What's the difference between an inspection and an appraisal?8/27/2016
What's the difference between an inspection and an appraisal?
You’ve final found your dream home and are ready to get your keys and move in as soon as possible. But wait! Not so fast! You need to do a little due diligence to ensure you aren’t buying a lemon. Luckily there are a few professionals that specialize in helping with just that.
An appraisal and an inspection may seem and sound similar, but they are not one in the same.
One of your first steps as a savvy new buyer is to conduct inspections on the home. Hiring a professional, licensed home inspector will help you do the dirty work by carefully inspecting the mechanics, and the overall structure of the home to uncover any hidden defects. The mechanics often include the air conditioning and heating system (HVAC), water heater, appliances (not including the refrigerator, washer or dryer), plumbing fixtures, and the electrical system. The structure often includes the foundation, framing (as best as can be seen to the naked eye), the roof, and home’s exterior siding. Inspectors may inspect other items for an additional charge, such as the pool and pool equipment, sprinkler system, and wood destroying insects like termites, carpenter ants, and carpenter bees.
Keep in mind inspectors come in all shapes and sizes. Physically and professionally I might add. But they all have their minimum inspection standards they must abide by as controlled by the State of Texas. Yet there are choices when it comes to the quality level of an inspector. When the time comes to order an inspection, I will help you determine which inspector may be best for your particular needs.
Not too long after the inspection has been completed, your lender will order an appraisal on the property. An appraisal is an expert opinion of a property's value. Emphasis on “opinion”, because an appraisal is not an exact science. Since your lender is loaning you money to help purchase your dream home, and since more often than not they are loaning you more than you are putting down in cash, your lender has a large interest in the property. In the unfortunate, yet rare event that you don’t make your monthly payments and ultimately lose your home to foreclosure (although you’re too savvy to let that happen), your lender will want to make sure you didn’t overpay for the property and they didn’t loan you too much money. Since they are now the ones stuck with the property, which will now need to be sold. Often times at a discount.
So the appraiser is called out to the house. He or she will measure the home to determine its square footage, then view both the interior and exterior’s overall condition. This may include simple notes regarding updates to the home. Updates may include things such as an updated kitchen, recent flooring, lighting and plumbing fixtures, or anything that may increase the home’s value. The appraiser will also note features such as a swimming pool and whether it has a fancy water fall feature or just a concrete frog spitting water in the deep end. He/she might add value because the home is on a quiet cul-de-sac, or overlooking a lake. Defects will be noted as well. Since the appraiser is not a licensed inspector, he will only make general notes on defects such as cracks in the exterior brick or interior sheetrock (which may be an indication of foundation movement), an old roof, old appliances, or if the home backs to a 3 story commercial building with graffiti on it.
Once the appraiser has measure the home and taken notes on its condition, he/she will go back to the office and find other homes in the neighborhood that are comparable to yours. Adjustments will be made to the “comps” to bring them to the same condition level as your home. Then he/she will come up with an accurate value. If that value comes in under the contract sales price, the seller can either reduce the sales price to the new appraised value, the buyer can come up with the difference in cash, buyer and seller can split the difference together, or the buyer can walk away if no agreement is made. If the value comes in at or above the contract sales price, CONGRATULATIONS! You are on your way to owning the best investment money can buy!
For more information about inspections and appraisals, click the contact me button above, or just give me a call at 832-524-0398. Be sure to also visit my Facebook page for home tips and tricks. Ryan Hicks