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A home inspector and an appraiser are both paid to poke around your house, peering into closets and the tiny basement bathroom no one ever bothers to use. And while you understand that a home inspection and appraisal are integral to selling your house, it’s easy to forget how these processes work. After all, it’s been ages since you bought your home. What exactly are they looking for again?
Home appraisers and inspectors both visually examine and evaluate your home. The difference is, they’re looking at different parts for distinct purposes. Home inspectors focus on the condition of your home’s structure and systems. Does everything work as it should?
On the other hand, appraisers evaluate your house to determine its value (how much your home is worth). While your home’s overall condition can play a part in the appraisal process, condition isn’t an appraiser’s primary objective.
To better understand the difference between an appraisal and a home inspection, we rounded up three industry experts for advice:
- Tamarah Curtis, top real estate agent and winner of Houston Business Journal’s Top 10 Real Estate Agent Award from 2015 to 2020;
- Pie Loeper, a California-based certified residential appraisal with more than 30 years of industry experience, and;
- Cesar Costa, licensed home inspector and owner of HouseMaster in the Fort Lauderdale area of Florida. Costa is also the author of “What Every Realtor Should Know About Home Inspections: A Guide to Avoiding Traps and Common Mistakes”.
With their insight, we’ll shed light on how the inspection and appraisal can affect your home sale.
What is a home inspection?
A home inspection is like having a check-up with the doctor — the home inspector investigates the health of your home. “We provide detailed information about the actual condition of the property,” says Costa. “It’s about the functionality of the components and elements … the life span of the components, as well.”
After examining the visible and accessible areas of your home structure and systems, from “roof to foundation,” the inspector presents a written report of their findings, along with accompanying recommendations and photos. In addition to the home’s condition, Costa says he makes note of “how every element has been maintained, and how much more maintenance is expected.”
In a home sale, it’s customary for the homebuyer to commission and pay for the home inspection. However, some sellers hire a home inspector before listing their home to conduct what’s known as a pre-listing home inspection. In this case, the seller pays for the inspection.
How much can you expect to pay for a home inspection? According to HomeAdvisor, the national average for an inspection is $350, but cost can range from $200 to $500. The price varies based on your market, size of home, distance or travel time for the inspector, and type of home structure (for instance, a condo may cost less than a detached single-family house).
Bottom line for sellers: According to Costa, the primary purpose of a home inspection is to identify potential defects or problems with the house that the buyer may object to.
What is an appraisal?
If you’ve ever watched the TV show “Pawn Stars,” you already know the basic premise of an appraisal. Customers stroll into the pawnshop ready to sell grandma’s antique spoon set. Before he decides whether to buy the spoons, shop owner Rick must answer the question: How much are they worth?
Similarly, home appraisals are an opinion of value. What is the market value, or the amount someone will pay for your home on the open market? An appraiser dives into public data records and recent sales of similar homes, or comparables, for key data points that help the appraiser estimate your home’s market value.
In a home sale, the buyer’s lender frequently orders an appraisal as a condition of the buyer’s loan. It’s a way for the lender to protect their investment. If the buyer defaults on the loan, the lender wants to ensure they can recoup their investment, should the lender be forced to sell. The appraiser’s valuation verifies that the approved loan doesn’t exceed the value of the property. A homeowner may hire an appraiser before a buyer is involved to complete a pre-listing appraisal. The pre-listing appraisal can help a seller decide on a list price, particularly for a unique home where comparable homes are scarce. Appraisals can also be used to value property assets in estate planning and divorce proceedings.
During a traditional appraisal, the appraiser evaluates both the interior and exterior of the property. Alternative appraisal types exist, such as an automated desktop or “drive-by” appraisals, where interior evaluations aren’t necessary.
Bottom line for sellers: A home appraisal is a professional report that answers the question, “what’s my house worth?”
What do home inspectors look for?
Home inspectors evaluate the operating condition of your home’s major systems, which include:
- Heating and air conditioning (weather permitting)
- Interior plumbing
- Electrical system
Inspectors don’t have x-ray vision. They can’t see through walls or concrete, so home inspections are limited to what’s visible.
