The Difference between a Home Inspection and an Appraisal

Every once in a while I get a question from a client which reveals that the distinction between these services is not always understood. In a nutshell, an appraisal provides an estimate of the value of a property, as opposed to an inspection which is an assessment of the condition of the property. Although the condition of a property can effect a home’s value, the two services are distinct and separate. They each have their own process, tools, education, professional associations and are almost always delivered by different individuals.

Inspecting

A typical appraisal begins by calculating the cost to physically reproduce the home. The cost of each of the major components is added together to give an approximate value. For example, a two car garage would be worth a set dollar value with a triple garage being more and a single being less. The total is then adjusted to reflect the price of comparable properties in the same neighbourhood. Of course unique homes and a scarcity of adequate comparable homes recently on the market can pose a challenge for the appraiser.

A large part of the appraisal market is driven by the mortgage industry. Lenders use appraisals to manage the risk of not getting their money back should the mortgage go into default. By only lending up to a limited percentage of the value, lenders expect to recoup the money should the property have to be repossessed and sold. The balance of that equity can be used for the transaction costs and as an incentive for the homeowner. Lenders often try to pass the cost of the appraisal on to the homeowner. It sometimes pays to ask if the fee can be waived.

Completing an appraisal is a step in the lending process. The bank’s Loans Officer must have it to approve the loan. Although appraisals can and do happen in parallel with inspections, since any significant repairs can impact the the amount borrowed, it makes sense to get the inspection done first.

A home inspection is a visual examination of the home looking for functional and safety issues. It should be conducted by an experienced and trained inspector according to an industry accepted standard of practice. For more of an explanation read The Purpose of a Home Inspection.  Hopefully the distinction between an inspection and an appraisal is now crystal clear; or at least less of a mystery.


Author: Rob Cornish is a Home Inspector in Ottawa, Canada. © 2014 HomeXam Inc.
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  1. […] the market value of a property; usually for the purpose of securing mortgage financing (see The Difference Between a Home Inspection and an Appraisal). Assessments also set a value on the property but for property tax purposes and typically lag […]

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