Appraisal and homeowners inspection: what’s the difference?

When you buy a product or a service you always want to know what you’re buying and that it is of good quality. For everyday items like food, clothing and household goods if something isn’t the quality that you expect you can simply return it to the retailer or throw the items out and chalk it up to a learning experience. However, when purchasing a home there is no return policy and the only way to dispose of a bad purchase is to re-sell it, which comes with it’s own lengthy process and headache. So it’s important to understand what you’re buying when you invest in a home, and what the current condition is of that home.

To best protect yourself and your investment it’s best to get a home inspection, completed by a certified, trusted professional. Your home inspector is there as your advisor so you understand the condition of the home that you’re purchasing and can point out potential maintenance pitfalls or items that are not working as intended, which could greatly impact your quality of life while living in a home AND your checkbook due to the possibility of hefty repair bills.

If you’re taking out a mortgage to finance your purchase, your lender sends out their own inspector, which is known more formally as an appraisal. The appraiser will set up a time to walk through the home, but their reasoning for being there, the items they’re concerned with, and the report they furnish to the bank are much different. The appraiser is most concerned with whether or not a home’s value within the marketplace warrants the loan that the mortgage lender is about to extend on the property. If a buyer defaults on their mortgage, the lender forecloses on the home, which is then sold to cover the debt. Therefore, the lender wouldn’t want to lend $500,000 on a home that is only worth $200,000. That represents significant risk to the lender, so they hire a 3rd party professional to assess the value of the home prior to writing the mortgage.

Therefore, a home inspector is working on behalf of the buyer to understand the condition of a home and give the buyer insight into aspects of the home such as: electrical and plumbing systems, air heating and cooling systems, and structural integrity of the home.

Meanwhile, the appraiser is working on behalf of the bank to understand the overall value of a home, so if the bank must take possession to satisfy the buyer’s debt, that the home will have enough re-sale value to cover the unpaid portion of the mortgage debt.

If your lender assures you that there’s no need for you to purchase a home inspection, ask them the extent of their inspection and if you can see the style and format of the report they’ll be producing. More likely than not, it’s an appraisal and not an inspection aimed at protecting the buyer’s interests. So get your own professional to look out for YOU and your interests. Please get a home inspection 🙂

 

Inspection v appraisal chart

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