While it means so much more to most people, buying a home is also a significant investment. It is natural to want to do your homework to ensure it is a sound investment. There are several different types of inspections that commonly occur during a real estate transaction to determine just how good the investment is. Two inspections that are often thought of as the same thing are the home inspection and the appraisal. They are indeed two separate inspections with very different objectives.
What is an appraisal?
The purpose of an appraisal is to determine the fair market value of the home. The appraisal is usually required and ordered by the lender and paid for, either upfront or at closing, by the buyer. A professional real estate appraiser will visually inspect the home looking for any improvements or deficiencies that may not be noted in the public record but may impact the value of the home.
In addition to the physical inspection, the appraiser will obtain information about the home as well as other recently-sold homes in the area that are comparable. Using the sales prices of those recent sales and providing adjustments for differences in living space, location, the noted improvements and deficiencies, and several other factors, the appraiser determines a fair value for the home.
The appraisal report will show the value of the home and all the appraiser’s work, including what homes were used as comparables and the positive and negative adjustments that were used in the comparison. Though the appraiser does not do an elaborate inspection of the home or its major systems, he or she will note any observable health or safety issues that the lender will usually require to be addressed prior to settlement.
What is a home inspection?
The home inspector is not worried about the value of the home. Hired by the buyer, the home inspector will typically spend several hours inspecting the home and all its systems in detail to assess their overall condition. A home inspection is not normally required but it is strongly recommended.
It is a great idea to be present during the inspection. Though the inspector will provide a detailed report, this is a great opportunity to get an intimate look at your new home with commentary, explanations, and advice from a knowledgeable professional. Either way, the final report will provide information on what is working well, what isn’t, and the anticipated life expectancy of the major systems of the home.
Keep in mind that most home inspections will find issues with the home. Even brand new homes typically result in some issues. If you have a home inspection contingency in your contract, you may have the right to negotiate with the seller to determine who should complete and pay for necessary repairs or even cancel the contract if you choose to.