Home appraisals and home inspections, though both important in the homebuying process, are often confused with each other due to their distinct purposes.
A home inspection, which is optional, involves a comprehensive assessment of the property’s systems and structure. An inspector identifies deficiencies, safety hazards, and necessary repairs that should be addressed prior to purchasing the home.
On the other hand, appraisers evaluate the value of a home to ensure that the loan amount is appropriate. If you are financing the house with a mortgage, this appraisal process is mandatory.
Here are some additional points to understand about appraisals:
- Appraisals are conducted by professional appraisers who are specifically trained in real estate valuation. Certain appraisers are approved to assess properties for FHA and other government loans.
- Physical assessments may not always be included in appraisals. Some appraisals involve an in-person evaluation of the house, while others rely on exterior inspections (drive-by appraisals) or data-based assessments (desktop appraisals) using property records and local sales data.
- An appraisal can affect your mortgage amount. Lenders want to ensure they can recover their investment if the home goes into foreclosure and needs to be sold. Consequently, you will not be able to borrow more than the total appraised value of the home.
- If the appraised value of a home is lower than your offer, you will need to make up the difference out of pocket, renegotiate with the seller, or consider backing out of the transaction.
- Appraisals are typically included in your closing costs. As part of the closing process, buyers are responsible for paying the appraisal fee, which usually amounts to a few hundred dollars.
Feel free to reach out if you have any questions about appraisals or any other aspect of the home buying process.