Buying a home can be an intimidating process. There are a handful of terms, figures and procedures that are overwhelming if you don’t know what you are doing. Even if you are an experienced homebuyer it is easy to get confused with real estate specific jargon.
Two items that are often mistaken are the appraisal and the inspection. From the outside these would appear to be similar, but they couldn’t be more different. The appraisal is done for your lender, while the inspection is done for you. Knowing the difference in these two can help protect your interests, save a deal or work towards getting the best possible price. Here are a few differences between the appraisal and the inspection.
1. Appraisal.The appraisal is always done for the lender. Simply put, the lender wants to see that the value is in line with the sales price. Your mortgage will always go off the appraised value and not the sales price. The lender will never lend on a diminishing asset. If the appraisal comes in low, you will be forced to find solutions including getting a new appraisal, reworking the contract and finding comparable sales that support the value. All of these can be frustrating and time consuming. The appraisal is done by a licensed appraiser and provides an estimate of value. They look at items such as comparable sales, current listings, amenities, room count, square footage and more. Determining value is truly an inexact science, which is why it is considered an estimate. All the appraiser can do is try their best to compare apples to apples, look at the data and make their best estimation. Ultimately, value of anything is what something else will pay for it. In most cases, unless there is a huge discrepancy, the appraised amount and sales price will be the same.
2. Inspection.As a buyer, the inspection is the most important part of the process. If you are going to spend money for quality in any area, it should be your inspection. The inspection is done by a licensed inspector at your request. Where the appraisal is done to estimate value, the inspection is done to find damage or trouble areas in the property. They will inspect every room of the property, including the attic and garage. The inspection typically will take at least a few hours, possibly longer based on the size of the home. After the inspection is completed, you will receive a detailed report itemizing any red flag areas. This will give you a good idea of the useful life of the furnace, water heater, roof, plumbing and electric in the property. If the items are major enough, you have the option of pulling out of the deal. If they are minor, your real estate agent can negotiate a credit or possibly a reduction in the sales price. Either way, the inspection allows you to know exactly what you are walking into with the property so there are no surprises when you take ownership.
The appraisal and inspection are just two of the many steps in buying a home. Always remember that the appraisal is done to provide an estimation of value for the lender, while the inspection is done for you.