You might be surprised to learn that house appraisals and house inspections are different. While the two have big differences, there can also be some confusing similarities between house appraisals and inspections.
Not to worry, this in-depth guide highlights the differences between an appraisal vs. inspection so you know what to expect when selling a house fast in Philadelphia.
Continue reading to learn more about these terms, the similarities between appraisals and inspections, and the significant differences between the two.
House Appraisal vs. Inspection
When selling your home in Aston, Pennsylvania, or anywhere in the world, getting your house appraised and inspected is the best way to secure a mortgage and pay a fair price for the property that reflects its true value.
So, what exactly are house appraisals and house inspections?
A house appraisal is when a licensed appraiser determines the value of a property.
A house inspection examines the safety and current state of the property.
Remember, many real estate agents list house prices according to the current market value, which doesn’t always reflect the property’s appraisal value. Listing according to the market value means house appraisals don’t greatly influence listing prices. Rather, the asking price reflects the current state of the housing market in your area.
So why do you need an appraisal? When homeowners want to secure a mortgage loan from their bank, the bank must ensure that they’re lending an accurate amount in line with the true value of the home. This is why homeowners must get a house appraised. An appraisal proves to the bank that the mortgage amount requested is on par with the value of the property.
The bank or mortgage broker uses a house appraisal to confirm that they can sell the property and earn back their investment if the borrower goes bankrupt or skips out on their payments.
On the other hand, a house inspection is part of the prospective buyer’s due diligence before committing to the sale. Often, home buyers put a conditional offer on the house, then arrange for an inspection of any potential problems.
The prospective buyer inspects a house to ensure that the property is in good condition and a safe place to live. However, a home inspection doesn’t analyze the value of the property or home.
However, a home buyer can still use the inspection to their financial advantage. Once an inspection gets conducted, the prospective buyer can negotiate the price or adjust the terms of the sale based on this new information about the property.
A negotiated price would take into account the costs of repairs or maintenance work needed for the buyer to make the house livable. However, most often, home inspections get used by buyers to have the current homeowner handle essential maintenance work before the sale is finalized.
For example, if a homeowner lists their home for $500,000, but the inspection reveals $20,000 worth of damage, the prospective buyer could either negotiate a lower sale price or request that the current homeowner fix these potential issues before relinquishing their home to its new owner.
Differences Between a House Appraisal and an Inspection
While house appraisals and inspections are both necessary parts of the home-buying process, they focus on different things. The key thing to note is that a home inspection doesn’t focus on monetary value; instead, it focuses on quality and the state of the property.
A home inspection focuses on evaluating your home for:
- Maintenance and repair work on the interior and exterior
- Safety issues like asbestos or radon
- Energy efficiency
Meanwhile, a home appraisal focuses on determining your home’s market value based on the following:
- House and lot size
- Number of bedrooms
- Property Location
- Comparable properties
- Features like an HVAC system
The prospective buyer may lose their financing if the inspection reveals that the home needs maintenance. However, an inspection can help the buyer negotiate better terms or withdraw their conditional offer without penalties.
If the inspection shows that the house is well-maintained and has no urgent repair work, the buyer will have more peace of mind before committing to the sale.
To recap, the main difference between a house appraisal vs. inspection is what the evaluator focuses on; the value of the home vs. the condition of the home.
Confusing Similarities Between House Appraisals and Inspections
Now that you understand the differences between house appraisals and inspections, it’s time to discuss their confusing similarities.
Both house inspections and appraisals require a professional to walk through your home and note its features. Likewise, these two aspects of the home-selling process affect the final price when selling a home.
That said, their similarities end there.
FHA and VA Appraisal Inspections
Before we dive into the details of FHA and VA appraisal inspections, it’s important to know what these abbreviations mean.
A Federal Housing Administration (FHA) loan is a type of mortgage issued by a lender that the FHA insures.
A Veterans Affairs (VA) loan is a type of mortgage issued to a veteran or active military person by a private lender that the US Department of Veterans Affairs guarantees.
VA loans do not require home inspections but require a home appraisal to qualify for the loan. To obtain a VA loan, the potential buyer must provide information about the appraised value of the property to ensure the mortgage lender doesn’t provide a loan for more than the property’s worth.
In contrast, FHA loans require an appraisal and a home inspection from a licensed appraiser. When applying for an FHA loan, the home buyer must provide the lender with an inspection report and an appraisal report.
An FHA inspection is similar to a conventional inspection. However, FHA inspections focus more on safety, livability, and the structural condition of the house. Some of the things covered in an FHA inspection include:
- Cracked or peeling paint
- Missing or wobbly railings or steps
- Adequate water pressure
- Functional AC and heating
- Damaged roofs or missing shingles
It’s likely that a conventional inspection will spot the things listed above. However, if you’re buying the house using an FHA loan, you must use an FHA-certified inspector.
Do Lenders Require Appraisals or Inspections?
Appraisal vs. home inspection, which one do you need when buying your new home to get a home loan?
Regardless of the loan amount, lenders require an appraisal to sign off on the transaction. It’s important to any lender that the borrower justify the loan amount with proof.
Home inspections, on the other hand, are typically not mandatory. Instead, a home buyer gets a home inspection to do their due diligence before committing to a down payment and new mortgage rates.
That said, always check with your mortgage provider if an inspection report and an appraisal report are necessary to secure a loan.
How Home Appraisals Work
A home appraisal is when an appraiser offers their expert opinion regarding the value of the home. Typically, cash home buyers in Pennsylvania don’t need an appraisal. Why? Because an appraiser acts as an unbiased party to give an honest opinion of the home’s value so a lender doesn’t overpay when signing a loan agreement.
Essentially, an appraised value is given to the bank to determine if they could recoup their investment by selling the property should the borrower fail to pay their mortgage payments.
A licensed appraiser will walk through your home and determine its value based on square footage, similar homes, and their expert opinion. An appraiser will create an appraisal report that the buyer will then give to the lender.
If you want to get the highest appraisal amount possible, check out these tips to increase your house value.
How Home Inspections Work
The home inspection process analyzes the condition of the property. Inspections are meant to find safety hazards or non-cosmetic changes that must be made before the new buyer gets their key.
A licensed home inspector will walk through the house and note any damages or necessary maintenance work that they see. The inspection doesn’t affect the appraised value. Instead, an inspection provides home buyers with negotiating power or the chance to walk away from the sale.
In the case of FHA loans, a failed home inspection could mean the loss of funding for some home buyers. The FHA could deny a mortgage loan for some of the following reasons:
- Damaged, leaking, or inadequate roofing
- Faulty heating, plumbing, or electrical wiring
- Structural issues or problems that might result in structural damage
- Defective water heating or kitchen appliances
Learn more about what you can do before the inspector arrives with this home inspection checklist for sellers.
Now that you know the differences and sometimes confusing similarities between a house appraisal and an inspection, you’re ready to put in a bid or accept a new offer.
And guess what? We buy houses in Aston with cash payments, with zero agent fees, and no home repairs or renovations necessary. Our friendly and professional team will guide you through the process of selling your Aston home, and we’ll make an offer that you’ll be glad to accept.