Getting your offer accepted can be one of the most exhilarating times in your life. This excitement can be very short lived when you realize there is still much work to be done. One of the first things you need to do after your offer is accepted is to get your home inspected. There is often much confusion about the difference between the inspection and the appraisal. Between everything else that is going on during the buying process you may not even know what it is you are paying for. While the inspection and the appraisal are similar they are really very different.
What’s The Difference?
In its simplest terms the inspection is done for you while the appraisal is done for the lender. It is important to have the inspection done quickly after your offer is accepted so you know exactly what you are buying and if there are issues to give you a chance to back out of the deal. Typically you will only have a few days after acceptance to have the inspection completed and reviewed. The inspection will tell you everything about the physical condition of the property. Issues that can’t be seen with the foundation, roof and mechanicals will be detected by the inspector. This process does come at a cost and can be time consuming but it could be the most important thing you do after you make an offer.
While the inspection is done for your benefit the appraisal is done for and by the lender. Instead of having a quick market analysis of the area your lender requires a much more detailed estimate of the property value. Many lenders got burned when the market went south by overinflated values and have changed their appraisal process. No longer can the mortgage broker or lender determine who they want to use for the appraisal. Theoretically this has eliminated any bias by the appraiser and will give the lender a true value. It is this value that everything about your loan application is based on.
The appraisal focuses more on comparable sales in the area rather than specifics of the property. The inspector may note something that is in the attic but the appraiser is much more concerned about square footage and bedroom count. They will take into account recent sales in the area and compare your property with what has sold and what is on the market to determine an estimation of value. The value is used by the lender in the approval process. Your loan is based off the appraisal amount and not the purchase price.
In A Nutshell
Both of these are costs are outside of the closing and require payment at the time of service. The most common causes of a deal not moving forward are usually issues in one of these two areas. The inspection helps you know what you’re buying while the appraisal will put a value on it. While they are often lumped together they are really two very different steps of the buying process.