Home Inspection vs. Appraisal
What's the difference?
For many first-time home buyers, the difference between a home inspection and an appraisal is confusing. Are home Buyers required to have a home inspection and an appraisal when purchasing a house?
It is encouraged for Buyers to have a home inspection done on the property they are planning on purchasing, however it is not a requirement. The home inspection is for the benefit of the Buyer to determine improvements, repairs and replacements that may need to be done on the house. The inspection alerts the Buyers to any potential issues that exist which an untrained eye may not detect while previewing a house.
After the inspection is completed, the Buyer can request the Seller to make repairs or replacements on items which are determined to be unsatisfactory on the inspection report. Keep in mind, you will need to use a certified inspector or company to conduct the home inspection. The Seller will request a copy of the inspection report along with the Buyers request for repairs. Your home inspection addendum should also have a timeframe which the inspection needs to be completed and request for repairs are due.
If the purchase contract is contingent on the home inspection, the Buyer should take advantage of the expertise of the inspector by asking many questions to determine if moving forward on the house will be a good idea. The Realtor should be able to discuss the options available to the Buyer.
An Appraisal is very different from a home inspection. A home inspection is requested by the Buyer and is optional, however the Appraisal is ordered by the lender and is mandatory. If you are purchasing a property with cash, then getting an appraisal is optional to the Buyer. If the Buyer is using cash to purchase a home, it is still recommended to get an Appraisal to determine the value of the house so the Buyers investment is protected. An appraisal is completed by a licensed Appraiser, who determines a valuation on the property based on other recent sales of similar homes in the area.
The lender will require an appraisal to be done on the property to ensure the house is worth the amount the lender will finance to the Buyer. The lender will finance either the appraised value or the purchase price, whichever is lower.
During the appraisal process, the appraiser may request certain repairs to be completed as part of the requirements to purchase the house. These repairs are separate from the home inspection repairs requested by the Buyer. The amount of repairs the Seller will be required to fix will be determine on the financing addendum of the contract.
If the appraisal determines the house is valued less than the amount of the purchase price, the Buyer will need to reference the appraisal addendum to determine the next course of action that can be taken.
The most common actions, in the event the property does not appraise for the purchase price are:
- Send a copy of the appraisal report to the Seller requesting the sales price be reduced to the appraised value.
- Buyer can supplement the difference between the appraised value and the sales price of the home if the Seller does not agree to reduce the price and Buyer still wants to purchase.
- If the Seller does not want to reduce the price, Buyer should be able to be release from the purchase contract.
It is best to consult with a Realtor to make sure the Buyers interest are being protected throughout the process of buying a home.
Buying a home can be an confusing process for some, if you have any questions, please email info@premierhomesmd.com and I will be sure to respond within 24 hours.
Tabitha Rector-Richardson
Broker, REALTOR®
email: info@premierhomesmd.com
web: www.PremierHomesMD.com
(443) 415-4215 cell
(410) 363-1535 x101 office
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