When you are buying a home, the escrow process includes a property inspection and a home appraisal. Both processes help the buyer learn more about the home that they intend to purchase, but what exactly is the difference between a home inspection vs. home appraisal?
Home Inspection vs. Home Appraisal
As you get ready to purchase a home, it’s important to know about each of the steps that you will move through as you progress from offer-making, into escrow, and finally to the closing meeting. This will help you make informed decisions that can benefit your position as a buyer and soon-to-be homeowner.
Here is an overview of the differences between a home inspection vs. home appraisal.
Home Inspection Defined
What is a home inspection?
A home inspection occurs when a certified home inspector visits the property and evaluates the current condition of the home that is for sale. The home inspector looks at the property’s structure and the major systems of the property, which include:
The home inspector will also look at the appliances in the home, such as the dishwasher, HVAC, and washing machines, as well as the alarms for fire and carbon monoxide, and emergency sprinkler systems.
The certified inspector will be checking to ensure that everything is up to code, and will look for any signs of hidden issues or unknown problems.
When does a home inspection occur?
The home inspection will take place once the buyer and seller have come to a preliminary agreement where the buyer’s offer has been accepted.
When the two parties have moved into escrow, the home inspection will be scheduled. The home inspection typically takes between two and four hours, but the duration will depend on the size of the property.
What happens after the home inspection?
The results of the home inspection will be delivered in the home inspection report, which is a document created by the certified inspector that provides a thorough overview of their findings.
Based on the results of the home inspection, the buyer can negotiate the terms of the real estate contract. In some cases, the buyer may adjust their offer amount or request that the seller makes certain repairs. In extreme cases where intense issues were discovered, the buyer may choose to back out of the deal.
Home Appraisal Defined
What is a home appraisal?
A home appraisal is the process of having a licensed appraiser evaluate the current fair market value of the property being sold. The licensed appraiser will review various factors — like the property’s condition, its location, and similar homes in the same area — to determine the home’s fair market value at the time of the sale.
The home appraisal process ensures that the buyer is not overpaying for their new home, and that the seller is receiving a fair price for selling their property.
If the buyer is financing the purchase of their new home with a mortgage loan, the mortgage lender will require that a home appraisal takes place during the escrow period.
This will ensure that the lender is not lending out too big of a loan for the home being purchased. When the results of the appraisal report come back, the lender may adjust the amount of money that they are willing to lend out for the purchase.
When does a home appraisal occur?
Similar to the home inspection, the home appraisal takes place during escrow. The appraisal typically happens shortly after the seller has accepted a buyer’s offer. This ensures that the price point being discussed between the two parties is accurate and appropriate.
What happens after the home appraisal?
After the appraiser has completed their analysis, they will submit a report of the findings which outlines the fair market value of the property and how the appraiser calculated the value.
The mortgage lender will decide to finance the amount that the appraiser has identified as being fair and reasonable. If the price that has been agreed upon by the buyer and seller is higher than the appraised value, the buyer may have to pay the difference out of their own pocket if they still want to move forward with the listing.
Key Takeaways on Inspection vs. Appraisal
Home Inspection vs. Home Appraisal
- Both processes asses the property listed for sale.
- The outcomes of both processes can impact the terms of the transaction agreement between the buyer and seller.
- Home inspections are conducted by certified home inspectors.
- Home appraisals are conducted by licensed appraisers.
- A home appraisal is required by mortgage lenders, while a home inspection is not a requirement to get a mortgage.
For more information about home inspection vs. home appraisal and buying a home, explore more articles from RealEstateAgents.com.