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Appraisals vs Inspections: Know The Difference

Appraisals vs Inspections: Know The Difference

While home appraisals and home inspections both play a crucial role in a real estate transaction, they’re far from being one and the same thing. Indeed, while a home inspection is primarily aimed at protecting the actual buyer, a home appraisal is mainly geared towards protecting the interests of the mortgage lender. As a seller, you’re probably going to have to deal with both of these processes before you finalize your home’s sale. With this in mind, it’s in your best interest to understand what each of these processes does, as well as the key differences between the two. Let’s have a look.

What Is An Appraisal?

Put simply, an appraisal is a valuation of your property; and is carried to determine whether your home is actually worth the sale price. Most lenders will not loan without an appraisal. For this reason, an appraisal is normally one of the very first steps during a real estate closing. When lending institutions issue a mortgage, they effectively take on the risk that the borrower – your buyer – might default on the loan. Should this happen, the lender must recoup its money by selling the house, or end up at a loss. An appraisal confirms that your home could indeed fetch at least the amount of the mortgage should the lender be forced to sell it off.

How Appraisals Work

Broadly speaking, an appraiser must not only be licensed, but also knowledgeable about properties in your specific area. What’s more, the appraiser must be a completely independent individual with no direct or indirect interest in the sale of your home. An appraiser will consider your home’s location and size and compare it to other similar properties in the area. The aim is to determine whether the buyer has paid a fair price. The appraiser will also look over the property for any areas that need improvement. However, they’ll only look at readily visible issues; and won’t check individual appliances, mechanical systems or other issues. That’s where a home inspection comes in.

What Is An Inspection?

Unlike an appraisal, which only serves to confirm that your home is priced correctly, a home inspection is fully focused on the inner workings of your home. Home inspections are in the buyer’s interest, because their purpose is to find out whether there are any underlying issues which might raise health and safety concerns. A home inspection will also determine whether there are any major structural problems that might leave the buyer with more than they bargained for. The home inspection gives the buyer the peace of mind that they aren’t buying a lemon.

How Home Inspections Work

Home inspections delve deep into your home’s inner workings. The inspector will have a look at your home’s plumbing, electrical, heating and cooling; and also at major appliances. They will then issue a report with their findings. This should include a narrative account of their findings as well as pictures and diagrams to substantiate everything. Ideally, you or someone you trust should be present during the inspection. You should expect an inspection to uncover at least a few areas that require attention. Unfortunately, though, some inspections may uncover more deep-seated problems.

What Do Appraisals And Inspections Mean For Me?

As a seller, you have a vested interest in the outcome of both an appraisal and an inspection. Both are going to have an impact on your bottom line. If an appraisal finds that your home is overpriced, you may need to lower your purchase price or risk the sale falling through. No lender will approve a mortgage for more than the amount sanctioned by the appraiser, so an unfavorable outcome puts you at a disadvantage. That said, appraisers aren’t infallible. If you feel your home has been significantly undervalued, getting a second opinion may be a good option. In the same way, while an unfavorable home inspection report doesn’t necessarily spell the end of your transaction, it may put you at a disadvantage. However, you do have some leeway. Consider dropping your price, or negotiate carrying out some of the repairs yourself before finalizing the sale. Whether you’re dealing with an unfavorable appraisal or home inspection result, your real estate agent can help you look over your options and decide on the best course of action. Concerned about your home’s sale going smoothly? We can help. Reach out to us today.