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Home Inspections vs. Appraisals – What Are the Differences?

If you’re buying or selling a home, you might be thinking about the inspection and the appraisal. While close in relation and timing, these two pieces of the home sale process are very different. The biggest difference between them is who orders them. A buyer will typically order an inspection to ensure that there’s nothing wrong with the home that they may be missing. An appraisal, on the other hand, is ordered by a home buyer’s lender. The lender will order an appraisal from a third party to determine the value of the home and ensure that the loan amount isn’t too high, and therefore, too risky.

Because each has very different stakeholders, what affects them also differs, and that’s what we’ll dive into to help you understand the differences between appraisals and inspections.

What goes into a home Inspection?

A home inspection is a detailed look at the condition of a home by a licensed inspector. 83% of buyers chose to order an inspection for the homes they purchase. This is unsurprising considering home buyers prefer move-in ready homes and specifically, want to avoid buying a home that needs work.

Home inspections generally cost $270-$400 and take around 3-4 hours—but they can take more or less time depending on the size of the home. During their walkthrough, inspectors will not only look at the condition of a home, but they’ll also test the functionality of key systems in a home, including HVAC and plumbing systems.

A home inspector will look for:

  • Problems with a home’s HVAC, plumbing, or electrical systems
  • Roof damage
  • Visible insulation in attics
  • Issues with windows, doors, ceilings, floors, and walls
  • Water and mold damage
  • Signs of pest infestation

After the inspection, the inspector will provide a report that will make the buyer aware of any red flags. Typically, buyers are able to attend the inspection if they’d like. If they do, the inspector will explain some of the issues that they find.

What happens if the inspection uncovers problems?

If issue arise when the inspector looks at the home, the buyers and sellers have some options. One of the more common solutions is for sellers to hire a contractor to take care of the repairs before closing. If this is what you decide to do, Curbio offers quick and easy post-inspection, punchlist repairs, and you can get started by having your agent request a free same-day estimate here.

Another option is for the buyers to address the concerns and negotiate a lower price in order to have the cash to take on these repairs either before they move in or when the repairs become necessary. If the buyers want to address any repairs and updates before moving in, they can take advantage of Curbio’s pre-move-in home improvements that are quick and painless and defer all payment until the project is complete. To get started, buyers should have their agent submit a request for an estimate here.

In some cases, the issues are too much for the buyers to feel comfortable buying the home, and, as a result, they’ll pull their offer. Avoiding this problem when they’re so close to the closing table is why many sellers and their agents take on repairs and updates before listing. With Curbio, pre-listing home improvements are quick and hassle-free—and sellers wait until closing to pay us for the work! Have your Realtor® submit a request for a free same-day estimate here to get started.

Contrary to popular belief, you can’t outright fail a home inspection, but the results of one could result in your deal falling through. To avoid hurdles so close to closing, discuss both pre-listing home improvements and punchlist repairs with your Realtor® to determine if you should consider them to make your home sale a success.

After the home inspection is complete, assuming the deal is still on the table, the buyer’s lender will order an appraisal.

What goes into an appraisal?

While an inspector will look at the physical condition and safety of a home, an appraiser will look at the value. A licensed appraiser will consider both internal and external factors when coming up with the value of your home. This number may differ from your listing price and the buyer’s offer because of the differences between appraisal value and market value.

Your appraiser will look at:

  • Square footage
  • Number of bedrooms and bathrooms
  • Code compliance
  • Age of appliances, roof, and vital systems
  • Condition of flooring and fixtures
  • Comparable listings
  • Location
  • Curb appeal
  • Market trends

Lenders require appraisals to determine how much to lend a buyer. This means that virtually all home buyers have an appraisal done before they get to the closing table. Like an inspection, you can’t necessarily fail an appraisal, but the appraisal can come in lower than the buyer’s offer.

What happens if the appraisal is lower than the offer?

If the buyer’s offer is higher than what a property is appraised for, then the buyer’s lender is very unlikely to provide the full loan amount. That doesn’t mean the deal has to fall through though! Just like if red flags come up during the inspection, you have some options.

The best-case scenario is for the buyer to make up the difference between the approved loan amount and their offer out of pocket. In this case, there’s no delay in getting to the closing table, and the sellers will receive the full market value of their home. Of course, a lot of buyers may not have the cash to spare since purchasing a home typically means fronting a large down payment.

If the buyers have an appraisal contingency for their offer, then they can back out of the offer. If this happens, then the seller would need to put the home back on the market, which means it will take longer to sell. Not to mention that the sellers will have a difficult time getting the same offer to the closing table.

Just like with an inspection, the sellers’ and buyers’ agents can re-negotiate the price and/or offer concessions to meet in the middle. This scenario would prevent delays on the sell side and help buyers get the home they want on the buy-side.

What are the key differences between home inspections and appraisals?

A home inspection and appraisal are both done after the seller accepts the buyer’s offer, but there are some key differences:

  • Appraisals are required by lenders, while inspections aren’t required at all.
  • Lenders set up appraisals, but buyers (or their agents) schedule inspections.
  • Appraisals consider factors outside your home, including the community around it while inspections only factor in your home’s physical condition.
  • Appraisers will only consider what’s visible to them whereas inspectors have tools and tests that allow them to uncover some issues that are hidden beneath  the surface.
  • An appraisal may impact your ability to get the loan amount you need, but an inspection will not.
  • Inspectors and appraisers have different skillsets and are trained and certified differently.

What do appraisals and inspections have in common?

There are important differences between the two, but inspections and appraisals aren’t completely different. At the end of the day, these two procedures are there to mitigate buyer risk. They are both completed by a third party and help buyers feel more satisfied with their home purchase. They also benefit both the homeowner and the lender by ensuring the home is worth the price. Finally, while both can cause roadblocks right before the closing table, re-negotiating can make everyone feel more comfortable with the sale.

Preparing for your inspection and appraisal

Before listing, home sellers should discuss every step of the home sale process with their agent, including the inspection and the appraisal. You should also discuss pre-listing home improvements and what you might do in the case that red flags pop up during a home buyer’s inspection.

Curbio makes home improvement quick and easy. We take on projects big and small and defer payment for them all! From pre-listing home improvements and punchlist repairs to pre-move-in updates on the buy-side, we’re the Realtor’s trusted home improvement company for managing and executing on projects.

Because of our streamlined process, we complete projects 65% faster than the traditional contractor. We also pride ourselves in taking on smart home improvements that broaden properties’ appeal to buyers and result in positive returns for sellers.

Have a property that needs a little Curbio (curb appeal inside and out)? Have your Realtor® submit a request for an estimate today to get started on your pre-listing, punchlist, or pre-move-in project. Don’t have an agent yet? Contact us and we’ll help you find one from one of our partner brokerages.