Home Inspections and Appraisals: An Inside Look

You finally found it – your dream home, listed at $250,000. It’s everything you wanted, except for the asking price. Yes, the house is amazing, but should it really cost that much? Answering that question is what home appraisal is all about.

A home appraisal is an evaluation to determine the value or worth of a property. In general, this is a good thing. It makes sure the buyer and the seller know the fair price for their home. Getting that information up front will save you--and your mortgage lender--a lot of trouble.

How do home appraisals work?

There are different approaches to a home appraisal, depending on the state and the circumstances surrounding the property, but the process typically involves a few major phases:

Physical inspection

An appointed appraiser visits the property and carefully inspects it to determine its current fair market value.

Comparable research

The appraiser also compares your home to similar properties around the area, as well as recent sale prices (known as “comparables” or “comps”).

Additional research

Your appraiser might also look at recent reports from real estate listing services or courthouse records for details like:

  • Age of the house

  • Size of the estate

  • Home’s styling

Final appraisal report

Your  appraisal report will probably include information on:

  • The condition and size of the house during the inspection

  • Notes on the surrounding property, including any potential for development and estimated market growth

  • Any structural problems that may be discovered, such as a wet basement

  • Any upgrades that may have been made to the property

  • Photographs and maps of the area

  • The condition of the rooms

  • Confirmation of the square footage and that the house can be lived in

  • The appraiser’s views supporting the conclusion reached in the report

What happens if the appraisal falls short of the advertised value?

A lender probably won’t approve a loan that’s more than the appraised value. Sure, it sounds frustrating. But it also protects you from overpaying for your home.

Home appraisals versus home inspections

The appraisal covered any obvious structural problems. So why do you need a home inspection? An appraisal tells you the market value of a home. But a home inspection takes a good look at common problem areas like:

  • The condition of the roof

  • Any rotting wood in the home.

  • The electric wiring of the home.

  • The heating and cooling systems of the house.

  • The status of the foundation.

  • The home’s plumbing.

You don’t want to pay more for a home than it’s worth. And you also don’t want to be stuck with a home that’s going to end up costing you thousands of dollars in repairs. That’s why you should have both an appraisal and a home inspection before you sign on the dotted line of your mortgage paperwork.