Home Inspection Vs. Appraisal: What’s The Difference And Why Are They Important?

Real estate can be intimidating, but there are professionals that can help you navigate buying a house. Home inspectors and appraisers give home buyers deeper insight into the property they’re looking to purchase, but there are distinct differences between a home inspection versus an appraisal.

Home inspections versus appraisals differ by purpose and requirement. Home inspections are optional to home buyers but allow for a thorough review of the condition of the property. However, home appraisals are required by mortgage lenders to determine the market value of the property.

Here’s what you need to know about appraisals and inspections and how they help buyers during the home buying journey.

What’s A Home Inspection?

A home inspection is a visual evaluation of the physical structure and systems of a home, including HVAC, plumbing, water, sewage and electrical.

Home inspections are performed by a certified home inspector, who assess the overall condition of the home on the behalf of home buyers. The home inspector will also look for safety issues and signs of damage that may affect the value of the property.

If problems are found with the property, this allows buyers to back out of the sale. A good inspection report doesn’t mean problems won’t arise in the future, but it gives buyers the details they need to make an informed decision.

Understanding The Home Inspection Process

Home inspections aren’t always mandatory, but they allow buyers to identify major issues before closing. If extensive damage is found – usually from common home inspection failures – buyers can back out of the deal, use it to negotiate a lower price or ask the sellers to make repairs. Also, be sure to hire a certified and reputable inspector. Read reviews online or ask friends and family for recommendations.

On your schedule inspection day, the home inspector will visually examine the interior and exterior of the home and test each component to determine the condition of the home and identify potential problems or defects.

Inspections generally take between 2 – 2 1/2 hours and you can expect to pay between $300 – $500, depending on the inspector and size of the home. Buyers are encouraged to be present during the home inspection. In fact, many inspectors want prospective buyers to be present and ask questions. After the inspection, you’ll receive a detailed report with their findings and recommendations.

What’s A Home Appraisal?

A home appraisal is a professional assessment of the value of the home. Appraisals are performed by licensed appraisers who base their decision on various factors, including the size, condition and location of the property as well as comparable properties in the area.

Mortgage lenders typically require an appraisal to determine the property's fair market value and it’s often used to determine property taxes. This protects the lender's best interest and helps to ensure the property is worth the loan amount. This is also why many real estate agents will recommend an appraisal contingency in the purchase contract. The appraisal contingency allows the buyer to walk away if the home appraisal is lower than the asking price.

Understanding The Home Appraisal Process

Home appraisals are scheduled by the mortgage lender and the prospective buyer pays the fee. On the day of the appraisal, the appraiser will take note of the property's size, condition, location and any improvements or upgrades that have been made. They will inspect the inside and outside of the property and report any conditions that could affect the property’s value.

Using the gathered data during the inspection and research of comparable properties, the appraiser will write an appraisal report that includes a description of the property, an analysis of the local real estate market, and an explanation of the appraised value.

On average, an appraisal takes as little as 30 minutes to complete up to several hours. Also, the time may differ for a drive-by appraisal where the appraiser inspects just the outside of the home.

What’s The Difference Between A Home Inspection And An Appraisal?

Here are more details that highlight the difference between a home inspection versus an appraisal.

How Are Appraisals And Inspections Similar?

There are several similarities between home inspections versus appraisals. Here are a few ways they are similar:

• Home inspectors and appraisers both inspect the interior and exterior of the home.
• The prospective buyer pays for the inspection and the appraisal.

Both offer some protection to the prospective buyer. If the inspection reveals extensive damage, then the buyer can use this to negotiate or back out of the deal. An appraisal contingency allows buyers to walk away if the appraisal is lower than the asking price.

What’s More Important: Appraisal Vs. Inspection?

Although a home inspection isn’t always required, home inspections and appraisals are both vital steps in the home buying process. They both help you learn more about the property you’re buying to make a more informed decision.

Mortgage lenders require an appraisal for a purchase loan and appraisal refinance. The appraisal gives the lender confidence that if the borrower defaults on the loan, they can recoup their investment by selling the property for fair market value. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires lenders to obtain an appraisal from a certified appraiser for most mortgage transactions to prevent risky lending practices.

Home inspections aren’t required by lenders, but it is strongly recommended. Buyers can use the inspection report to negotiate the terms of the sale or back out entirely.

Home Appraisal Benefits

The appraiser’s job is to determine the market value of your property by visually inspecting the home's interior and exterior. Home appraisals have several benefits, such as:

• Potentially avoid PMI: You could avoid paying private mortgage insurance (PMI) if you do an appraisal refinance and the home's current market value is higher than expected. In that situation, you may be able to avoid PMI if you have at least 20% equity in the home.
• You can back out of the contract if the appraisal is low: If you have an appraisal contingency, you can back out of the contract if the home appraises for less than the asking price
• It can help you negotiate a lower price: If the home is valued at a lower price than the offer, you may be able to use the appraisal report to negotiate and make a lower offer.

Home Inspection Benefits

A professional home inspector will examine the property and give a report on the home’s condition and whether there are any safety concerns or damages that could affect the home’s value. Here are some benefits of home inspections:

• Make an informed decision: A home inspection report gives you a professional opinion on the home's condition that you may have never known.
• Find hidden problems: Professional inspectors can spot things not everyone can see. Plus, they carry a variety of tools that can detect hidden issues.
• Gain leverage during negotiations: If problems arise in the inspection report, you can use this as a bargaining chip to get a lower price or have the seller agree to make repairs.
• Get a list of future repairs: A detailed home inspection report can give you a list of repairs or upgrades for future reference.

Home Inspection Vs. Appraisal FAQs

Below are common home inspection versus appraisal frequently asked questions.

Are a home inspection and an appraisal the same thing?

No, a home inspection and an appraisal have different purposes. A home inspection focuses on the condition of the property while an appraisal determines its market value.

Who pays for the home inspection and the appraisal?

The home buyer typically pays for the home inspection and the appraisal. In some instances, the seller may choose to help cover the cost.

What’s the difference between an inspector and an appraiser?

A home inspection is performed by an inspector while a home appraisal is performed by an appraiser. These are different professions with separate areas of expertise.

Do inspections and appraisals happen at the same time?

No, they are usually conducted at different times. The mortgage lender will schedule the home appraisal while the buyer is responsible for the home inspection.

The Bottom Line

There are similarities and differences between a home inspection versus an appraisal, but they both play crucial roles in the home buying process. The home inspection gives you a detailed description of the condition of the home while an appraisal determines the property’s fair market value. While a home inspection isn’t required, it’s highly recommended for all buyers.

If you’re ready to take the next step in your home buying journey, you can get started on the application process online.