An appraisal is an important step in the process, if you are planning to buy a home. It’s defined as a professional evaluation of the market value of the home that you are interested in buying. 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. The difference of it from a home inspection, is that, home inspection assesses the condition of the home before you finalize the transaction.

Here’s a quick breakdown of each one and why they’re both important when buying a home.

Home Appraisal

The National Association of Realtors (NAR) explains:

“A home purchase is typically the largest investment someone will make. Protect yourself by getting your investment appraised! An appraiser will observe the property, analyze the data, and report their findings to their client. For the typical home purchase transaction, the lender usually orders the appraisal to assist in the lender’s decision to provide funds for a mortgage.”

When applying 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. This is regardless of what you’re willing to pay for a house. If you are to use a mortgage to fund your purchase, the appraisal will help make sure that the bank doesn’t loan you more than what the home is worth.

This is very critical in today’s sellers’ market where low inventory is driving an increase in bidding wars, which can lead to push the home prices upward. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house. They are under the assumption that competing buyers will be willing to pay more.

However, the lender will only allow the buyer to borrow based on the value of the home. This is a significant help in keeping the home prices in check. When a confusion or discrepancy between the appraisal and the sale price arises, your trusted real estate professional will help you navigate any additional negotiations in the buying process.

Home Inspection

Here’s the key difference between an appraisal and an inspection.

MSN explains:

“In simplest terms, a home appraisal determines the value of a home, while a home inspection determines the condition of a home.”

Home inspection is the way to determine the current state, safety, and condition of the home before you finalize the sale. If anything is questionable in the inspection process – like the age of the roof, the state of the HVAC system, or just about anything else – as a buyer, you have the option to discuss and negotiate any potential issues or repairs with the seller before the transaction is final. Your real estate agent is the key expert that will help you through this part of the process.

Bottom Line

Both the appraisal and the inspection process serves as critical steps when buying a home, and you don’t have to worry on how to manage them all by yourself. You can always reach out to your trusted and local real estate professional. By doing so, you will have an expert guidance that you need to navigate through the entire homebuying process.

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