Both a home appraisal and an inspection are important steps within the home buying process, so it’s well worth your effort to distinguish the differences between them and learn how they can both be used to your advantage to uncover detailed information about a property’s value and condition.
What’s a home appraisal?
A home appraisal is a survey performed by a professional to form an expert opinion on the market value of a specific property.
An appraisal is typically completed on behalf of a lender as a prerequisite for the approval of a homebuyer’s mortgage application or when a homeowner wishes to refinance their mortgage to access some of its equity.
The essential elements of a home appraisal report include information and data related to the:
- Overall condition of the property
- Variables that contribute to the sale of similar homes in the area
- Time spent in selling comparable properties
While appraisals requiring both an exterior and interior inspection of the property are the norm, an exterior-only inspection – called a drive-by – may also be ordered. Although a drive-by is obviously not as comprehensive, it’s likely to be used when there’s little question about the home’s value supporting the requested loan amount.
Appraisal costs vary based on several factors, such as the size of the property and the appraisal’s purpose. The typical price range is $350-700, and the prospective homebuyer (or homeowner, in the case of a refinance) usually covers the cost.
In addition to an appraisal being ordered for a new purchase or refinance, if you’re thinking about selling your home, you may want an appraisal to offer an idea of the home’s value before putting it on the market. Appraisals are also carried out in divorce situations, as well as for estate planning and settlement purposes.
Mortgage agents/brokers and appraisers aren’t authorized to provide a copy of the real estate appraisal report to the homebuyer/homeowner even though you’ve likely paid to have it completed. This is mainly because the lender is the appraiser’s client – and the appraisal report is prepared based on specific instructions from that lender.
Lenders are also often hesitant to provide an appraisal report to a prospective homeowner because they could then shop it around with other lenders – even though that appraisal couldn’t be directly used for any other financing purposes. In addition to receiving permission from the lender, the appraiser would have to agree and prepare a letter of transmittal, an appraisal update or, in some cases, even an entirely new appraisal.
What’s a home inspection?
A home inspection provides an expert assessment of the physical condition of a property. A well-trained home inspector will perform a comprehensive visual inspection, which is designed to reveal to a potential homebuyer whether the building and its major systems are in sound working condition, including:
- Basement walls and drains
- Fireplaces and chimneys
- Gutters and drain spouts
- Heating and cooling systems (including filters)
- Plumbing and faucets
- Windows and doors
- Smoke detectors and other safety equipment
The homeowner or buyer who enlists the services of the inspection company receives a detailed report from the home inspector. If there are outstanding issues, an inspector will provide a schedule outlining the estimated costs and a timeline detailing when these repairs should be completed based on urgency.
Inspection costs vary based on the size of the home but, on average, you’ll spend $500 for a 2,000-square-foot home to be professionally inspected.
In many cases, buyers pay for the home inspection, as it offers peace of mind that they’re not purchasing a money pit. Some home sellers do, however, use pre-listing home inspection reports as a marketing tool, in which case the seller foots the bill.
Have questions about a home appraisal or inspection, or concerning your mortgage in general? Answers are a call or email away!