What is the difference between a home appraisal and a home inspection in a real estate transaction? Working with quite a few sellers new to the process of selling a home in Iowa City this year I’ve had this question come up more than once. To answer the question the simplest thing is to start at the beginning and to explain the purpose of both of them.
What is a Home Inspection?
A Home Inspection is done by a certified home inspector who typically inspects a home for home buyers for their protection. He’s looking for potential problems with the house. The home inspection for an average sized house lasts around 3 hours, so as you can imagine the inspector does a very thorough job of inspecting the house in detail from top to bottom. When he’s finished his inspection he’ll provide the buyers with a detailed report that will include items that need to be repaired. The purpose of the home inspection is to give the buyers peace of mind that when they buy the house that there will be no nasty surprises when they move in that end up costing them a lot of money.
What is an Appraisal?
The Home Appraisal is done by a certified appraiser and his goal is to establish the value of the house. In the majority of home sales, at least when there is a mortgage involved, the appraisal is ordered by the lender to make sure the property is worth the purchase price agreed upon by the buyer and seller. Lenders need this opinion of value from the appraiser before they will issue a financing commitment to the buyer. When an appraiser sets up a time to visit a home, it’s more of a visual inspection. Time spent at the home is typically quite short, around half an hour for an average sized home. The appraiser is not looking for things that need to be repaired. He’s more interested in general condition and any updates. He will compare the house to other recent sales and provide a written report to the lender. The buyer will also get a copy, since although it’s a lender requirement it will be the buyer who pays for the appraisal.
That’s it in a nutshell. The home inspection is done for the buyers and is for their protection. The appraisal is done for the lender and is for their protection. Lenders are no happier about lending money for a house that doesn’t appraise at the purchase price than buyers who find out at the inspection that the house needs a new roof! Both serve a very good, but very different purpose.