Costa says that he also points out potential problems, such as outdated code and components that are nearing the end of their lifespan. For example, he may note that an electrical panel is under recall by its manufacturer or that a 15-year-old water heater will probably need replacing soon.
And since home inspectors are generalists, they may recommend further evaluation by a specialist. For example, if the inspector observes cracks on the foundation, uneven floors, and doors that aren’t square, the inspector could recommend additional evaluation by a foundation specialist.
Bottom line for sellers: Inspectors look for potential issues or defects in a home. For a home inspector to complete their evaluation, keep access to major systems clear. Remove boxes blocking the water heater, for example.
What do appraisers look for?
Much of the appraisal process includes desk work, such as collecting data from public records and the local multiple listing service (MLS). The appraiser combines their visual observations of the home with data from comparable sales and overall market conditions for an opinion of value.
When visiting your home, Loeper says appraisers note the condition of the property, but not to the same extent that a home inspector does. Appraisers don’t flick light switches to make sure they’re working or turn on appliances like a home inspector would, Loeper explains. Instead, your appraiser looks at the construction quality, quality of finishes, and extent of the finishes throughout the home. Other factors appraisers consider include:
- Features versus property data. If public records show your home has three bedrooms, but the appraiser discovers there are four, the additional bedrooms could affect your home’s value.
- Quality and condition. “Is the kitchen upgraded, but the bathrooms are standard?” asks Loeper. The appraiser may also note if home features are particularly worn, which could mean that those features are nearing the end of their life span.
- Permits for add-ons and renovations. Appraisers note upgrades and additions, and may inquire (with the local permitting office) whether the homeowner obtained permits for the work. If not, the lack of permits could negatively impact the appraisal. Some municipalities could force the homeowner to remove unpermitted work, says Loeper.
- Floor plan design. Loeper adds that she will evaluate a home’s floor plan. Do the rooms flow together, or are they awkwardly segmented? Does the overall floor plan make sense? Is the flow similar to other homes in the area?
Bottom line for sellers: Appraisers evaluate more than square footage and the number of bedrooms you have.
What’s a home inspector’s end goal?
Inspectors discover and report potential drawbacks and problems in a home. A home inspector’s end goal is to give a “full evaluation of the actual condition, how every element has been maintained, and how much more maintenance is expected [in a home],” explains Costa. The inspection report is presented in a written format.
How the report impacts home sellers: A home inspection can impact buyer and seller negotiations. For example, a buyer may want to negotiate a seller credit if the inspector notes that the heater isn’t working. On the flip side, a clean inspection with no major faults can be a marketing tool for sellers.
What’s an appraiser’s end goal?
The appraiser provides a written report with an estimated market value of the subject property. The appraiser conducts a physical inspection of the property to verify pertinent information that could affect the home’s value, such as square footage and the number of bedrooms.
How the report impacts home sellers: If the value comes in lower than expected, the buyer may attempt to re-negotiate the purchase price. The lender may also lower the approved loan amount for your home.
Are home inspections required?
For the most part, no, says Curtis. She says that some government loans may require certain inspections, but conventional loans generally don’t.
Costa explains that buyers rely on the home inspection to confirm the condition of the home they’re buying. The inspection warns buyers about the potential for costly repairs before they move in. Based on the terms of the negotiated purchase agreement, the buyer may require a home inspection.
Bottom line for sellers: Home inspections aren’t usually required, but the buyer will probably want one to know the condition of your home before they commit to purchasing.
Are appraisals required?
Unless the buyer pays in cash, appraisals are a required part of the home sale process. If there’s a loan involved, the bank usually requires an appraisal to ensure they’re not lending more than the home’s market value. A satisfactory appraisal must meet or exceed the purchase price. Otherwise, the buyer may have to pay the difference in cash or walk away from the deal.
While the appraisal isn’t required for a cash purchase, the buyer can still request one to confirm the home’s value, says Curtis.
Bottom line for sellers: When there’s a home loan involved, you’ll need a lender-ordered appraisal on your home. If the buyer is paying cash, an appraisal isn’t required.
How should you prepare for your home inspection?
