Appraisals vs Inspections, What’s the Difference?
Clients often ask what the difference is between an appraisal and an inspection. Well, the short answer is that an appraisal is to determine the value of a property where as an inspection is to determine the condition of a property. An appraisal is almost always required when purchasing or refinancing a property with a mortgage. An inspection although highly recommended when purchasing a home, is almost always optional.
A bank or mortgage company will require an appraisal to determine the value of the property that they are going to lend on. An appraiser will look for completed sales on comparable properties in close proximity to the property being appraised. The appraiser will use the information on these comparable properties or "comps" to determine the value of the property being appraised. Appraisals are almost always required when purchasing or refinancing a property. However we are seeing more instances where appraisals are being waived by lenders. This is because massive amounts of data is being accumulated and stored "in the cloud", think Zillow, Realtor.com etc.. Lenders are able to access this data and are sometimes able to determine that enough value exists in a property to go ahead with the loan process with out an appraisal. These appraisal waivers are currently issued rather infrequently, but should become more common as more property data is collected. The typical cost for an appraisal can vary depending on the type of financing being used. In Idaho, you can expect to pay $550 - $600 for an appraisal when using conventional or FHA financing. Properties that are difficult to access, further out of town, or rural, can be more expensive.
Inspections are rarely required by mortgage companies and banks, though it is advised that home buyers get one. An inspector will look over a property very thoroughly to determine what kinds of repairs may be needed. Inspectors are looking to be sure that everything is in proper working order such as light switches, electrical outlets, plumbing fixtures, and HVAC systems. Other types of things an inspector will look for are water leaks, mold, cracks in the foundation, damaged roof, failing paint etc.. Basically an inspector will look over the house in detail and report back what they find. This is to alert the buyer of any pressing issues or potential problems with the property. In the Treasure Valley area, the cost for an inspection is around $300 - $400. This is a small price to pay for peace of mind. Oh, and don't think that because you are buying new construction that you don't need an inspection! You absolutely need an inspection.