Inspection vs Appraisal
There are two steps in the home purchase process that buyers tend to freak out about, the home inspection and the home appraisal. Usually, it’s because there is not a true understanding of what each one is.
So, let’s make heads or tails of it. Knowledge is power after all and the more understanding you possess, the less anxious you’ll feel.
The home appraisal and the home inspection are both of value to the homebuyer but are not the same thing and the terms should not be used interchangeably.
The home inspection
The goal of the home inspection is to determine what works and what doesn’t work. We want to make sure that the larger systems and structure of the home are sound and aren’t going to be a money pit for the buyer. The inspector is checking the crawlspace, attic, each room and ensuring the appliances and systems are working appropriately. For more about Home Inspections, check out The Home Inspection blog.
The home appraisal
The home appraisal is for the lenders benefit to ensure they are not lending money on a home that is valued below the purchase price or loan amount. The lender needs the value to be evaluated to determine if it is a good investment for them.
The appraisal is ordered by the lender. However, the lender is prohibited from having direct contact with or influencing any appraisers. Lenders will try their hardest to order the appraisal so that the report is back before your due diligence time period expires. It typically takes two weeks, depending on what kind of market you are purchasing in. If it’s a sellers market with many buyers, it may take longer. Ask your lender what they are expecting so you can plan the dates for your offer accordingly.
The appraiser is a neutral third party who will conduct the assessment to determine the home’s current market value. The appraisal report is purchased by the buyer and contains the assessment results.
Market value vs tax value
Now market value is different than tax value. The tax value of a home is actually based on a tax assessors value estimation. While assessors use a process similar to that of an appraiser, the tax valuation is calculated differently and revaluations happen less frequently, typically every 8 years or as needed by the municipalities.
Much of the appraiser’s work involves desktop research, he or she will pull information for recent sales of comparable homes that closest match your future home. Under consideration for the appraisal are the year built, square footage, number of bathrooms, amenities, any updates that may have been done, etc.
They will also make a visit to the property in order to determine if there are any conditions that may impact the value.
The report
Once the report is back, the lender and buyer will review the results of the appraisal. Typically, the only time a seller is made aware of the results is if the value comes back as lower than what the buyer has offered. When that happens, the lender is not going to move forward with the loan, however the buyer does have a few options at their disposal. They may be able to pay the difference otherwise known as an appraisal gap, they may be able to renegotiate the sales price with the seller or they may have the option to walk away, *be sure to check your contract*.
If for some reason, the professionals on your home buying team feel that the appraisal is inaccurate, you can try to appeal. After all, we are all human and anyone can make a mistake.
Inspections and appraisals are valuable tools that offer a homebuyer the peace of mind that you’re making a smart purchase.
Whether you are buying or selling, contact us here at The Old Mill Group and we can help walk you through the appraisal and the inspection.
Is it an Appraisal or Home Inspection
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