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Appraisals Versus Home Inspections

Created on: August 11, 2014,

Updated on: August 24, 2024

Reviewed by David Naimey

Approved by Chad Turner

Key Takeaways

  • Home appraisals determine a home’s market value, while home inspections assess its condition.
  • Low appraisals can affect loan approvals, and inspection reports can influence purchase decisions.
  • Lenders base mortgage amounts on appraised values, requiring buyers to cover any shortfall.
  • Inspections reveal necessary repairs, prompting negotiations for repairs or credits.
  • Both processes are crucial in home buying to ensure informed decisions.
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    Do I need both? Home appraisals tell you how much a home is worth, and a home inspection tells you why you might not want to buy it, regardless of price. Both processes have the capacity to derail home purchases.

     

    Home Appraisals

    Home appraisals are estimates of the market value of a home made by professionals, according to guidelines established by the industry and state regulation, and they usually take between 1-3 weeks. They are critical elements in home buying and refinancing. Lenders hesitate to fund more than 80 percent of the market value of a home. When buyers and sellers agree to a sales price on a home, lenders do not automatically agree to provide a mortgage based on that number. The lender bases the amount it is willing to lend on the appraisal, so when a home appraises for less than the purchase offer, the buyer must come up with the money to cover the difference. Sometimes, the seller agrees to sell the home for less money in order to save the sale.

     

    Home Inspections

    Home inspections are estimates of a home’s condition based on an expert’s inspection of the mechanical systems and structure of the house. Buyers base purchase offers on the assumption that the home is in good shape. When inspections reveal items needing repair, buyers ask sellers to either repair the flaws or to credit them money back so that they can do the fixes themselves.

     

    Resolving Impediments

    As unfortunate as both situations might be, qualified buyers and willing sellers often resolve impediments to a sale. Flexibility in negotiations is important, and setting priorities on both sides helps to keep emotions in check.

     

    Deal Breakers

    Sometimes, a very low appraisal is a deal breaker. Buyers might balk at the idea of spending more than the home appraisal number. Sellers might refuse to lower the price or make any concessions. Likewise, a laundry list of physical flaws in a home inspection report might spook first-time buyers or those unwilling to deal with repairs. Sellers might not understand what all the fuss is, having lived with the flaws for years.

     

    Conclusion:

    In conclusion, both home appraisals and inspections are necessary during the process of purchasing a home.

     

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