Once your offer on a home is accepted, the process moves into an important phase of due diligence and loan preparation. The two terms you are likely to hear are home inspection and home appraisal.
While both involve evaluating the property, they serve very different purposes.
A home inspection helps the buyer understand the home’s condition. An appraisal helps the lender determine whether the property provides sufficient collateral for the mortgage.
Understanding the difference between a home inspection and appraisal can help you know what to expect after your offer is accepted and why both may be part of the homebuying process.
Home Inspection vs. Appraisal: At a Glance
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| Â | Home Inspection | Home Appraisal |
Primary purpose | Evaluate the home’s condition | Determine the property’s market value |
Typically ordered by | Buyer | Lender |
Who benefits most? | Buyer | Lender and buyer |
What is evaluated? | Structure, systems, safety, and visible condition | Property, location, features, and comparable sales |
Does it determine value? | No | Yes |
Does it determine whether the home is safe? | It can identify potential concerns | No |
Can it affect the purchase? | Potentially, depending on the contract | Potentially, if the value does not support the loan |
What Is a Home Inspection?
A home inspection is a detailed examination of the property’s visible and accessible components.
The goal is to help you understand the home’s current condition and identify potential maintenance issues or problems that may need attention.
Depending on the property and inspection, the inspector may evaluate areas such as:
- Roof and attic
- Foundation and structural components
- Plumbing
- Electrical systems
- Heating and cooling systems
- Windows and doors
- Appliances
- Exterior features
- Interior components
- Visible signs of water damage or other concerns
- Health and safety related concerns that could impact occupancy
A home inspection is generally arranged by the buyer and performed by an independent home inspector.
Does a Home Inspection Mean the House Has to Be Perfect?
No.
Most homes have some issues, particularly older homes. An inspection report can help you understand which items may need attention, and which are routine maintenance concerns.
Your real estate professional can help you understand how inspection findings may affect your purchase agreement and what options may be available based on the terms of your contract.
What Is a Home Appraisal?
A home appraisal is an independent opinion of the property’s market value.
When you finance a home purchase with a mortgage, the lender generally needs to determine whether the property value supports the amount being borrowed. The appraisal provides an assessment of the property’s value based on factors such as the home’s characteristics, location, condition, and comparable properties.
An appraisal may consider:
- The home’s size and features
- Location
- Overall condition
- Improvements and upgrades
- Lot characteristics
- Recent sales of comparable properties
- Current market conditions
The appraiser is not performing the same type of inspection as a home inspector. The primary purpose is to develop an opinion of value.
Who Orders the Appraisal?
The lender typically orders the appraisal as part of the mortgage process.
The buyer generally pays for the appraisal, although the exact timing and payment process can vary by loan and transaction.
The appraisal helps the lender determine whether the property provides adequate collateral for the mortgage.
Do I Need Both a Home Inspection and an Appraisal?
In many home purchases, you may have both.
That’s because they answer different questions:
The inspection asks:
What condition is this home in?
The appraisal asks:
What is this home worth?
An appraisal does not replace a home inspection, and a home inspection does not replace an appraisal.
For example, an appraiser may determine that a home is worth $350,000 based on comparable sales and other property characteristics. That does not necessarily mean the home’s plumbing, electrical system, roof, or other components are free of problems.
Likewise, an inspector may identify several maintenance issues without determining what the property is worth.
What Happens If the Appraisal Comes in Low?
One of the biggest concerns buyers have after an appraisal is finding out that the appraised value is lower than the purchase price.
For example, suppose you agree to purchase a home for $400,000, but the appraisal comes in at $385,000.
That does not automatically mean the purchase cannot move forward. However, it can create a financing issue because the lender bases the loan the lesser of the sale price of the property or the appraised value of the property.
