In a previous post, Homebuying 101: Prequalification versus Preapproval, we explained two commonly mistaken terms in the homebuying process. Now that you have a better understanding of prequalification and preapproval, we would like to familiarize you with two more commonly mistaken, but also closely related, terms involved with the homebuying process—home inspection versus real estate appraisal. Even though these two terms are both important in the homebuying process, they possess two completely different purposes.
Home Inspection: The Cold, Hard Facts
If you have found your ideal home in this competitive real estate market, the next step in the homebuying process is getting the property inspected.
An inspection is an examination of the condition of a property (at the time of inspection) to provide the buyer with the information needed to make an informed decision on a home purchase. Most homebuyers hire a licensed, certified inspector to do a detailed walk-through of the home to determine the condition and state of the property. Home inspections are optional when purchasing a home, but often highly encouraged, as they allow homebuyers to get a comprehensive picture of what they are really getting into before finalizing the purchase.
Home inspectors examine the property in complete detail from roof to floor. They check—among other things—the following areas of the property: the structure of the house, the foundation, both interior and exterior construction, the plumbing (pipes), ventilation, heating and air conditioning, installation, electrical, drainage, and all built-in kitchen appliances. Inspectors pay special attention to costly mechanical things homebuyers wouldn’t necessarily notice during a walk-through of the property.
Significant defects could be costly to a buyer if repairs are large enough. So, this proactive measure gives borrowers a heads up of what’s to come if all remains as it was when inspected. Inspectors can note cosmetic issues that are typically indicative of deeper, more costly problems, which may result in advising a buyer to contact a professional engineer, electrician, or plumber for further investigation.
In a nutshell, home inspectors want to help the homebuyer make an informed decision before purchasing their home. For that reason, many requested changes (in a home purchase) from the buyers to sellers derive directly from an inspection report and property findings.
Home Appraisal: The Big Picture
Almost all homebuyers will need to have their soon-to-be home appraised since an appraisal is required by the mortgage lender as part of the homebuying process.
A real estate appraisal is an assessment of a property’s value as determined by the house’s physical characteristics, features, condition, and in comparison to homes for sale in the surrounding area.
Appraisals are completed by trained and certified real estate professionals that are licensed to gauge the value of a home, primarily to help secure a mortgage, refinance, or purchase a new home. The main objective for an appraiser is to help assure lenders that the loan amount does not exceed the value of the property.
Homebuyers should be made aware that appraisers have different ways of evaluating a home appraisal, but they all work toward the same goal to obtain the property’s value. Appraisers will generally take external measurements of the property, as well as pictures of the exterior and interior of the house, and any visible improvements that add value, like a porch, deck, in-ground pool, room additions/expansions, etc.
Common features that appraisers consider as adding value to a home are updates to kitchen appliances/layout, countertops, back-splashes, modern light fixtures, remodeled bathrooms, hardwood floors, new roof, freshly painted walls, finished basement, and any improvements to the existing property. Homebuyers should consider the quality of renovations, because improvements can make a major impact on the home’s value, and add significance when determining the worth and marketability of a home.
While buying a home can be a daunting process, knowing the terminology and the sequence of events that must take place during the buying process can make the whole ordeal a lot easier.
Check out another helpful post: Homebuying 101: What to Do While Your Home is Under Contract
*For informational purposes only