Home Appraisal vs. Home Inspection

Cardinal Financial August 16, 2022 | 4 min read
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Home appraisal vs. home inspection: what’s the difference and why you need both.

It’s easy to confuse a home appraisal with a home inspection, or think they’re the same thing. In both cases, a professional comes to the home, surveys it, and draws up a final report, but there’s more to it than that. Both reports should inform the buyer and help them make an educated decision as to whether they should purchase the home. However, they serve fundamentally different functions when it comes to the home buying and selling process. In short, a home appraisal determines the value of the home while a home inspection determines the condition of the home.

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

The Appraisal Process

Home appraisers take a variety of different factors into consideration when valuing your home. Things like location, school district, lot size, access to public facilities, condition, and recent sale prices of comparable properties all play a role in how much your home is worth. Appraisers don’t necessarily care if your home is clean or not. But they will notice signs of neglect like cracked walls and chipped paint.

School District Impact on Property Values and Home Prices

It’s important to remember that home appraisals primarily benefit the lender. Yes, buyers and sellers can glean valuable information from an appraiser. However, their primary function is to protect a lender’s investment. That’s why the appraisal takes place before final approval of the loan. It’s also important to note that if the buyer is applying for an FHA loan, the appraiser must survey the physical condition of the home and disclose potential issues to the buyer. This obligation doesn’t exist for non-FHA mortgages.

So what happens if a home receives an appraisal lower than the purchase price? The purchase can still go through a few different ways. The seller can reduce the purchase price, the buyer could make a bigger down payment, or if the home needs repairs, a separate escrow account can be set up to pay for those.

The Inspection Process

If you think about an appraisal as a practice run or a walkthrough, the home inspection is the real game. An inspector’s checklist is usually a lot longer than an appraiser’s. It could also take hours to complete depending on the size of the property. An inspector will inspect crawl spaces, attics, water heaters, furnaces, foundations, land grading, and a lot more. Unlike appraisals where buyers and sellers don’t participate, many inspectors will encourage potential buyers to join them when they go to inspect a home to discuss issues as they’re discovered.

While appraisers are legally obligated to perform their job as an unbiased third-party, a home inspector is hired by a prospective buyer to protect their own interests. The inspector works for the buyer and is obligated to provide feedback on the home and any potential issues that may arise from its condition. As a buyer, of course, you want to protect your investment. That’s what makes an inspector a valuable asset to have working with you.

The Same, But Different

Despite their different functions, appraisers and inspectors still share a few commonalities. Both are professionals that you can expect to do their jobs impartially. Neither appraisers nor inspectors get paid a commission on the sale of the home. That means they have nothing to gain or lose whether or not the sale goes through. Knowing this, you should feel confident that you’ll get a fair valuation from your appraiser and a neutral report from your inspector.

As you can see, both the appraiser and inspector play important roles in the home buying process. And when they’re done doing their jobs, they give buyers added confidence to make the decision to buy or walk away from a home.

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