In this very hot home-buying market, where homeowners are routinely receiving multiple
offers, often far above list price, buyers are doing everything they can so their offers “stand out” and are accepted, including waiving the inspection and appraisal, if possible.
As a Realtor, I discourage both. Here’s why: Inspections and appraisals are both important parts of the home-buying process. Buyers should have both done to protect their financial interest in a home and give themselves peace of mind that they’re making a smart purchase.
The difference between an inspection and an appraisal is this: An inspection deals with the condition of the home, while an appraisal deals with the value of the home. An inspection can identify potentially costly issues and necessary repairs. An appraisal is designed to ensure you’re not overpaying for a property – a property you may well want to sell down the road, and don’t want to lose money on because you paid more than it was worth.
What happens during an appraisal? A licensed appraiser evaluates the home you want to buy, in person, and gives you an estimate of how much it’s worth. Typically, the appraiser is chosen by the lender, but paid for by the buyer.
The appraiser will walk through the home, taking note of its condition, finishes, location and square footage. He will look for additional features such as a security system, a sound system or central vac. He will also check the exterior of the home – the condition of the siding and trim, the deck or patio, a pool, tennis court or irrigation system. Both inside and outside, the appraiser looks for those things that may add value. He will also identify similar homes in the neighborhood that have recently sold, which will help him decide a fair market value for the home you plan to purchase.
The home will either “appraise,” meaning the price you’re paying has been validated, or it will “come in low,” meaning the appraisal is telling you the home is worth less than you are paying.
Turning to the inspection…If a buyer waives the inspection, she is basically accepting the home “as is,” which means any issues discovered after closing will fall 100% to the buyer to repair.
The buyer chooses and schedules the home inspection, which will take 2-4 hours, depending on the size of the home. The inspector will both examine and test the functionality of the home’s major systems, including plumbing, electricity, HVAC, foundation, appliances, roof condition, drainage, water damage and mold. The inspector will run the dishwasher and test the heat and air conditioning, if outside temperatures allow. Buyers can also pay for additional inspections – for radon, termites, septic, well water and more. The inspector will produce a detailed report – with pictures – of everything he has inspected. Each item will be called out as either satisfactory, fair or poor.
In my next blog, we’ll see how a seller can prepare her home for the appraisal, and buyer options if the appraisal comes in low. We’ll also look at what the buyer does when an inspection reveals “major defects,” and the seller’s responsibility in addressing them.