Appraisals and inspections are important aspects of home-buying. Buyers should complete both to protect their financial interests in the property and ensure that they make a wise purchase. Although appraisals and inspections have different purposes, they both provide valuable insight that can help you avoid costly financial mistakes.

What's The Difference Between An Inspection And An Appraisal?

An appraisal is a valuation that determines the home's value, while an inspection evaluates the property's condition.

• Appraisal: 

  An appraises of a walk-through of the home and a general evaluation of it. It's compared with nearby comparable sales to determine its market value. An appraisal determines the property's fair market value—an appraiser licensed to perform the appraisal. An appraiser may visit your home to assess its features and location. However, most of the work is done in their office. Depending on the area you live in and the size of your house, an appraisal typically costs $400.

• Inspection: 

  A home inspection is a more detailed look at the property's condition. An inspector licensed by the state will spend many hours inspecting the house and testing its functionality. The inspector will recommend to the buyer about items that need to be replaced or repaired after the inspection is complete. Depending on the size and location of your home, a home inspection can cost between $250 and $700.

Do lenders Require Appraisals?

Most lenders require appraisals to approve financing. Lenders want their investment to be protected by not financing more than the property's value.

Are Lenders Required To Inspect The Home?

Although conventional lenders don't usually require inspections of the home, they are strongly recommended. Inspections are required for VA and FHA loans.

Are Appraisals and Inspections Required When I Buy A House With Cash?

Many cash buyers will waive the inspection and appraisal even though it is not necessary. For example, home investors and cash buyers may waive an inspection or appraisal if they're selling the house "as-is" or if there are other offers that could be made.

Regardless of the price, an appraisal can help you feel confident that you aren't paying too much for a property. Additionally, inspections can reveal potential costly problems and repair needs.

What Happens During An Appraisal

An appraiser is a licensed professional who evaluates your home in person. He will then give you an estimate of the property's value. The buyer pays for the appraisal, but the lender usually chooses the appraiser.

Appraisals are typical $400 but may cost more or less depending on the size of your home and where it is located. Appraisals take about an hour to complete. The appraiser will then return with the final report at their office.

1. Assessment Of Your Property:

   The appraiser will inspect the house and take note of its condition, finishes, and location. It is a bit like a light inspection.

2. Comparison Of Similar Sales:

   The appraiser will use their findings from the walk-through to determine similar properties that have recently sold in the area. This will allow them to determine a fair market price.

3. Final Report:

   An appraiser will provide a report detailing the fair market value of your home. This report may include photos or descriptions of similar sales. The report will be sent to the buyer and lender in most cases. Although the seller can request a copy, you are not required by law to share it.

In ideal cases, the appraisal will be higher than the agreed-upon sale price. This means that the appraiser is estimating the fair market value of the loan and will approve it.

What Happens If The Appraisal Is Low?

Low appraisals are often referred to as an appraisal that comes in below the agreed-upon selling price. Low appraisals can affect your ability to obtain the loan that you have been pre-approved for. This can cause a headache to buyers.

There are two reasons why low appraisals may occur:

• Multiple buyers can drive the price above market value by entering into bidding wars.

• It is difficult to find comparables that can be used as a base for the home's value.

• The high season is late spring, and there are no comparables from other times of the year.

• The appraiser is inexperienced.

Buyers using financing have several options to get around a low appraisal:

1. Contest the appraisal:

   Contact your lender to point out any errors or glaring problems in the appraisal report and request a new one.

2. Pay the difference:

   You can either pay cash or ask your lender if it is possible to restructure your financing.

3. Ask the seller to reduce the price:

   If your appraisal is accurate and the home's value is lower than you are offering, then you might not want the house to be overpriced. You can avoid being forced to back out by asking the seller for price reductions. The appraisal report is proof that the home is too expensive.

What You Can Expect From A Home Inspector

After the contract has been signed, you will want to schedule a home inspection. Buyers may hire an inspector before making an offer in low-inventory areas. You can choose a home inspector that you feel comfortable with. Most people ask their agent for recommendations, seek out referrals from family and friends, or look online for reviews.

A home inspection can take between three to four hours, depending on how detailed the report is. Your inspector will not only inspect the house but also test its functionality.

• Plumbing

• Roof condition

• HVAC

• Foundation

• Appliances

• Drainage

• Water damage and mold

A home inspection might not uncover every issue, especially if the issues are seasonal or hidden. Therefore, buyers should discuss exclusions with their licensed home inspector before and during the inspection.

• The inspector will attend the inspection:

  In most cases, both the buyer and their agent will attend. This will allow you to have your inspector present to you in real-time and allow you to learn about the house's systems before you move.

• What happens next: 

  Your inspector will submit a written report detailing their findings and including photos.

Buyers Can Have Special Inspections

Your inspector will inspect the main systems and features of your home. However, if there are any issues, they may recommend a second inspection.

• Radon

• Pests

• Septic

• Lead paint

Why Home Inspections Are So Important

A home inspection costs only a few hundred dollars. It is worth it to ensure that your home is free from major, costly problems.

• The risk of not having an inspection: 

  Although some buyers waive the inspection condition to make their offer stronger, it means that they are essentially purchasing the home "as is." Any issues found after closing will be 100% the responsibility of the buyer.

• Why disclosures don't suffice: 

  Most states require sellers to disclose any underlying issues they know about in the house. State disclosure requirements differ. Although disclosures can be valuable protection, they are only applicable to the seller's unresolved issues. There are specific requirements for each state. A home inspection is the best way to discover any potential problems in the house.

What Are The Similarities Between Home Inspections and appraisals?

Although they require the services of two professionals and have two processes, appraisals, as well as inspections, share some similarities.

Licensees Can Be Inspectors And Appraisers

Both roles require extensive training and licenses. Both inspectors and appraisers are impartial third parties who are paid to give their professional opinions.

Buyers Pay Both Appraisals And Inspections

The buyer usually selects the home inspector that they wish to work with, and the lender chooses the appraiser. Unless otherwise agreed, the buyer pays both the inspector as well as the appraiser.

Both Appraisal And Inspection Take Place During Escrow

The home inspection is usually completed within one week of your offer being accepted. This allows you time to resolve any issues or negotiate with the seller. Also, the appraisal is usually done during the escrow period. Therefore, it happens about a week before closing.

Negotiations Are Possible Based On Appraisal And Inspection Results

If you have included contingencies for the inspection and appraisal in your offer, you will be allowed to renegotiate it based on the findings. If you receive a low appraisal, you can renegotiate your offer with the seller to make up the difference between the appraised and the offer prices. If the inspection report reveals significant repairs, you have the right to request credit or repairs. You won't lose your earnest money.