When you apply for a mortgage, you’ll likely hear the lender throw around a couple of different words including appraisal and inspection. They sound like they could be one in the same, right? Wouldn’t an appraiser ‘inspect’ the house?
In reality, the appraiser’s job is to determine the market value of the house. This allows the lender to determine if there is enough collateral based on the loan amount you requested. While the appraiser looks at the basic functioning of the house as it pertains to the value, he doesn’t inspect the home, as an inspector would do. In fact, lenders require appraisals, but they very rarely require inspections.
What is an Appraisal?
An appraiser will walk through the home you intend to buy to look at its condition as well as its features. The appraiser is often chosen by the bank or lender. The appraiser will likely take measurements, count rooms, and look at the exterior of the home, including the lot. The appraiser then uses the information he obtained to compare this home to other homes in the area that recently sold.
The appraiser determines the fair market value of the home by making adjustments to the home’s value compared to the other sales in the area. For example, if the home you want to buy is 500 square feet more than the most recent comparable sales, the appraiser will increase the value of the home you want to buy accordingly. On the other hand, if the home you want to buy has fewer bedrooms than the comparable sales in the area, it will decrease the value of the subject home compared to the other sales.
The appraiser will look at the general condition of the home during this process. He may even have minimum property requirements he must look for if you are taking out a VA or FHA loan. But in general, he doesn’t look for the nitty gritty details the inspector will look for.
What is an Inspection?
The inspector is someone that you hire to inspect the property you intend to buy. The inspector will look at the overall condition, much as the appraiser did, but he will also get into details that the appraiser didn’t look at.
The inspector will try out all electrical and plumbing systems. He’ll make sure appliances work and are in good condition. He’ll inspect the roof and tell you how many years it has left on it. The inspector will also closely investigate dark, closed areas, such as basements, attics, and crawl spaces. He looks for issues such as mold, mildew, and pest damage. He can tell you when a mechanical system is on its last leg or if something wasn’t properly installed and could cause issues for you down the road.
You can expect the inspection report to be more than 20 pages long in some cases, depending on how detailed the inspector gets with the home. He will look at every little area and let you know things both large and small that are wrong with the home. You can then use that information to help you decide if you want to buy the home still or if you want to negotiate with the lender regarding repairs or seller credits to compensate you for any necessary repairs.
Should You Get an Inspection?
You will most likely be required to get an appraisal. It’s the only way a lender will know if the home is worth enough to lend you money to buy it. The inspection isn’t required, but is highly recommended. It’s the only way you will know if there is something wrong with the home that you cannot see just by walking through it.
For example, if there is termite damage at the foundation of the home, chances are that you are going to want to know that. If you have an inspection contingency on your purchase contract, you may want to back out of the purchase because of this. Without the inspection, you wouldn’t know about the damage and could find yourself with a lot of repairs to make and money to spend.
Even though your lender won’t require an inspection, it’s well worth the money. It’s also worth keeping an inspection contingency on your purchase contract to give you a way out of the purchase should the inspection report come back with something bad. You can also add an appraisal contingency to your contract, which gives you a way out of the contract if the value of the home doesn’t support the price you agreed to pay.Click to See the Latest Mortgage Rates»