An appraisal is an important step in the home buying process. Basically, an appraisal is a professional evaluation of the market value of the home you’d like to purchase. Appraisals are ordered by the lender to confirm or verify the value of the home prior to lending a buyer money for the purchase. On the other hand, a home inspection is different from an appraisal. How so? Home inspections assess the condition of the home before the transaction is finalized.
Let’s take a closer look at the two and find out why a home appraisal and a home inspection is needed.
What is a Home Appraisal?
The National Association of Realtors (NAR) explains:
“A home purchase is typically the largest investment someone will make. Protect yourself by getting your investment appraised! An appraiser will observe the property, analyze the data, and report their findings to their client. For the typical home purchase transaction, the lender usually orders the appraisal to assist in the lender’s decision to provide funds for a mortgage.”
An appraisal is required by the lender. When you apply for a mortgage, an unbiased appraisal is the best way to confirm the value of the home based on the sales price. Regardless of what you’re willing to pay for a house, if you’ll be using a mortgage to fund your purchase, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.
In today’s sellers’ market having an appraisal is extremely important especially when low inventory is driving an increase in bidding wars which can increase home prices. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more.
Lenders will only allow the buyer to borrow based on the value of the home. All in all, this is what helps keep home prices fair. If there’s every any discrepancy between the appraisal and the sale price of the home, your Real Estate Agent can help you navigate any additional negotiations.
What is a Home Inspection?
Here’s the key difference between an appraisal and an inspection. MSN explains:
“In simplest terms, a home appraisal determines the value of a home, while a home inspection determines the condition of a home.”
With a home inspection, one can determine the current state, safety, and condition of the home before the sale is made. If anything is questionable in the inspection process – like the age of the roof, the state of the HVAC system, or just about anything else – you as a buyer have the option to discuss and negotiate any potential issues or repairs with the seller before the transaction is final. Your Real Estate Agent can help you through this part of the process as well.
In a recent blog on 'What Should You Expect From a Home Inspection', find out how to choose an inspector, what you should expect during the inspection and learn about the things the inspector will review.
Bottom Line
The appraisal and the inspection are critical steps when buying a home, and you don’t need to manage them by yourself.
Have questions? Reach out to us today and we’ll give you the expert guidance you deserve to navigate through the entire home buying process.
