A house is the largest investment most people will make. In order for that investment to succeed, a few things must fall into place. If they don’t, the new homeowner will be living in a money pit, and that’s every homeowner’s nightmare.
Part of the loan process is getting a home appraisal and a home inspection. You might be wondering, “aren’t they the same thing?”. The answer is that they’re vastly different, serving two different purposes. Here’s what they are.
A Home Appraisal’s Role In Home Ownership
Although the words appraise and inspect mean to assess if something or someone comes up to a certain standard, they aren’t the same when it comes to a house. You’ll get an appraisal before you’ll get an inspection. This will tell lenders one of the main things about the house.
A licensed appraiser will walk through the house. He will take note of the condition of the house and its appliances. He will note upgrades like new doors and windows, new flooring and lighting, and new appliances. He’s looking for the fair market value of the house.
The appraiser will take pictures before he returns to his office to make his report. He will compare the house under consideration with other houses in the area in his report. Typically, appraisals cost around $400 and are paid at closing by the buyer.
A Home Inspection’s Role in Homeownership
If an appraisal tells lenders the fair market value of the house, then the inspection tells them the actual condition of the house. Buyers might not necessarily need an appraisal, although it’s a good idea. They need an inspection.
Lenders require a home inspection before making a home loan. An inspection covers the condition of the roof, foundation, drainage system, plumbing, wiring, appliances, water damages, mold, and HVAC. The inspector will test each item or system for functionality.
Also recommended is a separate inspection covering special considerations such as:
- Pest infestations
- Lead in the paint
- Asbestos if it’s an older house
- Check the septic system
The buyer and his real estate agent usually attend the inspection. This allows the potential buyer to see how the house functions in real time along with any causes for concern before moving in.
Importance of a Home Inspection
Most home buyers don’t have much more money than they laid down for a deposit and closing costs. They certainly won’t be able to replace the roof or jack up the house to fix the foundation right after the sale. This would only happen if a buyer waived the inspection.
This means the buyer is buying the house as is. Anything that happens after the ink is dry is on the buyer. In most states these things would be covered in a disclosure. However, disclosures only cover of what the seller is aware in issues that need repair. There might be more the seller doesn’t know about.
The ultimate purpose of the appraisal and inspection is time. These usually occur when the sale is in escrow. This gives everyone time to negotiate sales price if the appraisal came back too low. It gives them time to repair anything found wanting. It gives buyers time to back out altogether if there are simply too many problems.