Often before a property is purchased using a loan from a mortgage company, it must be appraised and inspected. Many homeowners confuse the appraisal inspection and the home inspection and ask me what the difference is. Here are some of the main ways that appraisals and home inspections are different and also overlap.
Different End Goals: Value vs. Condition
The main thing to know is a real estate appraiser’s focus is on determining the value of the home and those factors that will influence that value. A Home Inspector’s main objective is determining the condition. The Home Inspector is tasked with determining the condition of the property in terms of structural soundness and quality/safety of electrical and plumbing systems. The Home Inspector has an obligation to be accurate in their assessment of a home’s condition but they also act as advocates for the buyer. Their job is to point out any deficiencies with the house such as outdated/unsafe wiring or obvious problems with the foundation so that their client (the buyer) can make an informed decision about whether to purchase the house, negotiate a lower contract price, or just walk away all together. See the graphic below for many of the items a home inspector will be looking at (Source: www.gqre.com).
While an appraiser’s inspection of the property may take into consideration many of the things a Home Inspector looks at, his/her ultimate goal is to provide an opinion of value. The appraiser’s job is to provide their client (the lender) an accurate, well-supported, unbiased opinion of value. This usually includes commentary on the condition of the property since that is tied to value. For example, a 1960’s ranch home in original condition will most likely have a lower value than a 1960’s ranch home in the same neighborhood that has an updated kitchen and bathrooms. The appraiser’s job is to give the bank their opinion of market value (I go into this in more detail on a prior post - Market Value: Probable vs. Possible) which helps them determine if the mortgage be a good, sound investment for the bank.
Appraisal Inspection vs. Home Inspection
So how will you tell the Appraiser and the Home Inspector apart when they come to your home? Probably they’ll introduce themselves as either the Appraiser or the Home Inspector. Just kidding!
The appraiser’s site visit will usually take around 30 minutes and they will measure your house and look at all of the rooms including the basement. They will be noting the quality and condition of the finishes, the layout, bed and bath count, etc. They will take pictures of each room to include in the appraisal report. In some cases, like for an FHA loan, the appraiser may inspect crawl spaces and attics or test the basic appliances. But he’s probably not going to crawl under the house to inspect the foundation or get on your roof and walk around looking for leaks.
Appraisers try to look at the property through the eyes of the most probable buyer for that particular property – not only which features and attributes they find desirable, but also to what extent would the typical buyers be “inspecting” the home? A more simplified way to look at it is to ask yourself: “If I were looking to purchase this house, what are the things I would look at and what things would I hire someone with professional experience to check?” You may open a cabinet or two, look at the ceilings for leaks, take a look at the mechanicals to see if they are newer or may need replaced soon. But in my experience, very few buyers will be going into crawl spaces and bringing their ladders to get on the roof. They are mainly interested in the functionality of the house such as how many bedroom and bathrooms, whether they like the layout of the floorplan, etc. Here is a great video from a Portland appraiser, Gary Kristensen, that shows you what you can expect when an appraiser visits.
A Home Inspector will really get into the bones of the home. They will get on the roof, get into the crawl space, and analyze the structural integrity. A good Home Inspector will be able to find possible issues that the Appraiser may not such as termites, faulty electrical wiring, plumbing that is not up to code, structural issues, leaky roof, mold, etc. Now that I’ve scared you with all the things that could be wrong with a house you’re looking to purchase (!), I highly recommend that if you are buying a home you hire a licensed Home Inspector to complete a full home inspection because they will be able to tell you things about the home that the typical appraiser is not going to. If you don’t know a good home inspector in Chicagoland, we recommend Inspectrum. Click here for their website and contact info.