What's the difference, and which one do you need?
Home Appraisal - What is the value of a property?
An appraisal is an assessment of the current monetary value of a property. An appraisal is often required by mortgage lenders (banks, mortgage brokers, etc.) in order to secure a loan.
A lender may require an appraisal to ensure that the property is worth what is being offered. A lender will be looking to protect themself against losses should the buyer default on their mortgage payments. Should that happen, the lender could re-possess the property, and sell it to recover their money.
Appraisals are most often ordered and paid for by the lender. For this reason, the results may not be made available to the buyer.
When an appraisal may be required:
Buying a property
Re-financing
Home Equity Line of Credit (HELOC) application
Other large loan or financing applications
Home Inspection - What is wrong with a property?
A home inspection is a careful, non-invasive review of the major systems of a house. It is designed to provide an objective assessment of the current condition of the property. Home inspections also may be required to secure a loan.
Home inspections are usually conducted for the buyer in a real estate transaction. Most often, a satisfactory home inspection is a condition of a buyer's offer. This gives a potential buyer the opportunity to reassess their offer, and to back out of a deal based on the findings of the inspection.
When an inspection may be required:
Buying a property
Selling a property
Homeowner knowledge (maintenance and repair information)
Arranging financing
Do I Need Both?
Maybe. Every transaction is unique, and there are many different factors that influence whether a lender will require an appraisal, an inspection, or both.
In residential transactions, appraisals are not always a requirement. Lenders look at assets, employment and passive income streams, and debts of potential buyers when deciding to issue loans. Home inspections are often not required to secure financing, but are always a good idea for a seller conducting their due diligence on a property.
Things Change
It's important to understand that both an appraisal and an inspection offer information about a property at the time of assessment. For that reason, it may be necessary to re-appraise or re-inspect a property in the future if a property is being re-financed, renovated or sold.
Market conditions and improvements such as renovations may affect the value of a property.
Aging and deterioration of systems along with regular wear may affect the condition of a property.
Key Points
Inspections determine what's wrong with a house.
Appraisals determine the monetary value of a house.
Appraisal may be required to get a mortgage.
A home inspection is a key piece of your due diligence.