What is the difference between an appraisal and a home inspection? The two are nothing alike and serve completely different purposes during the home purchase process. They are often confused by buyers and incredibly, some agents as well.
The appraisal process is an integral part of any mortgage loan and is highly regulated by both state and national oversight. A license is required to become an appraiser; required classes are far longer and significantly more difficult than getting a real estate sales license. Appraisers, unlike agents, are also required to complete a lengthy apprenticeship. In Georgia, home inspectors are required to be licensed, there are several trade associations that set minimum standards. They too, are part of most every transaction and offer an unbiased opinion of condition and upkeep. So, what is the difference between an appraisal and an inspection?
Key Things to Know About Appraisals
- Appraisals are required for most loans, typically appraisals cost $350-$600 depending upon the assignment. Cash purchases do not require appraisals.
- The appraiser is hired by and works for the lender, not the buyer or the seller.
- Appraisals are intended to ensure that the value of the home covers at least the amount borrowed.
- An appraisal does not determine market value, it simply renders an impartial opinion on whether or not the contract price is supported by current comparable sales data.
- The lender uses the lower of the appraised value and contract price for the loan. The contract price is used even if the appraised value is higher.
- An appraised value below the contract price is occasionally seen. This can be a benefit to the buyer and there are ways to handle a low appraisal and keep the deal intact.
- Appraisers must note obvious condition issues, mainly those easily seen. Anything the appraiser considers out of the ordinary is photographed and noted along with the impact on value and marketability.
- If warranted, appraisers can call for further inspection or make appraisals “subject to” work being completed. FHA, VA, conventional and USDA loans place different requirements on appraisers. Buyers should get educated on the loan they’re using.
- Only the home buyer gets a copy of the appraisal, it is their decision if they want to share it. If the appraisal is below the contract price, it is shared with the seller as part of the negotiation.
- A real estate agent is not capable of nor permitted to complete an appraisal. A broker price opinion (BPO) is not an appraisal and should never be considered one. Unfortunately, a significant number of agents do not understand how an appraiser works or how best to avoid appraisal issues.
Key Things to Know About Home Inspections
- A home inspection is not required for any sale. While it’s a good idea to have an experienced, disinterested party review any home, there is no requirement for this.
- Inspectors are not regulated in any way; there is no licensing requirement in Georgia. There are organizations that provide designations but understand – just like NAR for agents – many say that the main concern of the organizations is collecting fees. Just as with agents, there are part time inspectors.
- Buyers select the inspector. Usually the buyer’s agent will make a recommendation but for obvious reasons every buyer should do their homework before hiring anyone. This is a chance for the buyer to walk the home and ask all of their questions without the agent influencing the situation.
- Inspectors typically inspect from foundation to roof and most use a preformatted type of form. Additional inspection items include radon, termites, pools, septics and other things as they are found. Note however that even inspectors will defer to experts like roofers, engineers, pool techs, etc. if issues are found that are beyond the scope of the inspection.
- Copies of the report are provided to the buyer and typically shared with the buyer’s agent. A list of issues to be addressed is compiled and these are negotiated with the seller. Issues are always found, including with new homes, so it’s important to separate the typical deferred maintenance from the genuine concerns.
It’s critical to understand that inspections are very subjective; some inspectors will detail every hairline concrete crack, others will stick to the things considered significant. The challenge for the buyer and agent is to understand what is typical for the home under consideration and be realistic and reasonable.
The importance of being educated about the home buying process cannot be over emphasized. It begins with knowing how to find a real estate agent. Work with only experienced and productive agents. Research every agent you are considering since working with an inept or inexperienced agent will cost money. The same is true for inspectors. Spend the time researching them, their resumes, their credentials, and work with only pros. Less control exists over the appraisal process. That firewall was established after the crash as inflated and poor reports contributed to the problems and subsequent melt down.
The Hank Miller Team Advantage
We provide confidence to our clients buying and selling homes in the North Atlanta real estate market. Our unmatched sales and appraisal experience, relentless drive and ability to manage transactions allow our clients to make sound, decisive real estate decisions. We offer full time, full service, personal, hands-on attention and concierge level service every step of the way for perhaps the most important financial decision you’ll make.
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