If you’re new to the home buying process, you’ve probably been hearing a bunch of real estate jargon. Within this jargon, it’s common to see the words home appraisal and home inspection used interchangeably. This is not the case, however. Although appraisals and inspections might seem like same thing, they actually serve two entirely different functions. It’s important to know the difference between the two so you can use your time and money effectively.
What Is A Home Appraisal?
A home appraisal is an official statement on the current market value of a property. This involves an appraiser visiting the home in question to check the overall condition of the home and its primary functions weighing them against the current conditions of the local market to determine what this home is worth.
Although appraisals are needed to ensure that the buyer and the seller are making a fair transaction, appraisals are really designed to protect the lender. Appraisals are conducted by a third party to ensure that there is no bias.
The lender, the seller, and the buyer will all receive a comprehensive report explaining the value determined by the appraiser. This should include statistics, info on comparable properties, and any other info that helped determine the value of the home.
The appraisal is typically paid for by the buyer, as it helps them ensure that they are getting a fair deal. However, these terms can be negotiated within the home purchase agreement.
What is a Home Inspection?
Similarly, a home inspection involves a licensed professional coming to the home in question to give an evaluation on certain aspects of it. However, this evaluation determines any faults are hazards within the property.
Again, inspections are typically paid for by the buyer since they are the one’s who will benefits from the inspection’s findings. The home inspection should take place before the decision to purchase the property is made. This way the buyer has a better idea of what they are getting into when purchasing a home.
Inspectors tend to look at:
- Heating/cooling systems
- Built-in appliances
Upon completion of the inspection, a detailed report will be presented outlining the issues with the property. At this point, the buyer can choose to proceed with the purchase, back out, or negotiate the cost of repairs with the seller. It’s common for an escrow account to be utilized to fund the cost of repairs.
The Importance of Both
Although both processes involve taking a detailed look at a specific home, inspections and appraisals both serve different functions. The appraisal determines the value of a home, and an inspection determines potential risks and damages of a home.
Inspections aren’t typically required, though inspections usually are (depending on the price and other conditions). However, both can help ensure that you are making a smart, well informed decision when purchasing a home.