Inspections and Appraisals

Posted at 7:16 AM, Jul. 7, 2006

Inspection vs. appraisal – How do they differ?

An appraisal is a formal assessment of the value of a home or property, required by a lender. The lender wants to make sure the loan amount doesn't exceed the value of the property being sold, and that the loan to value approved by the underwriter is in line. The appraisal may be ‘full blown’ meaning that the appraiser goes inside, makes photos, measures rooms and checks for interior condition. A ‘drive by’ may suffice if the buyer has a large down payment, and/or if the buyer’s credit is excellent. The lender may also get an online property value report, which uses recent neighborhood sales, and gives an average sales price.

An inspection, on the other hand, is an assessment of a home's systems and structure, and it is designed to find any hidden problems with the home. The buyer normally makes an inspection a condition of the sale, then pays for the inspector to deliver a full report. A home inspector usually requires payment from the buyer at the time of the inspection. The inspection usually takes 2-3 hours, as the inspector crawls in the attic and under the house, as well as inspecting all appliances to be included with the sale, and the interior structure. A buyer should go to their home inspection, as this is a great opportunity to learn about his/her new home!

A new home also needs an inspection. True, the builder usually gives a warranty, and comes back during the first year or so to fix any problems. But an inspection will reveal any irritating situations (like low water pressure or a shower head which is not attached correctly) that may take a few days for the builder to correct. Things are sometimes left undone, because a particular employee starts a job, for instance, then takes a day off, and no one remembers to go back and finish what he started.

Real estate agents don't formally appraise your property, but rather provide a comparable market analysis (CMA), which can give you a good idea of what your home is currently worth based on recent sales in your neighborhood and surrounding neighborhoods.  An appraiser is going to look at the same data that Realtors® and sellers look at, to come up with the appraised value.

A seller and Realtor® should price the property reasonably, for the market, to ensure that the property "appraises."   Buyers usually have looked at several properties before they submit an offer, and know if a property is overpriced.  No one wants to overpay for a property.