Appraisers often balk at assignments that require a more detailed inspection of the subject property (e.g., FHA appraisal assignments) because they don’t want to be considered a “home inspector.” Do you believe you are acting as a home inspector when you complete a property inspection as part of an FHA assignment? No matter how you may have answered this question in your mind, let’s explore some of the issues around appraisal inspection vs. home inspection.
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Are you a home inspector?
One of the really clear ways to know if you are performing a home inspection is: 1) if you are licensed in one of the 30-plus states that currently license or register home inspectors; and/or 2) you were hired to perform a service as a home inspector. For a state-by-state look at the requirements to become a home inspector, visit homeinspector.org.
The licensing laws and regulations for home inspectors do not permit them to develop opinions of property value like appraisers do. A home inspector might estimate the cost of certain repairs, but value opinions are left to the appraiser. So right from the start, in at least 30 states that license home inspectors, the property inspection you make for the purposes of developing an appraisal should not be confused with a home inspection completed by a home inspector, because you are not licensed as home inspector and you were not hired by the client to complete a home inspection. You were hired to complete an appraisal.
Why are these roles often confused?
The root of many misconceptions about the appraisal inspection is the word “inspection” itself. It is true that as part of the appraisal process, the appraiser might perform some sort of onsite quality, condition, and functional utility survey of the property to determine its relevant characteristics and if it meets certain standards. For example, to the general public, the FHA requirements that an appraiser must operate certain systems in the home (plumbing, electrical, HVAC) seems similar to what a licensed home inspector does.
No matter how the appraisal inspection appears to the uninitiated, it is not the equivalent of a home inspection. An appraiser is required to observe the subject property and the surrounding area for certain factors which affect the subject property. Appraisers perform similar inspections, to one degree or another, in most appraisal assignments.
There should be no confusion, but of course there still may be uncertainty in the minds of people who are not experienced in real estate. It is important to educate consumers about the difference between appraisers and home inspectors anytime you are presented with the opportunity to do so.
Can an appraisal inspection substitute a home inspection?
An appraisal inspection should not be used as a substitute for a home inspection. Appraisals and home inspections have differing clients and intended uses. In a mortgage lending situation, a home inspection is typically made for the borrower (i.e., the buyer), while the appraisal is performed for the lender.
Let’s talk about the word “inspection”
The Oxford Online Dictionary defines inspection as:
- “Careful examination or scrutiny”
Merriam-Webster’s Online Dictionary defines inspection as:
- “The act of looking at something closely in order to learn more about it, to find problems, etc.; the act of inspecting something”
It’s somewhat of a benign definition, is it not? There’s nothing really scary there, yet many appraisers attempt to avoid confusion, and (potentially) limit their liability, by avoiding use of the word “inspection” entirely. Many appraisers use euphemisms for this term in their appraisal reports, such as “property visit” or “viewing.” Even FHA got into the euphemism game with the publication of Handbook 4000.1, which went into effect in 2015. The words “inspect” or “inspection” generally do not appear in reference to an appraiser’s obligations. Instead, the words “observe” and “observation” are used.
For example, in the “Doing Business With FHA” section of the handbook, it states, “Appraiser refers to an FHA Roster Appraiser who observes, analyzes, and reports the physical and economic characteristics of a property and provides an opinion of value to FHA. An appraiser’s observation is limited to readily observable conditions and is not as comprehensive an inspection as one performed by a licensed home inspector.”
Some appraisers have inserted this statement word-for-word in their FHA appraisal reports in order to clarify the appraiser’s role and to distinguish themselves from home inspectors. It remains to be seen whether the use of terminology other than “inspect” or “inspection” has any meaningful effect on the appraiser’s liability. In the interest of consistency, we will use the words “inspect” and “inspection” throughout this article and in our course, Residential Property Inspection for Appraisers.
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What inspection skills do you need as an appraiser?
An appraiser is not expected to have the same level of knowledge as a professional home inspector. Nevertheless, an appraiser is expected to have more knowledge about construction and systems in a dwelling than a layperson would.
Relatively few appraisers take courses on inspection skills or construction. I have heard more than one appraiser say something along the lines of, “Why would I want to take a class on _____ (property inspection, construction, mechanical systems, etc.)? After I have taken the class, I’ll be held to a higher standard and I won’t be able to plead ignorance if I get sued.” It’s a strange school of thought.
The fact is, as an appraiser, you are responsible for having a basic knowledge of structures and how to inspect them. The more you know, the more you realize what you don’t know, and your ability to protect yourself from liability will be increased. Ignorance is bliss, until the rude awakening that comes with a lawsuit or a disciplinary action by a state enforcement agency as a result of overlooking something in the inspection of the subject property. Our course, Residential Property Inspection for Appraisers, is designed to help you sharpen your appraisal inspection skills and teach you to better document your inspection of the property. This, in turn, may help you manage your liability.
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