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

When you invest in a new home, you want to make sure that you’re getting your money’s worth. In other words, maximizing your return.

 To buy your home, both the appraisal and home inspection are important pieces of the puzzle. They both assess your properties but have different goals in the end reports. The appraisal ensures that your prospective home is fairly priced, which is based on various factors, including the home inspection. The home inspection assesses the current conditions of your home and is just one piece of the larger appraisal puzzle.

Here’s the breakdown of each one & why they’re both important when buying a home:

 Home Appraisal

When you apply for a mortgage, an unbiased appraisal, which is required by the lender, is the best way to confirm the value of the home based on the sale price. Regardless of what you’re willing to pay for a house, if you’ll be using a mortgage to fund your purchase, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.

This is especially critical in today’s seller market where low inventory is driving an increase in bidding wars, pushing home prices upwards. When sellers are in a strong position, they tend to think they can set whatever price they want for their home, believing Buyers will be willing to pay more. But lenders will only allow the Buyer to borrow the amount based on the appraisal of the home. This helps keep home prices in check. If there is ever a discrepancy between the Buyer’s offer price & the appraisal, your Realtor should help you to navigate any negotiations in the process.

Home Inspection

The home inspection is a way to determine the current state, safety, & condition of the home before you finalize the sale. If anything is questionable in the inspection process (i.e. sewer, fireplace, roof), the Buyer has the option to discuss & negotiate any potential issues or repairs with the seller before the transaction is final. Your Realtor should help you navigate this process. 

In simplest terms, a home appraisal determines the value of a home, while a home inspection determines the condition of a home.