Appraisals and Home Inspections Are Totally Different
Your time is valuable, so I'll move the bottom line right up to the top…
Appraisals and home inspections are two totally different things.
An appraiser is concerned with determining your future home's fair market value. A home inspector is there to test and assess the major components and systems of the home and make you aware of their condition.
Appraisals are required by lenders to determine the fair market value of a home and are typically ordered as soon as possible after you go under contract. When an appraiser visits the property for their inspection, they are looking for things about the home that would help determine its value relative to similar homes in that area.
For example, an appraiser would make a note if the HVAC system has been upgraded recently, but won't test it to make sure it's functional. (that's something a home inspector would do) They will note major upgrades that would affect the value of the subject property when compared to similar homes nearby. Things like hardwood floors, upgraded countertops, new appliances.
Once the appraisal inspection is complete, the job is only half complete. Appraisers are required to arrive at their value assessment by finding at least three other properties as similar as possible to the subject property that have sold within the past year. They use these other properties to compare the square footage of the home, the lot it’s on, and all of the more subjective factors that may affect value, like if the home is on a corner lot, or in a high traffic area. If you’ve ever heard your real estate agent talk about “comps”, This is what they’re talking about.
The purpose of an appraisal is to protect both the homebuyer and the lender. When buying a home, you are free to offer the seller as much as you want. The sky is the limit. What the home is worth to you, and its fair market value may be very different.
Your loan amount is based on either the price you agreed to pay for the home or the appraised value. Whichever is less.
Home inspections are solely for the benefit and peace of mind of the buyer. Although NOT required by your lender, it's a good idea to get one. You want to be sure you're getting what you pay for. There are a ton of parts and systems in a home and most of them eventually wear out over time.
A home inspector will check and in some cases test all of the major systems in your home to be sure they function. They will look at the structure to let you know if there are any major issues like cracks in the foundation or worn seals on the roof.
While your lender will always be the one to schedule the appraisal of a property. A home inspection is typically something you would coordinate with your real estate agent. For more info on what home inspectors do, check out this episode of the House-Rich Podcast. I interview Paul Hold of the holt Group Home Inspectors to dive into exactly what they do for their clients.
