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The inspection vs. the appraisal. They both require a professional to walk through the property. Both tend to happen early in the home purchase process. Both point out potential flaws. So, what is the difference between a home inspection and an appraisal?

Magnifying glassYou’ve chosen the home. You made an offer, it was accepted, and a contract now bears your signature. There was a section in the contract that said you intend to have an inspection done on the property. Why then is your mortgage company talking about also hiring an appraiser? In short, they’re two different services that serve very different needs.

Inspection
A property inspection primarily benefits the borrower. You hire a professional with a keen eye for trouble spots to go through the property with a figurative magnifying glass and provide you with a report of everything that could cause you grief. A property inspector isn’t going to be impressed by a new coat of paint and good furniture staging. It’s their duty to find the flaws and make you aware of what that could mean for your pocketbook or health. The inspection report is turned over to you, and depending on the findings, can be a negotiating tool between you and the seller.

Appraisal
A property appraisal is based on recent sales of similar properties in the area and informs your mortgage company of the estimated retail value (what it could sell for) of the property and also alerts them to potential areas of trouble. Since a mortgage is a loan where the house is used as collateral, the mortgage company needs to make sure that there is enough value in the property for this loan to be a good risk. Some mortgage programs also have guidelines that require certain parts of the property to be in good repair. Depending on the findings, the appraisal can also serve as a negotiating tool with the seller.

While the inspection tends to be optional, it is generally considered a good idea to purchase one so you won’t be blind-sided by costly or harmful issues that may be hidden from the common eye by a fresh coat of paint. Ultimately, that decision is yours. The appraisal is a necessary step in the mortgage process, so resign yourself to that cost. In the end, as you relax in your new home after move-in day, it can be argued that both up-front expenses were worthwhile.