Appraisals Versus Home Inspections

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. Low appraisals sometimes sink loan approvals and disastrous home inspection reports might cause buyers to rethink purchase offers. Home appraisals are estimates of the market value of a home made by professionals, according to guidelines established by the industry and state regulation. Home inspections are estimates of a home’s condition based on an expert’s inspection of the mechanical systems and structure of the house.  Appraisals 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.  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.  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. 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.  Bottomline, both are necessary during the process of purchasing a home.