually paid for by the buyer as a part of the closing costs.

An appraisal is kind of like a light inspection. They will walk through the home, note the location, condition, and finishes of the property, and then use these findings to identify similar homes that have recently sold in the same location. They will then use all of this information to determine the fair market value.

They will then deliver a physical report on the home's value. This will include descriptions of other comparable sales as well as photos.

In an ideal scenario, the appraisal value of a home will come back higher than the sales price that was agreed upon in the contract. This means that the lender will approve the loan (assuming all other necessary pieces are above board) as the buyer is paying below fair market value.

Do You Want to Make Selling Your Home as Stress-Free as Possible?

Whether you are buying or selling, it's important to understand the purpose of the home inspection and the home appraisal. That way you can know what to expect and also understand what it means to waive these contingencies in the purchase and sales contract.

Few things in life are more stressful than buying or selling a house. When it's time to sell your home, though, it doesn't necessarily have to be a long-drawn-out and torturous process.

When you sell your house to FlashHouse, the process is simple. You can receive a cash offer on your home in 24 hours and decide whether or not it's right for you. If you choose to accept, the selling process is simple and painless.

Are you interested in getting a cash offer on your home? If so, click here to get started!

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