What is the difference between an appraisal, a home inspection and an appraisal wavier?

house-appraiser-holding-appraisal-sheet

Both appraisers and home inspectors visit the property and look around. An appraisal wavier may not involve anyone visiting the property.

Although appraisers and home inspection professionals are both key players in a home sale and other real estate transactions, they serve very different purposes. The simplest way to delineate inspectors and appraisers is to talk about the goals of each party: Appraisers estimate a home’s value, while inspectors determine a property’s condition while an appraisal wavier measures risk for the lender.

What makes them appear similar? 

It’s not hard to discern why homeowners could believe a home inspection and appraisal are the same thing. In both cases, a professional comes out to the house and performs a site visit. He or she walks around, opens a few doors, takes some measurements and jots down notes. This includes an examination of exterior and interior space. However, the way in which appraisers and inspectors think about and evaluate home features is different.

“Appraisers estimate a home’s value, while inspectors determine a property’s condition.”

inspection

How home inspectors view a property
Property inspection walkthroughs are generally more detailed than the ones for an appraisal. This is because inspectors need to have a comprehensive view of all components of a house, its condition, and its functionality. In addition to taking photos and notes, inspectors may use other tools to spot trouble areas, for instance, using an infrared camera to note spaces that are at risk for mold growth.

Essentially, an inspector’s job boils down to determining what state a feature is in, whether it works and whether there is a risk for future structural or other damage. For instance, an improperly graded home could flood more often, which could lead to water damage and mold. This and other issues impact whether the home remains a livable space for the owners.

Home inspections give buyers full disclosure on the condition of a house from small issues to major ones. Anything that could present a repair cost could have an impact on a buyer, and an inspection delivers this crucial information.

Inspectors also provide recommendations for repairs as well as estimates for the costs.

How appraisers view a property
The Appraiser site visit isn’t as lengthy because the majority of the analysis work happens away from the house. This includes a review of comparable sales data and other research, such as trends in the neighborhood, location appeal, nearby new construction and remodeling, accessibility to employment and shopping, and overall livability and demand. However, Appraisers also take notes, photos, and measurements, but rather than looking at home features as to whether they’re in need of extensive repairs, valuation professionals determine how amenities impact value in the local market.

The appraisers’ site visit cites obvious issues. If the paint is peeling off of a house, for instance, appraisers consider that detail in their reports. However, they likely won’t note problems that can’t be seen with the naked eye, such as faulty wiring behind the walls.

Moreover, appraisers consider how the home functions in its community in regard to value. While inspectors look at only the property in question, appraisers factor in the comparable properties, nearby amenities and other variables within the market.

Home inspectors have a more in-depth walkthrough than appraisers.

Appraisals, inspections and home sales
Both the appraisal and home inspection results could impact whether a home sale goes through.

Home inspections can also cause a buyer to forgo a purchase. Often, buyers include a property inspection contingency in their offers, which means their agreement to buy the house at the offered amount is based on the home’s condition meeting a standard they find acceptable. If the property needs repairs, buyers can negotiate a lower sale price to cover the costs or request the seller make the necessary upgrades.

Are they both important?
Yes, all buyers and sellers should see value in appraisals and home inspections. Appraisals will almost always be part of the home buying process when a mortgage is involved. Home inspections are not required but typically a good investment. Sometimes, buyers waive the inspection clause to make their offer more attractive to sellers, but buyers could eventually be stuck with a home that has a number of hidden and costly issues.

Because appraisals impact the lender and are subject to more regulation than inspections, appraisers must have a license or certification no matter what state they work in. On the other hand, inspectors have licensing requirements in only 39 states, and a certification is an option for professionals who perform inspections full time and want to increase their business, according to the National Association of Home Inspectors. Regardless of less oversight for inspections, buyers should seek the same quality of service from a home inspector as they would from a certified real estate appraiser. With a clear idea of a home’s value and condition, buyers can make a well-informed purchase.

 

Appraisal Waivers

Sometimes there are cases when the lender may notify the borrower that an appraisal completed by a human certified appraiser can be waived; however, I would caution the buyer and or agents in this case to get their own appraisal completed by the independent professional appraiser that has no skin in the game of them buying the home. In other words, the lender waiving the “appraisal” for an automated valuation completed by a computer does very little to nothing to protect the borrower and to confirm that the investment being made is a fair market purchase at the time of purchase. The automated valuation only tells the bank the risk for the loan that they are making on home. The “CMA” comparative market analysis completed by the real estate agent is not an appraisal and is used to find a probable sales price and not a fair market value. Although these numbers could be similar there is a difference in these definitions and it matters.

  • Asking price: This the amount the seller is asking for the home when listing it for sale. It is also referred to as the list or listing price because it’s the amount the house is listed for in the Multiple Listing Service (MLS).
  • Selling price: This is the amount at which the property actually sells. It is also referred to as the sale price. It may be higher, lower, or the same as the initial asking price, depending on what happens during the offer and negotiating stage.
  • Market value: This is the current value of a home based on local sales prices. Fair market value is driven by the forces of supply and demand, and these factors can vary from one local housing market to the next. That’s why similar homes in different real estate markets (cities) tend to have different values.

As you can see both the appraisal and the home inspection are important roles in the buying and selling of real estate. I hope that this has answered some questions that you may have had about the differences between appraisals and home inspections. Thanks for taking the time to read this blog. Leave your comments below or let us know how we can assist you with your appraisal needs by contacting us today.