Depending on the circumstances, possible options may include:
- Renegotiating the purchase price with the seller
- Increasing the buyer’s down payment
- Reviewing whether the appraisal can be reconsidered
- Exploring other available financing solutions
- Proceeding with the purchase if the buyer is comfortable covering the difference, subject to the loan terms
Your loan professional and real estate professional can help you understand your options if an appraisal comes in below the purchase price.
Can a Home Pass an Inspection but Have a Low Appraisal?
Yes.
Remember, the two processes evaluate different things.
A home can be in excellent physical condition but still appraise below the contract price if comparable sales and other valuation factors do not support the agreed-upon price.
The reverse can also be true. A home may appraise at or above the purchase price while an inspection identifies repairs or maintenance concerns.
That’s why neither process should be viewed as a substitute for the other.
Does a Home Inspection Affect the Appraisal?
Not directly.
The inspection and appraisal are separate evaluations performed for different purposes.
However, the property’s overall condition can be relevant to an appraisal, depending on the circumstances and the type of loan. An appraiser may note visible condition issues or features that affect the property’s marketability and value.
The appraiser’s role, however, is fundamentally different from that of a home inspector.
What Should Buyers Do After anthe Inspection and Appraisal?
Once you’re under contract, it’s helpful to stay organized and communicate with your homebuying team.
1. Review your inspection report
Take time to understand the inspector’s findings. If significant concerns are identified, discuss them with your real estate professional.
2. Keep your financing on track
Continue responding promptly to requests from your lender and avoid making major financial changes during the mortgage process without discussing them with your loan professional first.
3. Understand your appraisal results
Your loan professional can explain how the appraised value affects your specific financing and what happens next.
4. Keep your goals in perspective
An inspection is about understanding the home’s condition. An appraisal is about establishing an opinion of value. Neither one alone tells you whether the home is the right purchase for your specific circumstances.
Home Inspection vs. Appraisal: The Bottom Line
A home inspection and home appraisal are two different reports that can both play an important role in the homebuying process.
The inspection helps you understand the condition of the property. The appraisal helps establish the property’s value for the mortgage.
Knowing what each one does, and doesn’t do, can make the process feel less confusing once you’re under contract.
If you have questions about how the appraisal fits into your mortgage process, talk with your mortgage professional. Understanding what to expect before each step happens can help you move forward with greater confidence.
Frequently Asked Questions
Is an appraisal the same as a home inspection?
No. A home inspection focuses primarily on the property’s visible condition and potential issues, while an appraisal provides an opinion of the property’s market value.
Who pays for a home inspection?
The buyer typically pays for the home inspection. Costs can vary based on the property, location, inspection type, and inspector.
Who pays for a home appraisal?
The buyer typically pays for the appraisal as part of the mortgage process, although the timing and payment process can vary.
Is a home inspection required to get a mortgage?
A home inspection and a mortgage appraisal serve different purposes. Whether an inspection is required can depend on the transaction, loan program, property, and other circumstances.
What happens if the home appraisal is lower than the purchase price?
A low appraisal can affect the amount a lender is willing to finance based on applicable lending guidelines. Depending on the situation, the buyer and seller may renegotiate, the buyer may contribute additional funds, or other options may be considered.
Should I get a home inspection if the house is new?
A new home can still have construction issues or items that need attention. A qualified home inspector can provide an independent assessment of the property’s condition.
Can an appraisal identify problems with a house?
An appraiser may note visible condition concerns, but an appraisal is not a substitute for a professional home inspection. Buyers should rely on a qualified inspector for a detailed evaluation of the home’s condition.
Final Words
Understanding the difference between a home inspection and an appraisal can make the homebuying process feel a little more manageable. An inspection helps you understand the condition of the home, while an appraisal helps establish its market value for your mortgage. As you move from an accepted offer toward closing, having the right professionals to answer your questions can help you make informed decisions at each step. If you’re preparing to buy a home, talk with your Delmar Mortgage loan professional about what to expect throughout the financing process and how each step fits into your homebuying journey.