When making the inspection appointment, ask the inspector how long it will take to evaluate your home. You don’t have to stick around during the inspection, but you’ll need to make your home available for several hours. Curtis says inspections can take anywhere from three to five hours, depending on how large your home is.
On the day of the inspection, remove your pets or secure them in a safe spot. Check to ensure that the inspector can easily access your home systems such as the HVAC. And lastly, avoid running the sprinklers — you don’t want the inspector to track mud into the house!
Beyond this prep, consider proactively fixing known issues before the inspection. You’re less likely to scare off a nervous buyer if you keep the list of inspection findings as short as possible. Here are a few tasks to check off:
- Check under sinks for plumbing leaks.
- Fix any running toilets.
- Apply caulking sealant to bathroom tile and around windows.
- Replace burned-out light bulbs.
- Service the HVAC.
- Cut back foliage near the exterior structure.
- Keep recent service or upgrade records handy.
How should you prepare for the appraisal?
You don’t need to overhaul your home to impress the appraiser. Instead, prepare for your appraisal appointment with these tips:
- Tidy up. Loeper advises sellers to tidy up, “but just to the extent one would typically do if they are expecting company.” A cleaner home gives the appraiser a better look at the space. If one room is overflowing with boxes, for example, your appraiser won’t be able to evaluate that part of your home.
- Make sure all rooms are accessible. Don’t expect the appraiser to scoot boxes or furniture aside to gain access to the spare bathroom. “Observations of the property are only visual and do not include moving any personal property,” Loeper says.
- Offer the appraiser a list of upgrades and recent comparables. Prepare a list of recent upgrades you’ve completed, the dates the work was completed, and the approximate cost. You can also ask your agent to create a list of comparable sales for you to pass on to your appraiser. “I’ve never had one appraiser not welcome additional information,” says Curtis.
What should sellers expect during a home inspection?
Here’s what sellers can expect during their home inspection:
Your presence isn’t required for the inspector to complete their inspection (only access), but it’s recommended. Curtis suggests homeowners remain on-site in case the inspector has questions about the home. You’ll want to set aside three to five hours of your day, depending on the size and scale of your inspection.
Costa says he has a set process for how he evaluates a home, and he inspects items based on a mental checklist. Some inspectors will take notes on a notepad or tablet. They will also take photos of areas they plan to reference in a report. For example, if your inspector finds rust at the bottom of the water heater, they will photograph the water heater for reference.
Buyer-procured home inspection
Curtis recommends that sellers step out of the house if the buyers attend the inspection. “[Buyers] don’t feel comfortable having to sit there and stare at the seller” for several hours, she explains.
Bottom line for sellers: Be prepared to give your home inspector access to your home for several hours.
What should sellers expect during an appraisal?
Loeper estimates that a traditional interior and exterior appraisal visit may take as little as a half-hour for a small home, and up to four hours for a large, custom-built property. “I usually quote an hour, but it can vary greatly,” says Loeper.
During the visit, the appraiser measures the square footage of your home. Curtis says that the square footage listed in public records isn’t always accurate, so correct measurements are key. “One of the biggest problems we’re seeing lately are actual measurements,” she notes. Even a variance of 100 square feet can impact the appraiser’s final value.
In addition to measuring your home, Loeper says she walks through the entire house, taking notes along the way. Your appraiser may also take photos of your home for the final report.
And there’s no need to accompany the appraiser. If you have questions or concerns, save them until after the appraisal is finished walking through the property. Loeper says she prefers to walk through the home alone and speak with the owner at the end of the appointment.
Bottom line for sellers: Give the appraisal some breathing space — don’t tag along while they evaluate your home.
Inspections and appraisals are pivotal pieces for your home sale
“The two most important things after you negotiate [the purchase agreement] is the inspection and the appraisal,” Curtis reveals. Both serve different purposes in the sale of their home, and the trouble-free closing you’re hoping for can hinge on these two reports.
A poor outcome, such as a low value or major foundation defect, could result in additional buyer negotiations, closing delays, or worse — a buyer who backs out. On the other hand, a positive outcome can signal a seamless home sale.
Header Image Source: (Cat Han / Unsplash)