Appraisal versus Inspection

In my years as a Grand Rapids real estate agent, I’ve found that there are many real estate concepts that are sometimes mixed up by home buyers and home sellers. “Appraisal” and “inspection” are just one example of terms that are often confused, and they do share some similarities. Both provide an independent evaluation of a home, and both are generally written into a home purchase agreement.
Here’s a quick explanation of each:

• An appraisal is intended
  to protect the lender by determining a value for the home. The lender requires
  an appraisal before a loan can be finalized, to make sure that the home is
  worth at least as much as they are lending. An appraiser normally needs to
  visit the home and then compare the home to recently sold homes with similar
  characteristics in the same area. Sometimes, especially with new construction,
  a different method called the cost method is used, where an appraiser generally
  looks at the value of the land plus the cost of improvements minus
  depreciation.
• An inspection is
  an expert’s evaluation of the condition of the home and all the home’s major components.
  It is intended to point out for the buyer any current problems and potential
  future problems with the home.

Appraisals and inspections cover some of the same ground, and produce reports assessing some of the same features of the home. But neither is really a substitute for the other.
An appraisal ideally will establish that the selling price is acceptable for the lender, which is good news for both the seller and the buyer. However, even if the appraisal is lower than the selling price, there are still options. The seller can reduce the price, the buyer could increase their down payment, or if the issue is necessary repairs, an escrow account can be established to fund the repairs.
Regardless of whether the appraised value of the property is sufficient for the lender, there could be reasons for the buyer to be cautious about finalizing the sale. An inspection can provide peace of mind or at least advance knowledge of flaws and how to resolve them.
When you’re buying or selling a home, details like appraisals and inspections are just one step in the process of completing the sale. It’s important to have an experienced Grand Rapids real estate agent on your side when it’s time to cross either of these items off your checklist. If you have any questions about real estate, from terminology to available properties, contact The Sprich Group at 616-485-0952.
Photo: Andy Piper