Appraisals vs. Inspections

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The difference between home inspections and home appraisals often are confused by home buyers, especially if the homebuyers are first-timers. In some cases the distinction is unclear to sellers as well.

A home inspection looks at the physical condition of the property and can expose hidden flaws. This inspection includes not only cosmetic appearance, but also systems such as A/C, electrical, and plumbing. The inspection report will outline what works and what doesn’t and may include repair or replacement recommendations. The inspection is performed by a licensed home inspector. Here in Texas they are licensed by TREC (Texas Real Estate Commission). Inspections are strongly suggested, yet not mandatory and are done for the benefit of the buyers. The inspection should be performed in the first few days of a purchase contract, preferably within an option period, giving the buyers the option to move forward, cancel, or negotiate repairs with the seller. It is usually paid for by the buyers at the time of inspection directly to the inspector. The inspection fee is separate from and in addition to the typical closing costs paid later at closing.

A home appraisal focuses on the value of the property. There are several methods used to estimate value, but the most common for residential properties is the comparison method… finding recent comparable sold property values (comps) nearby. Since no two properties are exactly the same, the comparable values are adjusted up or down to arrive at the value of the subject property. The appraisal is done for the benefit of the lender because the appraisal must support the loan amount as well as the type of loan. The appraisal is also beneficial to the buyer, giving peace of mind knowing that the sales price is not out of line. The cost of the appraisal is usually paid for as part of the closing costs at the time of closing, although sometimes they are pre-paid or paid at the time of the appraisal. If a buyer is paying cash for a property, an appraisal is not required, however can be ordered if the buyer so chooses.

~Allen Robison