What is the difference between a home inspection and an appraisal? Each has a different goal, but they do have one thing in common.
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Last time, we talked about the difference between a home warranty and an inspection. Afterwards, I got a lot of questions about home inspections and appraisals, so I want to address those today.
What is the difference between a home inspection and an appraisal?
Inspections and appraisals try to accomplish very different things.
The home inspection is designed to determine the condition of the home. The inspector weighs a variety of factors in order and compiles a report for you. The report can range anywhere from 24 to 62 pages depending on the age, size, and condition of the home. Even new houses can have issues.
Inspectors look at everything from your HVAC system, plumbing system, electrical system, smoke alarms, fasteners for desks, railings, and pickets for safety issues. The inspector wants you to know if there are any areas that may be a cause for concern.
As an agent, I look at the defective summary and the marginal summary pages before going back to the report itself to look specifically what any issues mentioned in the defective summary. Problems in the defective summary need to be addressed immediately, and the buyer needs to know which repairs they want the seller to address.
When selling a home, you can do an inspection before the house is on the market and handle any repairs on your own. That way, you won’t hinder the sale down the road.
One point that both inspections and appraisals cover is safety. If you’re looking to buy a home with missing handrails or loosely secured handrails, the lender wants to know that those issues have been repaired before they lend you any money. They don’t want to give you money to buy an unsafe property.
Once you get the inspection report back, you decide how you want to proceed. Listen to the agent’s recommendations for any issues in the defective summary, as they need immediate attention. The marginal summary is more of an outline of things you may want to take care of down the road.
The appraiser is hired by a third party to determine the value of the property. Your lender will send out a request to a company (usually based in California or Colorado) which will send it out to a network of appraisers. If an appraiser is available, they step up to do the appraisal. This way, neither the lender nor the agent has any influence over the appraiser.
The appraiser will note safety issues that might have been covered on the home inspection. They will also look at three active comparable properties and three recently sold comparable properties to derive a value of the property you are listing or purchasing.
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That value is only good for the specific day it’s written because our market is constantly changing. From 2008 to 2014, the market was going down. From 2014 to now, the market has been coming up. It’s been somewhat slow, but it is encouraging to see median price increases across the board.
Home inspections and appraisals may overlap on safety issues.
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2017 has been a very active year so far, so it’s much easier for appraisers to get comparables than it was from 2008 to 2012. Back then, the average days on market was about 692; today, it’s 255.
When an appraiser looks at a home, they also look at the overall economic condition. The lender wants to know if economic conditions are static, depressed, increasing, or decreasing. Now that we hit an uptick in the market, it is a little bit easier to get through the loan process.
Essentially, the main difference between an inspection and an appraisal is that the inspection aims to determine the condition of the home while the appraisal aims to determine the value of the home on that particular day.
If you have any other questions about home inspections or appraisals, just give me a call or send me an email. I would be happy to help you!
