Buying a home is a multistep process that requires mounds of paperwork before you even reach the closing table. From checking your credit report to signing on with a real estate agent to getting approved for a mortgage loan, the process is quite in-depth, consuming, and expensive.

I spent the past several months on my own home-buying journey, and by the time I was given my new key, I had learned more than I ever wanted to. In this article, I’ll explain the difference between a home appraisal and a home inspection so that you can start your own journey with a little extra knowledge.

What Is a Home Appraisal?

A home appraisal involves your lender—typically a bank—and ensures that the property you intend to purchase is actually worth the price you agreed to pay to the seller. Getting a house appraised is required in most lending scenarios, such as with conventional and FHA loans.

Most lenders require home appraisals because in a worst-case scenario—if you default on your loan—the bank will need to sell your property to recoup its investment.

The process

Once you have been approved for a loan and you’re under contract for a house, the bank will request for a house appraiser to view the property. If you have an FHA loan, the house appraiser will need to be a licensed, HUD-approved appraiser because the appraisal process is slightly different from a conventional loan.

During the appraiser’s walkthrough of the house, she will record the location of the property, square footage of the house, the number of bedrooms and bathrooms, and the exterior and interior conditions. These details play a major part in determining the market appeal, which helps determine the resell value of your home.

house appraiser holding real estate appraisal sheet

When I purchased my first home earlier this year, I was surprised at the amount of detail included in the appraiser’s report. In regards to the location of the property, she not only took into account the surrounding homes, but also the proximity of other retail businesses, schools, churches, and the interstate access.

The appraiser also looks at comparable sales, or “comps,” in the surrounding area. The distance and date of sale vary, but the comps for my home had to be no longer than a mile away and sold within the last six months.

After the appraiser views the property, she will create a report based on her findings, which includes the items I mentioned above as well as the value of the house, which could make or break your deal. If the house appraiser determines that the home you want to buy (and possibly have already fallen in love with) isn’t worth the asking price, then you could be in for some difficult conversations with your real estate agent and lender.

I know from experience how tough it can be when the property you’ve already thought of as your home “doesn’t appraise.”

The first home my husband and I wanted to purchase was located in an up-and-coming area. It was a beautiful, completely renovated home, but one of the first of its kind in that area. Two miles away, there were tons of similar but more expensive properties, and we didn’t mind moving further from our target area if in return we were able to purchase a home that was under budget.

When the appraisal came back, the house was not valued at the agreed-upon contract price because there weren’t enough comps in the area to validate the selling price. We had two options: renegotiate the price or purchase the property while only receiving financing for the lower appraised value. We also had the options of ordering another appraisal in hopes of obtaining a higher value or provide additional comps that were overlooked in the original appraisal.

In the end, we decided to walk away from the house because it was the best option for our family. We understood why the appraiser made the assessment she did, and we didn’t find any fault in her report.

The appraisal process can be very subjective. The same house could receive two different values from two different house appraisers, so if you’re not happy with the first appraisal and you’re determined to purchase that house, then consider obtaining a second report. However, a second appraisal does not necessarily mean that the house will receive a higher value

What Is a Home Inspection?

A home inspection helps the buyer learn more about the structure and stability of the house in question. This is the part of the process where you learn about underlying problems that could become bigger issues down the line.

The buyer typically pays for both the appraisal and inspection. However, a home inspector is hired by the buyer, which is different from the appraiser, who is hired by the bank. Since the buyer is more involved with the home inspection part of the process, I’ve included a few helpful tips below based on my experience.

Home inspection tips

image of home inspection report

1. Hire a reputable inspector.

When hiring an inspector, make sure that he is experienced in his craft and comes highly recommended—word-of-mouth recommendations are always great. You want someone who is going to do a thorough job of inspecting every inch of the property—including the attic, crawlspace, and every wall socket.

2. Make sure that the utilities are on.

The inspector is going to check everything. That includes any appliances that are connected, electrical sockets, A/C units, etc. If the power isn’t on, it will make for a very inefficient inspection.

3. Be present at the inspection.

During the inspection process, it’s important for you and anyone else who’s involved to be present. If the inspector notices anything—big or small—he can show you exactly where the problem is.

4. Ask questions.

Going into my inspection, I had a few questions I wanted to ask about the property based on issues we noticed during our second walkthrough of the house (I strongly recommend a second walkthrough before submitting your offer). I also asked questions as our inspector pointed out things about the property.

5. Read the inspection report.

Afterward, you will receive a home inspection report that will detail everything that was discovered during the inspection. Even though you attended the inspection, it’s still important to read over every detail. This will be important if you decide to have the seller repair some or all of the issues.

So, the question is—is a home inspection required? No. It’s a step that’s optional, but certainly worth the time and money. It is understandable for a buyer to consider skipping a home inspection, but purchasing a home requires a great deal of patience and care, and the last thing you would want to do is dismiss parts of the process simply to move on to the next step.

I find that an inspector is great not only at identifying potential problem areas down the line, but also at discovering hazards that will need immediate attention. For example, the first house we had inspected had a single-story raised deck attached to the back of the house. It provided the only access to the backyard from the house. The deck was very important to us because we enjoy grilling and entertaining outside.

Upon inspection, we discovered that the deck was not completely stable and our inspector strongly suggested that we remove it from the house. Without the deck, we had no way of accessing the backyard, which was at least 20 feet off the ground. While not completely a deal breaker, this was something we had to consider before moving forward.

Not all issues are deal breakers. In the second house we had inspected, there were a few electrical sockets that were not working. This was a simple repair that we could have had an electrician fix after purchasing the house, but we requested that the seller handle it before closing. It was definitely something we wouldn’t have known about without the inspection.

A home inspection doesn’t catch every issue, but a good inspector should be able to make homeownership a little easier by identifying as many problems as possible. For this reason alone, I advise always getting a home inspection; if you’re this far in the process, you will own a home, and that home should be one that you feel good about for years.

Home Appraisals Vs. Home Inspections

To recap, you as the buyer are responsible for coordinating much of the work prior to the purchase of a new home. The process requires a lot of time, money, and patience, but once you unlock your front door for the first time and step across the threshold, it’s to a home that you have already started getting to know.

Appraisal Inspection
 Required? Most of the time  No
 Payment? Buyer  Buyer
 Selected by? Bank  Buyer