Owning a home is about more than just having a place to rest your head at night—it’s also one of the most important pieces of your financial portfolio.
Both home appraisals and inspections can help you be certain you’re making a wise investment, but there are some important differences.
It’s also helpful to know about things that aren’t covered by either the appraisal or the inspection so you can do your own due diligence before signing final home loan documentation.
What’s the difference?
Both home appraisals and home inspections are completed by licensed professionals, and they’re done on behalf of you—the buyer. However, a home inspection looks at the condition of the home while an appraisal checks the value of the home.
The real estate purchase contract (REPC) signed by you and the seller will most commonly include a home inspection contingency and an appraisal contingency (both of which protect your rights as a buyer). Your real estate agent can explain the details.
All about appraisals
Appraisals are generally required any time you buy a home with a loan, and for good reason: they make sure you (and your lender) are getting their money’s worth on the property.
Typically, your lender will order an appraisal as part of the home loan process, and you’ll pay a few hundred dollars. The appraiser will work with the seller to find a time they can stop by for a visual inspection. During that visit, they’ll take measurements and snap photos.
Next, the appraiser will do an analysis of the home by comparing it with similar properties in the area (comparables) that have sold recently. They’ll consider home features, age, location, the number of bedrooms and bathrooms, and several other criteria to come up with a final appraised value. Then, they'll send their final report to you and your lender (but not usually the seller).
If the final figure comes in at the agreed home price or higher, you will be able to proceed with the loan. In a low appraisal situation, however, you'll need to schedule a phone call with your homebuying team right away. They may be able to find a solution such as getting the seller to lower the price or helping you come up with more down payment cash so your loan amount stays within the appraised value.
If you're refinancing your home loan, you may be able to skip the appraisal. Your loan officer will help you understand all your options.
All about inspections
A home inspection is a wonderful thing—it helps uncover any major problems before you finalize a transaction. These are usually scheduled by you, the buyer, and can cost another few hundred dollars. Often, your agent will have a list of trusted inspectors on hand.
Generally, you’ll make an appointment at a time that works for you, for the seller, and for the home inspector. The inspector will complete a comprehensive visual review of the home and test major systems, including basic plumbing, HVAC, electrical, and drainage. They'll also evaluate the condition of the foundation and check the roof with binoculars (though they probably won’t climb up there for a thorough check).
You’ll get a final inspection report, and you can use it to negotiate with the seller. It’s also a good idea to hold on to a copy and use it as a to-do list of repairs once you take ownership.
What’s not included in the inspection
It’s not required, but it’s a good idea to attend the inspection yourself. That’s because the inspector will only be at the home for a few hours, won't check everything, and won’t have specialty knowledge about all a home’s systems.
Here’s a quick list of things to check yourself:
- Pest problems: Your inspector won’t be looking for spiders, wasps, or critters in the attic.
- Unattached structures: If there are sheds or other structures on the property that aren’t connected to the home, they aren’t your inspector’s responsibility.
- Pools and hot tubs: These features aren’t standard home inspection items, but you may want to hire an expert to take a look.
- Plumbing: While your inspector will make sure the toilets flush and faucets turn on, they won’t check sewage or septic tanks and won’t do a particularly thorough review of drains.
- Appliances: While the inspector will check whether built-in appliances turn on, they won’t make sure every single button works, won’t check pilot lights and stovetop burners, and probably won’t examine microwaves or central vacs.
- Fireplaces and chimneys: These are outside the purview of a standard home inspection, but it may be possible to pay extra to have your inspector take a closer look.
- Creaky floors: These may not be a safety hazard, but they can be pretty annoying. Step on every step and walk down every hallway to find out if squeaks will be a bother.
- Smoke and funky smells: Your inspector won’t check for leftover aromas from cigarette smoke or pets, and they won’t check air quality.
- Insulation: Your inspector will check interior and exterior walls, but not the spaces between them.
- Electrical: Your inspector will make sure existing outlets work and are appropriate for their setting (kitchen and bathroom outlets require special outlets), but they won’t check to see if the number of outlets is adequate for your needs, and they won't dig into walls to check for wiring issues.
When to call in the pros
Some health and safety items aren’t covered by the home inspection, but they may still be worth getting checked out. These include some of the items mentioned above, such as the functionality of a septic tank. You can also get extra inspections for:
- Lead paint
- Air quality
- Radon gas
- Meth residue
- Potential geological issues
Your real estate agent can help you figure out whether you need these extra inspections and, if you do, help you find professionals you can trust.
The real value of inspections and appraisals
Both inspections and appraisals can help you be confident you’re making a good investment, and both may be required (depending on your loan type). Either way, the hundreds of dollars you pay at this stage could save you tens of thousands in repairs later on.
Whether you’re just starting to think about buying a home or you’ve already found a place you love, your loan officer can answer all your questions and help keep your home loan process in motion every step of the way.