As you’re in the homebuying process, you’re going to hear a few terms thrown around. Two of these are home inspection and real estate appraisal. They may seem interchangeable, and although they’re closely related, they have two very different meanings and uses. Let’s get you familiar with the definition of each of these terms and what they could potentially mean for your homebuying journey.
Once you’ve found your home, you’ll more than likely be encouraged to get a home inspection. Although optional, the inspection could prove to be vital in ultimately making a decision to buy the home or keep searching. During an inspection, a licensed inspector will walk through the home and examine the condition of the property. This is the best way to get a comprehensive report on the details of the home’s condition—from the exterior to the interior—that you wouldn’t be able to examine on your own.
With this report in hand, you can gauge exactly how much work needs to be done to the home. While some problems may be minor, there may be some that will require significant labor and expense to complete the repairs. As the buyer, you have the option to include some of these repairs in the contract for the seller to handle prior to closing, commonly referred to as contingencies. Or, the selling price may be negotiated to account for some of the required repairs. In the worst-case scenario, you could be responsible for the cost and completion of the repairs. Whatever ends up happening, the inspection report will empower you with the information to decide how to move forward.
An appraisal is usually considered mandatory by mortgage lenders, so you’ll more than likely be required to get the home you intend to purchase appraised. During an appraisal, a licensed appraiser will assess the property and determine the value. All kinds of factors go into this, including the home’s condition, upgrades, and comparables to other homes in the neighborhood. The appraised value is sent to lenders to assure them that the loan amount isn’t greater than that value.
An appraiser will do a number of things to evaluate the home, but know that they’re working toward a goal of fairly appraising its value. They could take measurements, photos, inspect any additions, and more. Home renovations can impact the appraised value. Improvements such as new flooring, updated kitchens, bathrooms, light fixtures, and additions to the yard such as in-ground pools can increase the value of a home.
The homebuying process can be overwhelming, but understanding all of the vernacular and terminology you'll encounter as you talk to mortgage professionals can certainly help you feel more comfortable. Armed with this knowledge, you can confidently navigate the process to becoming a homeowner!
Ready for your first home? Get prepared by reviewing our ebook, Helpful Tips for First-Time Homebuyers.