The Difference Between Inspections and Appraisals

It is easy to be confused about the difference between an inspection report and an appraisal report and how they work in the real estate world. 

Appraisals and inspections are two completely different yet crucial elements of the real estate process. Both reports can either make or break a transaction, so it is important to be informed of both. Appraisals give a value for a home while an inspection gives the condition of the home. The value of the property will determine how much a lender is willing to loan for a particular property.

Once an offer to purchase a property is accepted by a seller; the bank, credit union or mortgage company issuing the mortgage for the buyer, will order an appraisal. This is a crucial and often confusing part of the mortgage process in which both buyer and seller must depend on the expert opinion of third party. A real estate appraisal is simply the expert opinion of a certified, state-licensed professional who determines the value of a piece of property to ensure the loan amount doesn’t exceed the property value.  

Appraisers gather information from the local taxing authority and the multiple listing service (MLS),  provided by the Greater Lansing Association of REALTORS®, prior to going to the property. Once at the property, the appraiser examines the condition of the inside and outside of the home, takes photos of all major rooms, and measures square footage.

The listing REALTOR® and the seller can be present at the appraisal to provide the appraiser with information about the home that may not be available from the MLS, such as renovations. For larger custom homes, blueprints can often be useful for an appraiser along with information from the listing REALTOR® about the presence of multiple offers on a home.

“Often it helps to have the seller present because they are a wealth of information. They can inform me of any updates that may not be obvious or of cracks that have been repaired, or any known leaks,” said Lanny Brunette, appraiser at LSB Appraisal Services, LLC. 

According to Ron Wheeler, Wheeler Real Estate Services, LLC, listing REALTORS® can often provide the appraiser with information that isn’t available in the MLS, like the existence of multiple offers or the number of showings on a property. This is especially useful when a property sells for more than the listing price.

Following the onsite work, the appraiser uses data from at least three, but typically five or six properties comparable in location, age, style and size to calculate the value of the property. 

The home value is reported based on the location of the home, land, what is around it, number of bedrooms and bathrooms, presence of a garage, and the overall condition of the property. 

“A property right on Lake Lansing probably would have a higher value than a house in Holt even if the home is smaller because of its water view,” said Wheeler. 

Occasionally appraisals come in below the sales price of a property. If this occurs there are only a few options – either the seller can lower the sales price to the appraised value or the buyer has to provide cash in the difference between the appraised value and the sale price.

Licensed appraisers are required to have an active real estate appraisal license and continuing education.

In order to ensure that buyers are getting qualified local appraisers, they should research lenders and ask upfront how that lender chooses qualified local appraisers. Appraisers should be members of the local MLS to have access to local information and work in the area where the property is being purchased. 

Buyers can also request that the appraiser have professional designations or certifications such as Senior Residential Appraiser (SRA), General Accredited Appraiser (GAA) or Residential Accredited Appraiser (RAA). 
Just as appraisals help determine the value of a home, a home inspection determines existing flaws in the home. Home buyers should hire an experienced inspector to point out any potential problems that could turn into costly home repairs. While appraisers may note obvious issues with home they will not perform tests on the mechanical systems of the home, this is done by an experience home inspector. 

Home inspections vary in what is covered. Typically during the inspection, the inspector examines the home's heating and cooling system, interior plumbing, electrical systems, roof, attic, visible insulation, walls, ceilings, floors, windows, doors, foundation, basement and visible structure. It is important for buyers to understand what will be included in their home inspection and be present during the inspection in order for the inspector to provide in-depth descriptions of issues and explain the process. The buyer’s REALTOR® should also be present during the inspection.

The inspection concludes with the inspector reviewing a report with the buyer and their REALTOR® addressing potential problems. The results can be used to negotiate fixing issues prior to closing.

Buying or selling a home can be very confusing, but a REALTOR® member of the Greater Lansing Association of REALTORS® help consumers through all facets of the transaction including the inspection and the appraisal.