What's the Difference Between an Appraisal and a Home Inspection?

Two key parts of most every real estate transaction, and often confused. Many buyers and sellers would do well to ask what's the difference between an appraisal and a home inspection. The short version of the explanation, 

What is a Home Inspection?

Home inspections are not required for a transaction, they are however, highly recommended. A home inspector provides an unbiased opinion of the condition of a home. They are hired and paid by the home buyer and work on their behalf. They inspect the home over several hours and evaluate condition from roof to basement, inside and out. Reports are provided to the buyer in easily understood ways, repairs needed usually being categorized from routine deferred maintenance to requires immediate repair. Once received, home buyers review the inspection report with their agent and determine which, if any, items they want the seller to repair. Every home has issues, buyers need to be reasonable with their requests.

What is an Appraisal?

Appraisals are typically required when a loan is taken on a home. An appraisal is an estimate of the current market value of a home completed by an independent appraiser using underwriting criteria. They are hired by the lender and paid by the home buyer either as part of closing or outside of closing. The appraiser's job is to ensure that the lender's interests are covered in the event of foreclosure, that the lender will be able to sell the home for at least what is owed on it. Listing agents should be proactive and prepare an info packet for the appraiser - and then leave.

What Happens if there are Problems 

Lenders base their mortgage on the lower of the contract price or appraisal. If the appraisal comes in below the contract, the loan is based on that. If that happens, it is possible the deal can fall apart, the buyer will look to negotiate the price. Every home will have inspection issues. After discussion with their agent, the buyer will approach the seller and look to have certain things corrected or to reduce price. 

Every situation is different. Note that there is no obligation by the seller to adjust price or make repairs (in Georgia). Every state varies so this is another reason to always work with experienced agents.