Understanding Home Inspections and Appraisals in Real Estate

By The Goodman Taylor Team

When navigating the home-buying process, a lot of people have trouble differentiating between home inspections and appraisals. Here’s a clear breakdown to help you tell the difference between the two.

A home inspection is typically ordered by the buyer. A professional home inspector is hired to thoroughly examine the major systems and structures of the house. They will conduct a comprehensive examination of the property and provide a detailed report about their findings. Once that’s done, we will review the report and negotiate with the seller on the specific issues they want addressed. The seller will then decide whether to make the requested repairs or not.

On the other hand, an appraisal is ordered by the lender. Its purpose is to ensure the lender does not loan more money than the home is worth. The process starts with a neutral evaluation by a third-party appraisal company to assess the house. Next, the appraiser will conduct a thorough market analysis to determine the property’s value. The appraisal helps the lender confirm the home’s market value and decide the loan amount.

For Federal Housing Administration and Veteran Affairs loans, the appraisal process includes additional health and safety checks wherein the appraiser will look for issues like water leaks under the sink. The appraiser may state that the home is only worth a certain amount if specific repairs are made. The loan approval might depend on these repairs being completed.

While this can be daunting, you should be happy knowing that home inspection results usually do not affect the purchase price of the home. Instead of asking for a price reduction, buyers often request a credit from the seller to cover repair costs. For example, instead of reducing the purchase price by $10,000, the buyer might ask for a $10,000 credit toward closing costs.

Keep in mind that a home appraisal can directly affect the purchase price of the property. If the appraisal value is lower than the agreed-upon price, the lender will only approve a loan for the appraised amount. This can lead to renegotiation with the seller to lower the purchase price to match the appraisal value.

While the process may seem complicated, your agent is here to guide you every step of the way. If you have any questions or are interested in buying or selling a home in the Phoenix area, feel free to reach out to us any time. Just call 480-382-8093. I look forward to talking with you!