Home Inspectors and Home Appraisers are not the Same Thing
Here at Tri-County Home Inspections our inspection services get confused with home appraisals a lot. Our customers will say, "so do you think it will come in at the purchase price?" or "last time I got one of these, the guy showed up, took some pictures, some measurements, and he was done in 30 minutes." FAST Appraisals, a Cleveland Home Appraisal company, recently posted a great summary of the difference between a home inspection and a home appraisal in "I Have a Home Inspection Report, Why Do I Need an Appraisal?"
Five Differences Between Home Appraisal and a Home Inspection
Home inspections and home appraisals are very different. In this post we highlight the five most basic of the differences. Although an inspection and an appraisal are two distinctively different tools for completely different purposes, it is easy to get them confused. Understanding the difference can help you prepare for these various steps of your home buying process. Keep in mind, if you are not getting a loan, but paying for a home with cash or private party funding, you may not need a home appraisal. To understand the difference, read below:
1. Home Inspections Are for the Buyer. Home Appraisals Are for the Lender.
The biggest difference between home inspections and home appraisals are that a home inspection is for the buyer to know the condition of the property while the home appraisal is for the lender, bank or mortgage company to appraise the value of the home - which is the collateral for the loan. Home inspections are about condition while home appraisals determine market value.
2. Home Inspections Are Done Before the Home Appraisal.
Many times the results of a home inspection could change the purchase price. For example, if it's determined during a radon test that radon levels are high or during a septic inspection that a new septic system is needed, the buyers may change their offer. The new offer may require the sellers to pay for the repairs, or lower the offering price. The lender, or mortgage company, has no interest in appraising the home until the purchase agreement is solidified. The purchase price is a critical component of the home appraisal, as it influences market value. So, as you can deduce, home inspection comes first, purchase price is solidified and the mortgage company orders an appraisal to process the loan through underwriting.
3. Home Appraisals Are Mandatory to Get a Mortgage. Home Inspections Are Optional.
Technically, you do not need a home inspection. It is meant to protect the buyer from buying a home with hidden problems that could be expensive to repair. No one is forcing the buyer to get a home inspection. However, unless you're buying a bank-owned property as-is, or otherwise plan on practically gutting the house and doing a huge rehab, it is extremely unwise to waive the home inspection. Home appraisals are mandated by the bank. If there is a loan involved in the purchase of the property, the lender will require a home appraisal. In some cases, if you're putting a lot of money down, a drive-by appraisal, or desktop appraisal may be sufficient.
4. Home Inspections Take 3 Hours. Home Appraisals Take 30 Minutes.
Most of the home appraisal information is pulled from online records and compiled before the appraiser is on-site. Home appraisers are primarily at the subject property for 30 minutes to confirm measurements and take interior photos. The appraisal takes more than 30 minutes when you include the extensive research and adjustments made, but they are really on site for a short time. The purpose of a site-visit is simply to ensure the property is in a similar condition to the comparable sales (or comps) used to derive the market value of the property.
During the home inspection process our home inspectors take three hours or more, depending on the size of the house, to turn on all the faucets, test the appliances, test each electrical outlet, and inspect the home from the roof and attic down to the foundation and crawl space. We open and close windows and doors to make sure they operate and comment on their remaining life. We inspect the heat source and the electrical panel. We check the efficacy of the plumbing - testing water temperature and pressure. Home inspections are an in-depth analysis of the condition of the property - almost exclusively performed at the property.
5. The Buyer Accompanies the Home Inspector. The Home Appraiser Can Work Alone.
This fifth difference between home inspections and home appraisals is relatively obvious after you read the other four. Basically, the buyer goes through the house with the home inspector because it's the home inspector that's guiding the buyer through this deep dive into every aspect of the home and its condition - which will be documented on the home inspection report. This process will help the buyer to get the most intimate view of the home they have just made an offer on. Is it what they expected? Are there unexpected repairs needed sooner than later? Will this change what they want to pay for the property. In contrast, many appraisals are done without physically entering the subject property, so in the case the appraiser does need to do an interior inspection for the lender, it is quick and can be done without the property owner getting involved.