Both appraisals and inspections are important steps in the home-buying process. You’ll likely want to conduct both evaluations to ensure that you find the perfect home for your needs at a fair market value. Here’s everything you need to know about home inspections and appraisals.
What is the Difference Between an Appraisal and an Inspection?
Appraisals and inspections both evaluate a home, but there are several key differences. Both processes evaluate different aspects of the house. An appraisal process is used to determine the value of a home while an inspection is a review of the home’s condition.
Appraisals can be done without the buyer’s or the seller’s presence. A final appraisal is sent to the hiring party, usually, the buyer or the lender, to be reviewed. Conversely, the home buyer is often present for the home inspection process. The inspector will need to explain their findings of what needs repairs and where.
What is an Appraisal?
Real estate appraisals use information about the home’s location, size, comparable sales in the area, features, and more to determine what the house is worth. Appraisals consider the following information.
- Location
- Other comparable home sales
- Lot size
- Square footage
- Number of bedrooms
- Amount of storage space
- Overall condition of the home
What is an Inspection?
Inspections evaluate the houses’ plumbing, electric, and other systems to ensure that everything is working correctly. It considers what elements of the home need to be repaired or replaced before it should be sold or purchased. Inspections assure the buyer that the house has no major issues and is in good condition to live in.
The main elements of a home inspection are as follows.
- Structural stability
- Roof is in good condition
- Electrical system
- Plumbing system
- Water system
- HVAC (heating and air conditioning systems)
- No pest or bug infestations
- Chimney inspection
- Mold inspection
When is an Appraisal Required?
Sometimes, appraisals are required when purchasing a home. Many lenders require an appraisal to approve financing. Without an appraisal, it might be difficult to secure a home loan.
Even if your lender does not require appraisals, you should still consider conducting one. Appraisals are a good indicator of how much you should be paying for the property. Knowing what the home is actually worth can prevent you from overpaying.
When is a Home Inspection Required?
A home inspection should be done before purchasing a home. You’ll want someone to check that no major repairs need to be done that will drive up costs. Lenders strongly recommend conducting a home inspection, but they are not usually required.
However, government-backed loans do require an inspection. If you are using an FHA or a VA loan, be prepared to conduct a home inspection to qualify for your loan.
Although home inspections are not always required, they are important. Consider hiring a home inspector to ensure there are no major problems with your prospective property.
Appraisal And Inspection Costs
The cost for an appraisal and inspection will vary depending on the size of your home and its location. Generally, appraisals cost about $300 to $400 and inspections cost between $250 and $700. The costs for home appraisals and inspections are usually paid by the buyer.
How to Prepare for Appraisals and Inspections as a Seller
Sellers should expect appraisals and inspections as part of the home selling process. They usually occur after the seller accepts a buyer’s offer but before the deal closes. As a seller, there’s not much to be done to aid the process, but there are some ways to prepare.
Preparing for an Appraisal
For an appraisal, you’ll want to showcase your house’s worth. Have the paperwork for any recent repairs and upgrades ready. You’ll also want to ensure that the house is clean. An unkempt or messy house can give a negative first impression to the appraiser.
Clean up the interior and exterior of the home in anticipation of a walk-through. Completing some small cosmetic upgrades can also work in your favor. Consider adding a fresh coat of paint or updating your landscaping.
Preparing for an Inspection
Also, remember to be prepared for an inspection. First, you should consider conducting any minor repairs that you know need to be done. These will likely come up in the inspection report anyway, so making small fixes in advance will help ensure a fast and smooth process.
Have paperwork ready for your latest repairs and renovations for the inspector. The inspector might also need access to an attic or crawlspace, so make sure that these spaces are easy to access and free from obstructive clutter.
What Happens If A Home Inspector Finds Serious Problems?
Serious problems that come to light from a home inspection can cause a deal to fall through. Most likely, the buyer will either require the issue to be fixed before the sale can close. If the seller does not fix the problems, the buyer may back out entirely. Either way, you’ll need to address the issue before you’ll be able to sell your house.
What Happens if the Appraisal Is Low?
The price of a house is determined by more than the value of a house. Several things can drive up the sale price. Bidding between other potential buyers and the time of year can impact how much a buyer is willing to pay. If the appraiser comes back with a figure lower than what you’ve agreed to pay, there are several things you can do.
Conduct a New Appraisal
If you disagree with the appraisal, you can contest it. You can hire a new apprised. When the appraisal is done through a lender, you’ll need to contact them to request a new appraisal. Read through the appraisal report and be ready to reiterate any inconsistencies or errors you find.
Refinance or Pay the Difference
You can still buy the home after a low appraisal. The first option to do so is to refinance. Contact the lender to see what terms they’d be willing to offer to secure a larger loan.
You also have the option to pay the difference between the loan offer and the closing price. The lender may only offer a loan for the appraisal worth, so you’ll need to pay the difference yourself.
Negotiate With the Seller
A low appraisal can give you some room to renegotiate the price of the home. See if the new information will encourage the seller to lower the price. They may prefer a lower payout than having you back out of the deal completely. However, if they have other offers they may be willing to discuss a price reduction.
Final Thoughts
Even if your lender does not require an appraisal or inspection, or you are buying without a lender, you should still conduct both audits. They are necessary costs to prevent you from purchasing a home above market value or buying a house with major issues.
Conducting an inspection will give you the reassurance that there is nothing fundamentally, structurally, or otherwise significantly wrong with the house. Any issues that do come up from an inspection will often become the seller’s responsibility to repair. This will help prevent any expensive or unexpected repairs down the line.
Appraisal prevents you from overpaying for a property. They also ensure that you will pay the appropriate amount of property taxes for the value of the home.
Purchasing real estate is a big decision, so make you have all the information to make the best choice.
Looking for more information? Call us at 602-908-5849 to see how we can help.
