Home Inspection vs Appraisal: What Each One Actually Does

Two different jobs

Once an offer is accepted, two evaluations usually happen within a few weeks of each other, and buyers often blur them together. It helps to keep them apart:

• The inspection exists primarily to help you understand the physical condition of the home before you commit.
• The appraisal is a valuation, generally used by the lender to confirm that the property supports the loan it is being asked to make.

Neither one replaces the other. An appraisal does not tell you whether the roof leaks, and an inspection does not tell you what the home is worth.

The home inspection

What it is

A home inspection is a visual, non-invasive examination of the property by an inspector you choose and pay for. Its scope depends on the inspector and the service you order; a general home inspection typically covers the structure, roof, exterior, plumbing, electrical, heating and cooling, interior, and installed appliances, noting visible defects and safety concerns. It is not a guarantee that nothing is wrong, and inspectors generally cannot see inside walls or under floors.

Specialised inspections

Depending on the property, the general inspector's findings and your own concerns, you may choose additional inspections. Examples — not a mandatory list — include:

• roof;
• sewer lateral (camera inspection of the line to the street);
• foundation or structural;
• wood-destroying pests and organisms (termite);
• heating, ventilation and air conditioning;
• electrical or plumbing specialists;
• pool and spa equipment;
• chimney, well, septic or drainage where relevant.

Older homes, homes with additions, hillside lots, pools and rural properties are common reasons to go beyond the general inspection. Each adds cost and time, so decide with your deadline in view.

Reading the report

Almost every inspection report lists many items, and most of them are ordinary maintenance. The useful questions are: which findings are safety issues, which are expensive or structural, which need a specialist to evaluate, and which are simply things to budget for after you move in. Attend the inspection if you can — walking the property with the inspector is worth more than the report alone.

Findings do not automatically mean repairs

Discovering a problem does not by itself obligate the seller to fix it or reduce the price. What you can do depends on your contract: with an inspection contingency in place you might ask for repairs or a credit, accept the property as it is, or cancel within the contingency period. The seller may agree, counter or decline. Repair requests are a negotiation, and sellers often prefer a credit to arranging work themselves. Ask before assuming anything.

Deadlines

Your purchase agreement sets the time you have to complete inspections and decide. Missing a deadline can change your rights — including what happens to your deposit — so schedule inspectors as soon as the offer is accepted and keep the calendar in front of you. Sellers' disclosures and any reports they provide are part of the same review; California residential transactions can involve required seller disclosures depending on the property and transaction, and reading them alongside the inspection is part of the job.

The appraisal

What it is

An appraisal is a written opinion of the property's market value prepared by a licensed appraiser. In a financed purchase the lender usually orders it, the buyer usually pays for it as part of the loan costs, and for most home loans you are entitled to receive a copy. The appraiser is independent of the buyer, the seller and the agents; the lender uses the report to judge whether the home supports the loan amount.

What the appraiser does

The appraiser typically visits the property, notes its size, condition, features and any obvious defects, and compares it with recent sales of similar homes nearby, adjusting for differences. Some loan programs also have minimum property condition standards the appraiser reports on. The result is a value as of a specific date.

Possible outcomes

• Value supports the price. The loan proceeds on the terms expected.
• Value is below the price. The lender generally bases the loan on the appraised value rather than the contract price, which can leave a gap between the loan and the price. Depending on your financing and your contract — in particular whether an appraisal contingency is in place — options may include renegotiating the price, paying the difference from your own funds, challenging the appraisal through the lender if there are factual errors, or cancelling. Which of these are available, and by when, is set by the contract.
• Conditions are noted. Some programs may require certain repairs before funding.

What an appraisal is not

An appraisal is not a condition report and does not guarantee the home is sound. It is also an opinion at a point in time, not a promise about future value. Treat it as the lender's check on price, and treat the inspection as your check on condition.

Questions to ask during this stage

• What does the general inspection include, and what is excluded?
• Based on this property, which specialised inspections would you consider, and why?
• Which findings are safety or structural issues, and which are maintenance?
• What are my inspection and appraisal deadlines under the contract, and what happens if I need more time?
• What are my options if the appraisal comes in below the price?
• Can I get a copy of the appraisal, and when?
• Is a repair request or a credit more realistic with this seller?

Common watch-outs

• Scheduling inspections late and running out of contingency time.
• Reading the appraisal as a condition report, or the inspection as a valuation.
• Treating every report item as a negotiating point instead of focusing on what matters.
• Assuming the seller must fix what the inspector found.
• Not asking the lender what a low appraisal would mean for your loan before it happens.

Where Alika fits

Alika can help you decide which inspections make sense for a particular property, coordinate access and scheduling, sit with you through the report and separate the serious from the routine, and handle any repair or credit negotiation with the seller's side. On the appraisal, he can explain what the result means for your contract; what it means for your loan is a conversation with your lender. Structural or engineering questions belong with the relevant specialist. With both stages behind you, closing is next.

If you would rather talk it through than read further, call Alika at (909) 373-7214. A conversation is not an application and commits you to nothing.