Appraisal Vs. Inspection: How They Differ

Two professionals bending down to inspect a house foundation during an appraisal inspection

If you’re just starting to explore becoming a real estate appraiser or debating between this career and that of a home inspector, you may have questions about how the two roles differ. Even if you’re an experienced appraiser, you may be curious about the difference, especially since FHA appraisals don’t seem that different. To help clear up any confusion and answer those questions, let’s explore some of the issues of appraisal vs. inspection.

Appraisal vs. inspection: What’s the difference?

Before we dive into the differences between an inspection and an appraisal, let’s define both assignments to provide some clarity into the differences.

What is a real estate appraisal?

A real estate appraisal provides an estimate of the value of a property. To create a report, an experienced appraiser provides information and insight related to factual elements of the property, like square footage and the number of bathrooms, as well as amenities and updates to the property, like a swimming pool or newly renovated, energy efficient kitchen. Also, location, school zones, and comparable home sales in the area factor into the appraisal report.

What is a home inspection?

A home inspection is a comprehensive look at the condition of the property and includes all of the concerns, such as safety issues, code violations, potential risk, and the functionality of major elements of the home, including the plumbing, roof, HVAC, and electric. The inspection will also include the severity of the situation, risk mitigation, and recommendations for repair.

The key difference between an appraisal vs. inspection

While they both include in-depth observations about the property and detailed reports of the findings, they are very different. A mortgage lender requires the appraisal to determine how much to lend to the buyer. If the appraisal comes in significantly lower than the asking price, they are not likely to lend the amount because if they have to foreclose, they may lose money when they sell the property.

A homebuyer requests the inspection, which is often optional, depending on the type of mortgage. The inspection report tells the homebuyer of any issues with the property, and they can use it to re-negotiate the terms of the sale or walk away from the mortgage completely.

Appraiser vs. inspector: How the two roles differ

Now that we know the assignments, let’s look at the people who perform them and how their roles, backgrounds, and processes differ.

What does an appraiser do?

An appraiser is an experienced, licensed professional who determines the value of the property and creates the appraisal report. They visit the property examine elements that determine worth while relying on their experience and knowledge to arrive at informed opinions and judgements related to things like amenities and renovations that can affect value.

To become a licensed or certified appraiser (depending on your state), you must complete a minimum of 150 hours of qualifying education, 1,000 of hands-on experience with a certified appraiser supervisor, and pass the National Uniform Licensing and Certification Examination.

What does a home inspector do?

A home inspector must go beyond observation to test and examine the property, such as testing the lights and HVAC, checking for signs of termites, or going up on the roof to look for soft areas or places where water may get in. Aside from recommendations to how to reduce risk or repair a problem, they are less likely to provide opinions in their findings than appraisers.

To become a home inspector (depending on your state), you need a minimum of 60 hours of education, supervised training, and a passing score on the National Home Inspector Examination.

Can a home appraisal substitute an inspection?

No. A home appraisal is mandatory and requested by the lender whereas the inspection is optional and requested by the homebuyer. Not only do they have different goals, but the appraisal doesn’t list code violations, the need for repair (unless it affects the value of the property) and issues that could spell trouble for the buyer in the future.

Which comes first: Appraisal or home inspection?

A home buyer will request an inspection before the mortgage company schedules an appraisal. This is because the inspection could turn up issues that may cause the buyer to either negotiate the selling price or step away from the purchase completely. Once they have agreed to the selling price after the inspection, the mortgage lender assigns a third-party appraiser to determine the value and if the selling price aligns with it.

Learn if an appraisal career is right for you

If you are exploring career options, download our free ebook “Is an Appraisal Career Right for You?” You’ll learn more about how to become an appraiser, what the day-to-day job entails, and so much more.

Free Download: Appraisal Career Guide

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