For many people the process of buying a home can be complicated. Confusion can often come from the lack of understanding about the difference between appraisals and home inspections. So what’s the difference?
Appraisal and an inspection
This is the process of developing an opinion of the value of the property, often called the market value, based on a number of factors such as location, features of the home, and size. The appraisal looks at the overall real estate market in the area and does a side by side comparison of the property versus similar properties in the area (the comparable) which have been sold.
Other issues the appraiser takes into account are items he believes are harmful to the value of the property, such as poor access, or flaws relating to the home such as a crumbling foundation or a roof in poor condition. These items all affect the value of the home.
The characteristics of the neighborhood and surrounding areas are also considered. Does the property have a view or is it next to a noisy roadway? Has the home been renovated and what is its overall condition?
Once the appraiser has answered all of these questions and more, the value of the property can be determined. And since appraisals are often used as the basis of mortgage loans, it’s important to know that if the value of the property is less than the loan amount, the loan may be declined.
This is different than an appraisal because the home inspector is not determining the value of the home, but is instead determining the condition of the home, from the foundation to the roof and everything in between.
The inspector will check electrical, plumbing, age of appliances (including hot water heaters and furnaces), roof condition, foundation structure and much more. The goal of the home inspection is to determine the current condition or life expectancy of certain components (for example, if the hot water tank is already 12 years old, it’s not likely going to last much longer), and any visible concerns that might indicate costly repairs are needed.
Is there sufficient insulation in the attic or any evidence of leaks in the home, either from the roof or plumbing fixtures? Do the faucets work properly? How’s the caulking around the sinks? Is the floor level? Are there cracks in the ceiling, and if so, what’s the likely cause?
The inspector will document and photograph any areas of concern, and also indicates if the conditions are acceptable or require attention. Depending on how badly you want the home and the nature of any issues found, you may be able to negotiate a price reduction with the seller to offset some of the repair costs.
Both the Appraisal and the Home Inspection are important elements when purchasing your new home. The appraisal satisfies your lender that the home is worth what you are paying for it, and the inspection generally satisfies the buyer that the home is a solid investment.
If you’re in the market for a new home, or if you have one to sell, call Scott Parker at RE/MAX of Nanaimo. With Scott’s expertise and the RE/MAX brand behind you, you’ll be moving before you know it!