There are many important steps involved when looking at purchasing a home. From shopping available homes to touring properties, submitting offers to sellers, and signing contracts, there is no shortage of tasks for a potential homebuyer to check off their list.
Once your purchase offer is accepted, you’re well on your way to closing and getting the keys to your new property. However, there are two important tasks that you may need to complete first: getting a home inspection and having the property appraised.
For many of us, our home is one of the biggest single investments we will ever make. The average home sales price in the United States has also been climbing steadily for years, reaching an all-time high of $477,900 in late 2021.
Your home is also your gathering place, where you raise your kids, and where your family rests their heads at night… so it’s important that you know your property is safe and worth the cost. This is where a home appraisal and a home inspection often come into play.
If you purchase a home with the help of a mortgage loan, you will likely be required to pay for a home appraisal, home inspection, or both. Even if you buy a property with cash, you may still decide that at least one of these inspections is worth the cost.
But how do these two services compare to one another, and what value do they offer you as a homebuyer?
A home inspection is an in-person examination of a property that is conducted prior to closing on your transaction. It is typically performed by an inspector who has been licensed by your state’s regulatory agency. He or she may also be a member of the American Society of Home Inspectors (ASHI).
Home inspections may or may not be required by a lender; even if it isn’t required, however, it still tends to be in the buyer’s best interest. Inspections are generally conducted shortly after an offer has been made and accepted on a property, but before the potential buyer’s option period has ended. A report is then generated within a day or two, which is provided to the buyer for review.
During a home inspection, your inspector will personally examine various systems and components of your home, looking for any damages or defects that may be visible. The exact systems checked will vary according to your state, the property, and even the inspector themselves. In general, though, home inspections will check the property’s:
Roof and foundation
Windows, floors, ceilings, and doors
Heating and cooling systems
Attic/basement structure and visible insultation
Some home inspectors may also examine appliances in the home, such as the oven, fridge, garbage disposal, hot water heater, and/or septic system. However, this is not required.
Depending on what is found in this home inspection report, the buyer may choose to proceed with the purchase as planned, back out of the purchase, or even renegotiate their purchase agreement with the seller. Either way, it helps the buyer go into the transaction confidently, knowing that there aren’t any obvious issues lurking just below the surface.
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While home inspections might be optional, a home appraisal is usually required when buying a home… at least, if you plan to use a home mortgage to purchase the property. That’s because a home appraisal report will determine the value of the property you’re planning to buy, based on current market trends.
A home appraiser will look at many different factors when calculating your home’s appraised value. These include its:
Location (including the city and even the specific neighborhood)
Number of floors
Structures, such as the roof and foundation
Comps, or comparable homes that have recently sold in that same area
Updates or renovations
Each of these factors can affect a home’s value, which can change over time according to market conditions and demand.
Many lenders will insist on a new home appraisal report prior to approving your mortgage loan amount. This helps the lender ensure that there will be sufficient equity in the home to secure the loan. If your home appraisal report shows that you’re paying more for the home than it’s technically worth, your lender may require you to contribute a larger down payment toward the purchase.
Both home inspections and home appraisals play an important role in the homebuying process. While they each serve a different purpose and come at an added cost (usually for the buyer), both can help spare you from unnecessary headache the next time you’re in the market for a home.
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