When you enter the real estate market, you’ll probably ask the question, “What’s the difference between an appraisal and a home inspection?” You’ll do so because each costs money and certainly wonder why both are needed. You should definitely know the difference between a FHA inspection and home inspection, which are somewhat similar. (This information is easily accessible on the U.S. Department of Housing and Urban Development website.) But, the difference between an appraisal and a home inspection will reveal a few key points.
Difference between an Appraisal and Home Inspection
Before you purchase a home, there’s a lot to know about it. After all, you want to make the right decision so you don’t buy a money pit and the appraisal and home inspection both will play integral roles in your decision. What’s more, the appraisal will also factor into your mortgage lender’s final approval decision. If both processes go well, you’ll be on-track for closing on the house on the agreed settlement date. After all, there are really good reasons not to skip a home inspection.
Home appraisals tell you how much a home is worth, and a home inspection tells you why you might not want to buy it, regardless of price. Both processes have the capacity to derail home purchases. Low appraisals sometimes sink loan approvals and disastrous home inspection reports might cause buyers to rethink purchase offers. —San Francisco Gate
But, if the appraisal or the home inspection don’t support the agreed purchase price or uncover material defects, this will either delay or outright derail the entire transaction. At the very least, it’s a scenario which allows buyers to rescind a home purchase offer. As you can see, both are critical to a successful continuation of the sale of a house. Here are some of the key differences between a home appraisal and a home inspection:
- Purpose of a home appraisal. The singular purpose of a home appraisal is to either support or disapprove of the agreed purchase price. In other words, your mortgage lender will approve or deny your home loan based on the appraisal. Of course, you want the appraisal to value the property higher than the agreed selling price so the lender will approve.
- Purpose of a home inspection. The purpose of a home inspection is to uncover material defects. And material defects are issues which either devalue the home and/or pose health and/or safety concerns. The home inspection will tell you about the overall condition of the house, and whether issues are minor or major.
- Effects of a home appraisal. If a home appraisal values the property under the agreed purchase price, the lender will likely not approve the loan because the collateral isn’t worth enough. However, if the appraisal values the home above the agreed selling price, it’s clear evidence you’re receiving a good deal.
- Effects of a home inspection. The home inspection can have some or a lot of effect on the transaction depending on the situation. If all goes well, the sale will probably go through, but, if the inspection reveals problems, you’ll have to negotiate with the seller about making concessions. If the problems are substantial enough, you can simply rescind your purchase offer and walk away with your earnest money deposit.
If you are ready to buy a home, be sure to schedule a professional home inspection to learn about its true condition. And, work with an experienced real estate professional who knows the Orlando area well. You can contact me at 407-616-7286 or send a quick email.