The difference between an Appraisal and a Home Inspection

A nice home

The difference between an Appraisal and a Home Inspection is very significant. If you’re in the process of buying or selling a home, you often hear the terms “appraisal” and “home inspection” thrown around. While both are important steps in the home-buying process, they serve different purposes.

The Appraisal

An appraisal is an evaluation of a home’s value conducted by a licensed appraiser. The purpose of an appraisal is to determine the fair market value of the home. Lenders require appraisals to ensure that the property they are financing is worth the amount they are lending. Appraisers are generally not concerned with safety or functionality, only a home’s value.  If a home is bought without a loan, an appraisal is generally not necessary.

While the buyer and Real Estate agent often get a copy of the appraisal, the appraisal is primarily for the loan’s underwriter(s). The underwriter will go through the appraisal report to verify the report makes sense and that the report can justify the terms of the loan. A primary way an appraiser determines value is to compare the subject property to other homes nearby, as well as neighborhood conditions. An appraiser is usually at home for 30-40 minutes, however, they will spend many more hours examining the neighborhood and nearby homes.

The Home Inspection

California Business and Professions Code Sec. 7195 defines a home inspection as a noninvasive, physical examination of the mechanical, electrical, or plumbing systems or the structural and essential components of a residential dwelling to identify material defects in those systems, structures, and components. The home inspector will examine and test over 101 items in the home for safety and functionality.  Unlike an appraiser, a home inspector is not concerned with the value of the home.  A home inspector may spend 2 to 4 hours at home, depending on circumstances. A home inspector is focused on the home itself and is not concerned with neighborhood conditions.

The home inspection report is for the buyer to fully understand the condition of the home they are buying. It is important that a buyer read and under their report. The lender generally does not receive a copy of the report.

An improperly installed water heater flue
The appraiser is not looking for an improperly installed flue pipe. The home inspector is.

What about VA and FHA Loans?

A common misconception is that appraisals for VA and FHA come with a home inspection performed by the appraiser. This is partially true in that an appraiser for VA and FHA loans has a checklist of items that cross over to home inspection. However, the scope of the inspection performed by an appraiser is very limited in scope. An appraiser is not looking in an attic, entering the crawlspace, or attempting to climb on the roof.

A few examples:

A VA/FHA appraiser will check a faucet to see if the home has hot water. They will not examine the date of manufacture of the water heater or check to see if the water heater is properly installed. Nor will they check every available faucet for functionality. A home inspector will.

A VA/FHA appraiser will check to see if the home has a working heat source that will heat a room in the home to at least 50 degrees. They will not examine how old the unit is, check for rust, or examine the heat source’s installation. The home inspector will.

A VA/FHA appraiser will look at the roof from the ground to check for any obvious holes or failures. They will not examine the roof from the attic or get on top of the roof. A home inspector will examine the roof in detail. 

A home inspector inspecting a roof
The home inspector will get examine the roof in detail, the appraiser does not.

In Conclusion

In summary, while both appraisals and home inspections are important steps in the home-buying process, they serve different purposes. An appraisal is an evaluation of a home’s value, while a home inspection is a detailed examination of the condition of the property. An FHA appraisal is a limited home inspection, but it is not nearly as detailed as a general home inspection. It’s important for both buyers and sellers to understand the differences between the two and to ensure that they have both completed before closing on a property.

Inspecting a furnace in an attic
A home inspector will get into the attic and inspect the furnace up close. An appraiser does not.

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