Magnifying glass looking at a house with a red roof

Appraisal Institute

What’s the difference between an appraisal and inspection

Buying or selling your home can be overwhelming. From deciding to put your house on the market to finding the right property, to applying for a mortgage, to simply keeping all the paperwork straight, the entire process can seem daunting—especially for a first-timer. What might come up quickly in that process: the need for a real estate appraisal and a home inspection. And while people may think these are similar—or even interchangeable—they’re actually quite different. Here’s how:

An appraisal is done to determine value—a home inspection isn’t:

When someone is commissioned to do a real estate appraisal on a home, they are considering how much that property is worth based on a number of different factors. These factors can include, for example, sales of similar properties in the area and what the local real estate market looks like. A home inspection, on the other hand, is done to check the state of the home itself: Is there evidence of water damage in the basement? Are the gutters sized correctly and draining properly? These will help the inspector determine the condition of the house and will help you know what to expect should you go ahead and purchase it.

A real estate appraisal is required, while a home inspection might not be:

In most cases, in order to be approved for a mortgage, an appraisal of your potential property must be done. The mortgage industry uses appraisers to determine financing decisions and it’s an important part of the process. In contrast, while it’s smart to do a home inspection—you want to know what you’re getting yourself into, after all—it’s not usually required and some home buyers might choose to not have one.

The outcomes of the reports matter:

If the appraiser, after creating his final report, determines that the value of the home is significantly lower than the sale price, it might have an impact on your mortgage application, making it tougher to move ahead. And the result of the home inspection, assuming you go with one, is just as important: for example, you might choose to continue on your house hunt if the inspection found significant damage.

Appraisers and inspectors should be qualified, but the organizations are different.

When commissioning a real estate appraisal or home inspection, ask to see their license or certification. Do your research ahead of time and stick to nationally-recognized organizations. For real estate appraisers, one to know is the SRA designation, given by the Appraisal Institute.  This designation indicates the appraiser has significant knowledge in the area of residential property appraisals. For home inspectors, licensing requirements vary by state and governance by organizations such as the American Society of Home Inspectors.