With all the real estate terminology thrown into every conversation during your path to homeownership, it can be easy to confuse similar terms. One such pair is appraisal and inspection. The simple answer is an appraisal is simply a professional evaluation of the home’s market value, while an inspection assesses the home’s condition before an appraisal occurs. Below is a detailed description of each for a clear understanding.
There are several reasons for an appraisal, including refinancing, listing for sale, or as part of the purchase process. Lenders want to ensure funds you’re borrowing are not more than the home is worth. The appraiser will walk through the home to verify the number of rooms, bathrooms, and living areas. Likewise, they will look at the basic information like the furnace and fireplace and then a complete review of the house’s exterior. The appraiser takes all this information, analyzes the data, and then reports it to the client (lender, homeowner, or realtor).
The current seller’s market appraisals balance what homes are worth and what seller’s set their sights on for initial listing prices. Unfortunately, with the low inventory currently occurring in the market, prices continue to tick upward. If your appraisal doesn’t justify your buying price, discussing it with your real estate agent will help you with your next move.
As stated earlier, a home inspection is all about the condition of the home. Additionally, it’s about the safety and quality of the home. Everything is looked at for the age and condition, including the furnace, air conditioning, attic space or crawl space, and the roof. The inspector will provide a formal report with any potential issues or future concerns.
When problems are discovered, it provides you the opportunity to negotiate further for repairs or an allowance in the purchase price. To navigate the post-inspection negotiation, your real estate agent will provide the best guidance from the terms of a reasonable negotiation to deciding to walk away and find another home.
Which is First?
Generally, the inspection will occur a week or so before the appraisal. This provides you, as the potential buyer, an opportunity to consider any concerns. Once the appraisal is complete, the report goes to the lender, and if the purchase price is at or under the appraised value, the loan will be approved. Then you can start moving plans before closing when you’ll be handed the keys to your new home!