Appraisal Vs. Inspection

When you are buying your home, you will hear a number of terms, some synonymous with others…. Some may conjure up the same image yet be very different. Lets look at one of the those examples of mistaken identity.

Appraisals and Inspections

Let’s start out on the same path with some definitions. I know, not real exciting, but still necessary…

The definition of APPRAISAL, also known as Real Estate Appraisal, property valuation and/or land valuation: 

Real estate appraisal, property valuation or land valuation is the developing of an opinion i n regards to the value of real property, usually its Market Value. Appraisals are needed as no two properties are the same, and all properties differ from each other in their location – which is one of the most important determinants of their value. The absence of a market-based pricing mechanism determines the need for an expert appraisal/valuation of real estate/property.

Real estate appraisals are generally performed by a licensed or certified appraiser. If the appraiser’s opinion is based on Market Value, then it must also be based on the Highest and Best Use of the real property. For mortgage valuations of improved residential property in the US, the appraisal is most often reported on a standardized form, such as the Uniform Residential Appraisal Report. Appraisals of more complex property (e.g. — income producing, raw land) are usually reported in a narrative appraisal report.

A Home INSPECTION is:

• A home inspection is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. The inspector prepares and delivers to the client a written report of findings. The client then uses the knowledge gained to make informed decisions about their pending real estate purchase. The home inspector describes the condition of the home at the time of inspection but does not guarantee future condition, efficiency, or life expectancy of systems or components

Enough of the wordy stuff, here is the main difference between an inspection and an appraisal. A property inspection is optional, and you decide who you want to hire to do the inspection. The home inspector works FOR YOU. Appraisals are ordered by your lender, you as the home buyer will have no say in who is chosen to perform the appraisal, and the appraiser is working on BEHALF OF YOUR LENDER.

Inspectors protect your interests as home buyers. Is the roof near the end of its life and needs to be replaced within a year or two? Is there a grading issue that will result in spontaneous unplanned basement swimming pools? These are all things you will want to know about the home before you purchase the home.

Appraisers protect the interest of the lender who is putting their cash on the line for you to purchase this home. Simply stated, the appraisal is ensuring that the amount of the loan doesn’t exceed the market value of the home.

Home inspectors will usually provide you with a copy of their report during the home inspection of the property. Inspections range in length of time depending on a number of factors such as property age, condition and size. The home buyer is usually present during the home inspection, and can learn a great deal about their new home and the best ways to help maintain the home.

Appraisals require extensive market research to come to the valuation conclusion. Appraisers don’t spend as much time at the property as inspectors do, but the bulk of their time is comparing the home you are buying to neighboring homes that are similar and have sold in recent months. Your lender will usually provide you with a copy of your appraisal at/after closing so you can keep a copy with your records.

Appraisers:

• Protect your lender’s investment
• Objective is to put a dollar value on property
• The appraisal outcome can make or break the mortgage approval.

Inspectors:

• Work on the home buyers behalf
• Objective is to inform you about the condition of the home
• The inspection outcome can make or break a home buyer’s willingness to purchase the home.

Hopefully this will clear up any confusion between appraisals and inspections. The one thing we would like to add, is that even though a home inspection is an expense that will come directly from the home buyers pocket, it is usually well worth it. In today’s real estate market where nearly 40% of the homes listed for sale are “distressed” sales, meaning bank owned or lender mediated, chances are good that you may be purchasing a home that has been vacant. We all know Minnesota winters can be harsh, but you will want to make sure that all the mechanicals are in good working order and the structure hasn’t been compromised. Even FHA loans require home buyers to acknowledge that they have the right to get the home inspected at their cost before closing.

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