Are you wondering about the difference between an appraisal versus home inspection? While one is designed to reveal how much money a home is worth, the purpose of the other is to discover any potential flaws and defects within the house prior to a sale.
The Difference
An appraisal does not take the place of a home inspection, just like an inspection does not take the place of an appraisal. Each one is designed for very specific purposes and one cannot replace the other.
Home Appraisal
A home appraisal reveals the value of a home. Appraisals are usually ordered by lenders to make sure that a home is actually worth the amount of money it is being purchased for. Lenders want to make sure that they are not lending more than the home is actually worth because this will result in a negative equity situation, which is not something that residential mortgage lenders generally do unless they specialize in subprime lending.
Appraisals are also conducted by county governments in order to estimate the value of a home for the purposes of charging real estate taxes. A tax appraisal is not the same as a regular appraisal since tax appraisals rarely match the amount of money a home can actually sell for.
An appraisal does not reveal problems with the home that need to be repaired.
Home Inspection
A home inspection is designed to reveal any potential problems with a home. Sellers sometimes commission inspections prior to putting a home up for sale in order to find out what needs to be fixed before selling the home, or at least to find out what potential buyers will probably demand to be fixed as part of submitting the bid for purchase. Buyers also request inspections in order to make sure that the home they intend to buy is without any major problems.
Mortgage guarantors, such as The Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), require inspections on all homes purchased using a guarantee because these organizations have strict guidelines as to what is acceptable in a home for purchase. Homes that do not pass these inspections will not receive funding by the guarantor unless the problems are repaired.
Home inspections do not estimate the value of a home.
Appraisal Versus Home Inspection Explained
The best case scenario for a home purchase involves a comprehensive inspection as well as appraisal, both conducted by experienced professionals. Buyers can usually decide whether or not to have an inspection conducted on a home, but appraisals are almost always required by lenders. Just because inspections are optional, however, does not mean that this important step should be skipped.
Why are both so important? Buyers need to make sure that they are purchasing a home that is free from major defects or potential problems that will need to be addressed in the near future, but they also need to make sure that the home they buy is worth what they are paying. After all, a home can be free from major defects yet not worth the amount it is being offered for on the real estate market. It is also important to note that it is not enough to rely on an FHA or VA inspection because these inspections are only to look for items required for regulations specific to these organizations, and not comprehensive to cover everything.
Although appraisals versus home inspections are very different, both are quite important when purchasing a home. Even if a home is brand new, both an inspection and appraisal should be conducted. Find out how much a home is worth by commissioning an appraisal and find out if a home is free from major flaws and defects that have not been disclosed by the seller by commissioning an inspection. The two are different, but equally important.
