Real estate can be confusing, all. There are so many terms to remember when buying a home. Inspection and appraisal are two that seem to cause a lot of confusion. Contrary to popular belief, they are not one and the same, though they are both steps in the overall process.
If you’re planning to buy a home, an inspection assesses the condition of the home before you finalize the transaction. An appraisal, on the other hand, is a professional evaluation of the market value of the home you’d like to buy. In most cases, an appraisal is ordered by the lender to confirm or verify the value of the home prior to lending a buyer money for the purchase.
Let’s take a look at each one and why they’re both important when buying a home.
The key difference between these two terms? One helps you understand the home’s value, the other it’s condition (yes, this post is rife with italics).
At the risk of using a word to define a word, the home inspection inspects your house. A professional (read someone certified and not your cousin pointing out things that they see) determines the current state, safety, and condition of the home before you finalize the sale. If anything is off in the inspection process you as a buyer have the option to discuss and negotiate any potential issues or repairs with the seller before the transaction is final. Your super amazing real estate agent bestie is a key expert to help you through this part of the process.
In general, the home appraisal is all about the value of the home (from a professional not your Zestimate) and ensuring the bank is providing you with the amount you need to make your purchase. Think of it as researching a product before you buy, so you can get the best value for your money.
When you apply for a mortgage, an unbiased appraisal (which is required by the lender) is the best way to confirm the value of the home based on the sale price. Regardless of what you’re willing to pay for a house, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.
This not only helps the lender, it assists you as a buyer as well. When sellers are in a strong position, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more. Sad news For Sale by Owner sellers, the lender will only allow the buyer to borrow based on the actual value of the home. This is what helps keep home prices in check. Hurrah for all! Discrepancy between the appraisal and the sale price? Not to worry, your trusted real estate professional will be all over it!
These two steps are super important to the home buying process. But never fear, you don’t need to manage them by yourself! Let’s connect today so you have the expert guidance you need to navigate the entire home buying process.
Need more of an overview of the processes? Our friends at Streamline Home Loans have made a wonderful video about the differences (available in English or Spanish):