Although home sales suffered a pandemic dip in 2020, the number of residential real estate transactions in the United States has steadily increased since 2011.
In 2019, there were roughly 6 million homes sold in the United States. And a lack of inventory has made for a seller’s market in some of the country’s most desirable areas.
So if you are a first-time buyer or are contemplating selling your property, you should know some basic real estate terminology. One important one is the home appraisal. Another important term is the home inspection.
Although these two terms may seem like synonyms, they are not. One has to do with the home’s perceived value and the other the dwelling’s mechanics and soundness.
In the following article, we’ll discuss the difference between a home appraisal and inspection and how you can take charge of these two important real estate procedures.
What Is a Home Appraisal?
The most important thing to know about your home appraisal is that it affects the dollar amount your home commands. This can help you as the seller determine at what price to sell your home.
If you are the buyer, the home appraisal has higher stakes. If the bank deems that the home you want to buy doesn’t match its appraisal estimates, this will affect the amount of money available through a mortgage.
If a discrepancy exists, and the seller won’t adjust their asking price, then the buyers have to make up the difference between the mortgage and the buying price in cash out of their own pocket.
A home appraisal considers the size of the property and the value of other properties in the home’s neighborhood.
It also judges the home character in several key areas. They include structure, or what type of home are we talking about. As you can imagine, the architectural style (or if the home was designed by a web–known architect) could have an impact on your home value.
Along with its architectural style is the general craftsmanship of the residence. Does it look well put together and do all the outside and inside pieces fit together in a solid and well-thought-out way?
Upgrades and Home Repair
Other elements include the upgrades and repairs to the home. Homes with upgraded kitchens and baths always command more money. Also, do the repairs to the structure look well-done and seamless with the home’s overall style?
Lastly, general upkeep is an important factor of the home appraisal. This includes both the inside, outside, and landscaping of the home. A homeowner who loses the curb appeal of his home by letting trees and bushes get out of control could lose money when they try to sell. Experienced home buyers know that landscaping is more expensive, time-consuming, and potentially frustrating than presented in a 30-minute TV show.
Who Does a Home Appraisal?
The bank contracts with a certified home appraiser to conduct the appraisal. Each state has different laws concerning who can conduct a home appraisal. For example, in Ohio, an appraiser needs 3,000 hours of experience, must take a state-sanctioned course, and pass an exam, among other things.
Banks will either have their own appraisers on staff or contract with a home appraiser agency to conduct the appraisals.
What if Your Appraisal Is Low?
One of the most frustrating things about a seller’s market is that low-inventory in a desirable market can fuel bidding wars among buyers. This scenario can substantially inflate the price of the house. However, due to a lack of comparable sales, the appraisal may not support the final accepted bid.
Human error could also affect the price of your appraisal. An inexperienced or incompetent appraiser could impact your appraisal. If you suspect this is the case, ask your lender for an appeal or approach a different lender for the mortgage.
Unfortunately, none of the solutions to a low appraisal are “easy.” You’ll need to hone your negotiating skills to get the finances in line if your appraisal still comes in low after an appeal.
As stated before, you can try to make up the difference in cash, negotiate with the seller, or try to rally listing agents to defend the price of your prospective home. Unfortunately, these options all involve you taking the initiative and doing the leg work.
What Is a Home Inspection?
A home inspection is just as important as an appraisal but determines the home’s livability and safety. The most important part of the inspection is to make sure that there are no safety hazards.
Another important part of the inspection is determining if the seller has made repairs that correspond with building codes and pinpoint any impending structural failures.
Chief among these inspections are the plumbing and electrical.
Fire and water are the biggest damages caused to a home. Many homeowners with a little DIY know-how will attempt to solve these sometimes expensive home repairs independently. Often, these “repairs” are not done to code and will eventually fail.
Other systems that a home inspector or a specialized inspector will inspect is the HVAC, roofing, and home siding.
Who Does a Home Inspection?
Home inspectors, like appraisers, are licensed by the state through a licensing board.
In general, home inspectors have a home contractor background and have years of experience in the home trades. Again, for example, Ohio requires passing a home inspection exam and 80 hours of course instruction, among other qualifications.
The Biggest Home Inspection Issues
As the potential buyer of a new home, there are a few home inspection issues that you may consider a deal-breaker, besides plumbing and electrical.
The first of these is any structural issues. Problems with the foundation, slab, or framing can cost tens of thousands of dollars to fix. Add those prices on top of your mortgage, and you could be paying for a home you can’t afford to live in or fix.
Another issue often lies in the roof. Generally part of a specialized home inspection, a roof replacement can run well past $10,000. A leaky roof is a major problem and leads to bigger issues like rot, mold, pests, and damaged goods.
Another issue that your home inspector absolutely must check for is termites. Termites are not only disgusting; they can cause severe structural damage to your home.
Appraisals and Inspections Are Both Important
Your home appraisal and inspection both give you peace of mind. Please make sure the people doing them are qualified and have a good reputation. Double-check that your lender uses respected and experienced home appraisers.
Also, make sure your real estate agent suggests a home inspector who cares more for your best interests than the agent’s impending sale.
Are you in need of a reputable, independent home inspector? Contact us today to speak with a representative.