If you have a house under contract you might be wondering what the difference is between the inspections and the appraisal. Or you might be wondering if both expenses are necessary and required. In this post, I’ll answer those questions and explain what each one is and if they are both required.
Put simply, the inspection is for you and the appraisal is for the lender.
The contract reads that you may have anybody of your choosing come out and perform inspections on the home. This could be your Uncle Johnnie who is a contractor but I highly recommend hiring a licensed and insured home inspector to perform this important step. By having a detailed inspection of the home, you’ll be more familiar with the ins and outs of the home as well as any issues that may be present, have been present, or might be an issue in the future. Having inspections done by a qualified professional will give you enough information to decide whether you want to stay in the deal or not. If you do, you’ll be equipped with knowledge about the home. The inspection is also the ammunition we need to negotiate any repairs or a reduction in sales price with the seller. Remember, when you sign the documents at the closing, you’re not just buying a house, you’re buying any problems that may be present. A home inspection will help prepare you for that!
The appraisal is required by the lender and it’s on your dime. The lender needs to know that the house is actually worth the amount of money that you’ve agreed to pay. The appraisal will determine the current value of the home and as long as it’s AT or ABOVE the sales price, then you’re golden! It’s what we mean when we say that the appraisal has passed. But if the value comes back below the agreed upon sales price then we will then go back to the seller, with a copy of the appraisal in hand, to ask for a price reduction. The bank won’t loan more money on a property than it’s worth.
On a side note, the only instance in which the seller will see the appraisal is if it comes back below the sales price. As long as the house passes appraisal, there’s no need for the seller to see the value at all.
At first glance, the inspection and appraisal may seem very similar. So similar that you wondered why you should pay for both. But I hope that this post has cleared up the confusion, helped you understand the differences, and why both costs are necessary parts of your transaction.