Many new home buyers and novice investors seeking to accurately assess a property are under the impression that an inspection is sufficient to determine a home’s market value. However, while an inspection is considered extremely important and is highly encouraged, it is not mandatory. An appraisal, on the other hand, is required by lenders, so that they do not lend more money than the property could potentially be worth.
Here are the fundamental differences between a home inspection and a real estate appraisal.
A home inspection alerts prospective buyers of any deficiencies in the property that are not disclosed, evident, or even recognized by the owners. An inspection allows the buyer to make a decision based upon accurate and up-to-date information, as licensed and certified inspectors examine the home from the roof to the foundation, and everything in between.
Home inspectors scrutinize every facet of the property. They inspect the home’s structure (the construction of both the interior and exterior), all of the plumbing, the electrical wiring, heating and ventilation, insulation, seals, hot water heater, and any major appliances. Furthermore, inspectors take the maintenance and overall appearance into account. If there is untidiness and/or visible sign of neglect (torn carpeting, peeling paint, cracked tiles), the inspector will make a note and perform a deeper inspection in order to determine whether the source is a concern.
The main purpose of a home inspection is to deliver a full analysis of the property along with all recommended renovations and repairs. Inspections help buyers get an accurate picture of the comfort, quality, safety and structural integrity.
Real Estate Appraisals
While real estate appraisals may (and often do) factor exterior and interior conditions into the report, they tend to be less concerned with the appearance of the home than inspectors. While property cleanliness and basic maintenance is a consideration for home inspectors (since this could be a sign of unseen disrepair), it is not a major concern for an appraiser. According to standards set forth by the Federal Housing Administration, appraisers are not required to examine the property for issues beyond those that may compromise the stability, sanitation, and safety of the structure. However, certain features, such as an outdoor deck, renovated kitchen, additional bathroom, and an in-ground pool, may add property value.
Unlike inspectors, appraisers conduct a complete analysis of the property location and market value of nearby comparable homes. Although appraisers do not make improvement or repair recommendations when the home meets FHA standards for safety, stability and sanitation, if those standards are not met, then the lender will be denied mortgage insurance until the failures are addressed and the home is re-appraised.
NovaStar Appraisals gives property buyers and sellers the tools to establish accurate and comprehensive valuations, helping them to make the best decisions for their financial goals.