Understanding Appraisal vs Home Inspection: What's the Difference and How Much Does an Appraisal Cost?
Buying a home can be an exciting yet complex process. Two key elements that play crucial roles are the appraisal and home inspection. In this article, we will delve into the differences between these two processes, their importance, and how much an appraisal typically costs.
The Importance of the Appraisal
When purchasing a home, the lender will almost always require an appraisal. This is to ensure that the property is worth the amount being borrowed. For instance, let's say you are buying a home for $100,000 and you and the lender agree that the loan amount will be 90% of the lower of the appraised value or the sale price, and you are putting down $10,000. The total loan amount will be $90,000.
What Happens If the Appraisal Value is Lower?
Let's assume the appraiser determines the fair market value of the home to be $95,000. In this case, the lender will still offer a loan of 90% of the appraised value, which comes to $85,500. If you were initially planning on paying $10,000 at closing, now you need to bring $14,500. This is because the lender is obligated to lend based on the appraised value rather than the agreed-upon sale price.
The Role of the Appraiser
The main role of the appraiser is to determine the fair market value of the property. However, they also have to ensure that the property is safe and in good condition. Deficiencies such as a bad roof, non-functioning appliances, and missing flooring can negatively impact the value of the property. Even though the primary purpose is valuation, appraisers help protect lenders from overvalued loans and prevent buyers from overspending.
The Home Inspector’s Role
While the appraiser focuses on the overall value of the property, a home inspector assesses the functionality and condition of various components, such as the HVAC system, plumbing, and electrical wiring. These inspections are usually performed for the benefit of the buyer. The home inspector will identify issues that need to be addressed and recommend the necessary repairs or maintenance.
When to Call a Home Inspector?
During the home inspection, the inspector will check the various components of the house to ensure they are working properly. For example, if the air conditioner, water heater, or roof is deemed faulty or not up to standard, the inspector will suggest contacting a qualified contractor for further investigation.
Hiring a Home Inspector and Appraiser
Home inspectors are hired directly by the buyers, whereas appraisers are typically hired by the lender. Both professionals have the same goal: to identify potential issues. However, they do so for different reasons and from different perspectives.
Cost of an Appraisal
The cost of an appraisal can vary depending on the location, the complexity of the property, and the specific lender requirements. Generally, the fee for an appraisal is between $300 and $500. The appraisal cost can be included in the closing costs or paid separately by the buyer. It's important to note that the cost of an appraisal is not included in the home inspection fee, which can range from $300 to $500 depending on the home's size and complexity.
Conclusion
The roles of an appraiser and a home inspector are distinct but equally important in the home-buying process. Understanding their differences can help buyers and sellers navigate the home purchase more effectively. Remember, it's always beneficial to have both a thorough appraisal and a detailed home inspection to ensure you are making a fully informed decision.
If you're looking to buy or sell a home and need guidance, consider reaching out to a local real estate professional who can provide you with more information and personalized advice.