The Misunderstanding That Shows Up in Almost Every Transaction

Buyers confuse appraisals and home inspections all the time. The two reports sound similar, both involve someone visiting the property and producing a written document, and both are critical to a successful home purchase. But they serve completely different purposes, they are ordered by different parties, and confusing them can lead to decisions that cost buyers money, negotiating power, or the deal itself.

What an Appraisal Actually Is

An appraisal is ordered by the lender. Not by you. The appraiser is working for the lender's benefit to confirm that the property you are purchasing is worth what you have agreed to pay for it. The lender needs that confirmation before they will make the loan because the home is the collateral securing the mortgage and they will not lend more than the property is worth.

The appraiser evaluates the home's condition, size, features, and location and compares it to recently sold properties in the area to arrive at a market value conclusion. If the appraisal comes in at or above the purchase price the transaction moves forward. If it comes in below the purchase price the lender will only loan based on the appraised value and the gap between that number and the contract price becomes a problem that the buyer and seller need to resolve.

One important thing to understand is that you cannot negotiate repairs based on the appraisal. The appraiser is not your representative. They are the lender's representative. If the appraiser notes conditions that affect value those conditions may need to be addressed for the loan to proceed but the negotiation dynamic is different from what you have in an inspection situation.

What a Home Inspection Actually Is

A home inspection is ordered by you and it is entirely for your benefit. As Judy Miller explains a licensed inspector walks the property top to bottom looking for defects, safety issues, deferred maintenance, and anything that might become a problem after you own the home. The inspector is your representative looking out for your interests as the buyer.

When the inspection report comes back you have real negotiating power. If the inspector identifies issues you can go back to the seller and ask them to make repairs before closing, reduce the purchase price to account for the cost of addressing the issues yourself, or provide a credit at closing that you can use toward repairs after the transaction completes.

That negotiating power is specific to the home inspection and it only exists while you still have an inspection contingency in your contract. Once you waive the contingency or the inspection period expires that leverage is gone.

Why You Should Never Waive the Home Inspection

In competitive markets buyers are sometimes tempted to waive the home inspection to make their offer look more attractive to the seller. Judy Miller's position on this is clear. She does not recommend ever waiving the home inspection regardless of how competitive the offer situation is.

The inspection is your primary protection against discovering after closing that the home has significant issues that the purchase price did not account for. A water heater near the end of its life. A roof that needs replacement sooner than expected. Electrical or plumbing issues that were not visible during showings. Foundation concerns that require professional evaluation. Any of those findings gives a buyer information and negotiating options they would not have had without the inspection.

Making your offer look more competitive at the cost of removing your most important due diligence protection is not a trade-off that serves buyers well in most situations. There are other ways to strengthen an offer without eliminating the protection that the inspection provides.

Judy Miller is Branch Owner with Canopy Mortgage and works with buyers to make sure every component of the homebuying process is understood correctly before decisions are made. If this information has helped you please like and share it so more buyers understand the difference between these two critical reports before they start house shopping. Reach out to Judy Miller directly if you have questions or are ready to start the conversation about your home purchase.

Sources

ConsumerFinancialProtectionBureau.gov
NAR.realtor
AmericanSocietyofHomeInspectors.org
MortgageNewsDaily.com
Investopedia.com