Appraisal and home inspection are two distinct procedures but often cause confusion as they both involve an assessment of a property's condition. Understanding the difference between the two is essential for homeowners and potential buyers.
A home appraisal primarily aims to determine the value of a property through an assessment of various factors. It is typically conducted by a licensed real estate appraiser who evaluates the home’s location, size, condition, age, and comparable sales data to come up with an estimated monetary value of the property. The goal of the appraisal is to determine a fair market valuation of the home as of a specific date in time, also known as the effective date. In a purchase transaction the appraisal is used by the homeowner to determine if the value is worth the purchase price and by the lending institution to determine if value can support the loan amount.
On the other hand, a home inspection is primarily a thorough evaluation of a property's condition and physical structure including all its systems and components. An inspector will usually check the roof, foundation, electrical, plumbing, HVAC, and more. The inspection will assess any potential safety hazards, and determine whether the property adheres to building codes. In a purchase transaction, a home inspection is crucial to ensure the safety and habitability of the property and allows buyers to know precisely what they are purchasing before committing.