Home Inspection Versus Appraisal: What's the Difference?

In today’s market, you might get as little as 15 to 30 minutes in a home before deciding whether to make an offer. That’s not a lot of time to consider such a big decision, but it’s the reality when there are so few houses and so much demand.

But you don’t have to go through with the purchase until you get more information about the house – and you get that through the home inspection and the appraisal.

These are two different but very important assessments of the home.

Home inspection vs appraisal: What's the difference?

The home inspection and the appraisal both provide key data about the condition and marketability of the home. But there are differences.

“Home inspections help determine the condition of the home, but they place no overall value on a property,” says Danielle O’Brien, broker/owner of Parkway Real Estate in West Roxbury, Mass. “A home appraiser, beyond a quick walk-through, determines an overall value but does not thoroughly inspect the home’s condition.”

You will receive an inspection report and an appraisal report, but the two do not influence one another. As we’ll discuss below, the appraisal is required by your lender while the inspection is optional and for your benefit. You’ll want to review both reports carefully before you decide whether to purchase the home.

What is a home inspection?

If you were in the market for a used car, you’d likely shop around and look closely under the hood of the vehicle before buying it, checking for defects and red flags.

The same is true when you’re buying a home. You want to “kick the tires,” so to speak, and make sure it’s in solid, livable condition. That’s where the home inspection comes in.

“Home inspections provide an opportunity for a buyer to identify any major issues with a home before closing,” says Don Guenette, senior vice president and certified home inspector for JDB Property Inspectors in Yorba Linda, Calif.

Home inspectors commonly evaluate all of an existing home’s main systems, including:

• Roof
• Plumbing
• HVAC
• Electrical
• Foundation and walls
• Floors
• Ceilings
• Doors
• Windows
• Appliances

Paying for a home inspection

Home inspections are usually ordered and paid for by homebuyers. You should schedule an inspection with a licensed home inspector who will provide you with a detailed inspection report on their findings. The cost of an inspection varies based on where you live and the property you’re buying, but expect to pay roughly $500.

Your real estate agent can recommend home inspectors, though you’re free to use someone that’s not on their list as well.

“Choose an inspection firm that has a track record of many inspections, is licensed, if applicable, and has good reviews. And always talk with them first, asking questions about anything you don’t understand,” Guenette recommends. “As with any service you engage, you want to be sure the firm or person that will be conducting the inspection is a fit for you.”

Remember that you usually get what you pay for.

“The lowest-priced inspector is not always the best,” Guenette warns.

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“A home inspection is typically not a requirement for any type of purchase, but it is highly recommended,” O’Brien says.

Experts advise hiring a home inspector as soon as you go under contract so that the inspection can be completed during your due diligence period.

In an environment like the current seller’s market, where multiple bidding wars can occur, some buyers opt to waive their home inspection contingency in the purchase contract in the hopes of convincing the seller to accept their offer.

But pros like O’Brien caution that doing so can come back to haunt you if defects surface after you close on the home. Plus, waiving inspections isn’t a surefire way to win a bidding war, so it’s better to protect your interests throughout the homebuying process.

Related reading: Home Inspection Checklist: What to Look for When Buying a House

What is an appraisal?

A home appraisal is an assessment of a home’s current market value. The appraisal is performed by a licensed expert, and your lender will order and schedule the appraisal. Appraisals are a mandatory part of the loan approval process, as lenders will not approve loans for more than the home is worth.

The appraisal report will state the fair market value of the home, and your lender’s underwriting team will verify that the value is equal to or less than your requested loan amount.

The appraisal process includes an on-site assessment by the appraiser to ensure there are no safety hazards or serious issues with the property. The appraiser also researches the surrounding area and looks at sales of comparable properties in the neighborhood, known as “comps,” to determine the value of the home.

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Paying for an appraisal

The homebuyer pays for the appraisal at the end of the homebuying process along with other closing costs. Appraisal fees are typically around $500.

What's the point of an appraisal?

“The primary function of an appraisal is to ensure that the bank does not make a bad investment,” says Andrew Iremonger, owner of Emerald Group at eXp Realty in Destin, Fla. “The appraiser is looking for any red flags in an effort to protect the bank and the borrower from purchasing a bad property, although they are not trained like a home inspector, who can really dig deep to find problems inside a home.”

That being said, the appraiser will call out obvious defects, such as a roof with a foot of moss on it, missing appliances, or safety hazards like a missing deck or exposed wiring. The lender will require these issues to be fixed prior to closing.

But the main purpose of an appraisal is valuation. That includes a walk-through inside and around the home, during which the appraiser sketches a layout, measures square footage, and confirms updates and features marketed in the property listing.

"A home appraisal ensures that you are not paying more for a home than the market value and that you would not be underwater on your loan."

Danielle O’Brien, broker/owner of Parkway Real Estate

Or, the appraisal can be automated, in which the appraiser will evaluate the home remotely without a walk-through involved, which has been a common practice during the COVID-19 pandemic.

“Things the appraiser evaluates include the construction craftsmanship, quality of the upgrades or lack thereof, lot size, house size, amenities, neighborhood, repairs needed, and overall safety of the property,” Iremonger says.

Also, different loan types, including FHA loans and VA loans, have different appraisal requirements.

If you are purchasing a home with cash and no lender involved, you may want to hire an appraiser on your own to accurately gauge the property’s true market value and provide better peace of mind that you are making a financially sound decision.

Related reading: A Low Appraisal in a Hot Market Can Be a Deal-killer. Here’s How To Salvage Your Purchase

Why you need both a home inspection and an appraisal

The pros concur: it’s smart to have both a home inspection and home appraisal done.

“It’s highly recommended to get both done in most situations, mainly because you don’t want to spend a ton of money on a property only to find out it is falling apart or to learn that it’s worth a lot less than you and the seller originally agreed to,” Iremonger says.

O’Brien subscribes to that theory as well.

“A home appraisal ensures that you are not paying more for a home than the market value and that you would not be underwater on your loan, therefore putting the lender’s investment at risk,” she says. “They are both more important for a buyer than a seller, in my opinion, although some sellers might consider having both an inspection and appraisal done before even listing a home to make sure their property is in tip-top shape with no questions on the listing value.”

Getting an inspection and an appraisal gives you a comprehensive look at the home’s value and condition and whether it’s the right investment for you.

Home inspection vs appraisal FAQs

Should I get an appraisal or inspection first? Your lender will schedule the appraisal once you go under contract, so you don’t control the timeline of the appraisal. It’s a good idea to schedule an inspection as soon as possible so that you have time during your due diligence period to follow up on any questions or concerns you have from the inspection report. It’s possible that the inspection and appraisal will happen within a few days of each other.

Is a home inspection and appraisal the same thing? No. A home inspection is conducted by a trained inspection professional who examines a home’s systems, components, materials, walls, ceilings, floors, roof, and other facets to determine the condition of the property. A home appraisal is performed by a licensed appraiser, chosen by the buyer’s lender, who calculates the home’s current market value based on comparable properties in the area, the condition of the home, and other factors.

Does a home inspection affect appraisal? No. The reports by the home inspector and home appraiser usually are not shared, and one should not affect the other.

What hurts a home appraisal? Several factors can decrease the value of a home, as determined by a home appraiser, including lower sales of comparable properties in the area, the quality of the home’s construction, home size, lot size, amenities, neighborhood, repairs needed, and overall safety of the property.

Home inspection vs appraisal: Go for both

It’s better to head into an expensive transaction armed with as much information about the condition and value of the home you are intending to claim. That’s why having a professional home inspection and home appraisal conducted are both so worthwhile.