Home Sense You Can Use: Inspections Vs. Appraisals

Homeowners and investors know a lot about property ownership and maintenance, but sometimes they have muddled ideas about the differences between appraisals and inspections. To many of them, the two are synonymous. In reality, however, they’re extremely unique processes and they’re used for very specific purposes. For starters, home inspections are optional while appraisals are not.

Home inspections look out for the occupants of the home by spot issues that could make living conditions unsafe or simply just lower the quality of life. Appraisals, meanwhile, are meant to protect the mortgage lenders by certifying the monetary value of the property.

What Is a Home Inspection?

Home inspections are optional because of the fact that their main purpose is to simply evaluate the structural condition of the property. Inspectors typically look at the home more in depth than appraisers do, peering at everything from the foundations and downspouts to roofing and plumbing. The process is designed to reveal possible weaknesses in the structure so that the potential buyer can make a more educated purchase.

Unlike appraisers who ultimately determine the market value of the home, inspectors create a report detailing the overall condition. The average home inspection report typically includes information pertaining to these often-overlooked things:

  • HVAC
  • Electrical
  • Plumbing
  • Drainage
  • Sewage
  • Ventilation
  • Structural problems
  • Radon, carbon monoxide, radiation, etc.

In most cases, inspections will include referrals to industry professionals in any serious issues are noticed. Advisors will recommend affordable structural engineers, contractors, plumbers and/or electricians if needed.

What Is a Home Appraisal?

Home appraisals are usually required by the mortgage lender because an appraiser’s primary concern is creating a fair and evidence-based valuation of the property for underwriting purposes. Appraisers will evaluate the various components of the home which pertain to its overall aesthetic condition, including its features and amenities. Usually, the ultimately determined valuation of the property is based on similar properties in the geographical or demographical area.

Unlike inspections, appraisals are often made mandatory by the mortgage provider, and uses a professional who know what most lenders look for when they’re considering a loan applicant. Before a bank can approve a mortgage, they have to know what the property is worth. That’s what an appraiser’s primary job is all about.

stucco home in a nice neighborhood

4 Factors Examined During a Routine Home Appraisal

Appraisers often look at similar things on a property, but they do it for very different reasons. The following four factors are routinely considered during the average home appraisal for the purposes of determining the market value of the house:

1. Comparable Properties in the Area

As a general rule, appraisers begin the process by looking at the sales prices of similar homes in the neighborhood. This helps them determine a fair market value of the home they’re appraising. If properties in the area with similar features are selling at a specific price point, then the trend will directly affect the final assessed value of house in question.

2. The Physical Attributes of the Home

The physical features of a home are carefully inspected by an appraiser, which may account for some of the confusion between the two processes. Things like square footage, age, bedroom and/or bathroom count, location, lot size and condition, and community views are all considered during a routine appraisal to determine the home’s overall monetary value. Structures such as pools, garages, pole barns, sprinkler systems, fencing, and security equipment are also examined at this time because their presence and condition can directly affect the asking price of the property.

3. The Quality of the Structure

Properly trained appraisers will also look at the overall quality of the home, paying special attention to things like the foundation, siding, roofing and guttering. Usually, the expert looks for any cracks, leaks, code violations or damages that might affect the overall value of the property. Furthermore, special attention is often paid to the quality of the building materials used. The higher the quality of the materials, the higher the value of the home.

4. The Condition of the Interior

Appraisers will end the process by examining the interior components of the property, namely the materials and structures left behind when the home is unoccupied – floors, walls, windows, doors, major appliances, heating and cooling systems, lighting, etc. If it’s a permanent part of the home, it gets added or subtracted to the value of the house. Remodels and upgrades will fetch a higher asking price, but homes that need a little TLC will usually sell for a much more affordable price.

Final Thoughts

When purchasing a new home or investing in a DYI property, don’t forget to use your community’s resources. While inspections and appraisals are different real estate processes with very prioritized outcomes, they’re both an important part of the home-buying journey. Talk to your mortgage lender for more information or to get recommendations on the best industry professionals.