Appraisal vs. Inspection, what’s the difference?

June 17, 2020

As some of you may know, I’m the proud wife of a Texas Licensed Residential Real Estate Appraiser.  It’s fun to work so closely to my love in an industry that we both enjoy.  I often have conversations with folks asking about him doing a home inspection for them.  Let’s clear up the differences between the two.

Both play important roles in the process of buying a home but each serve a different purpose.  Put simply, the appraisal determines the value of the home while the inspection determines the condition of the home.  Each will cost in the ballpark of $400, give or take depending on location and size.

A home inspection is not required to purchase a home, but it is highly encouraged.  An inspection will uncover deficiencies with the condition of the home.  You are allowed to walk through the home with your inspector and discuss his findings and will be provided with a report and suggestions on repairs.  I like to think of a home inspector as a “General Practitioner”.  They perform a general inspection of all components of the home, but they are not specialists in any one area.  If there are deficiencies, they will recommend consulting a “Specialist” (roofer, plumber, electrician, engineer, etc.).  YOU are the inspectors client.

An appraisal will determine an opinion of value of a home based on comparable sales (location, age, condition and market research).  This will be required if you are  using financing to purchase your home.  An appraiser will perform a site visit to measure the home for square footage, take photos and make notes for the report, and do a visual inspection of the condition.  This is where the two get confused.  Depending on the type of loan you are using, the appraiser will be looking for obvious condition issues.  For example, if you have an FHA or VA loan, the appraiser will look for wood rot, broken windows, deferred maintenance, safety, soundness and security (occasionally conventional lenders will require the same standards).  If these issues are present, the appraiser might mark these as conditions that will have to be met in order for the loan to be approved.  Once these repairs are completed, the appraiser will perform another site visit to verify that the conditions have been met.  The final report sent to the lender will provide final determination of value.  Your mortgage company will only give you a loan for the value of the home.  If the appraised value comes in lower than your contracted sales price, you will either need to make the difference up in cash to close, renegotiate the sales price and concessions with the seller or ask for a reconsideration of value by providing supporting sales and challenge the opinion of value.  If the appraised value comes in higher than your contracted sales price, CONGRATS!  Instant equity!

Musical Pairing: “Our House” ~Madness