As Realtor, I noticed buyers often getting confused as to the difference between Appraisals vs Inspections. While both professionals who conducts these are looking at the home and given a report and opinion, they are looking at different things. They are also getting paid individually so both fees are considered in to your closing costs.
|Inspections vs. Appraisals vs. AVMs|
|Inspections, appraisals, and automated valuation models, while related, all have different functions but can be easily confused. Let’s take a closer look. |
Inspections: A property inspection is ordered by the buyer and is meant to be an unbiased look at the condition of the property. While not necessarily required by a lender, an inspection protects the buyer from purchasing a home that requires expensive repairs or otherwise doesn’t live up to its list price. A property inspector will examine the condition of the property inside and out, running through a checklist of areas including, but not limited to, the roof, electrical panels, wiring, plumbing, appliances, doors and windows. If any issues pop up, the inspector makes note and provides the buyer with a report. The buyer’s Realtor will also receive a copy and should review this information with the buyer and negotiate repairs on the buyers behalf with the seller’s agent.
Many reported issues will need some attention but won’t affect financing. If major repairs are needed however, the lender might want to have those issues addressed before they provide any funding.
Appraisals: Once the inspection has been completed and reviewed, the lender can order an appraisal. The appraisal will consider comparable homes in the area as well as other factors such as lot size, nearby schools and crime rates. The goal of the appraisal is to determine the true value of the property for the sake of the lender.
The key difference between an inspection and an appraisal is that an inspection aims to assess the physical condition of a home itself, while an appraisal solely determines the market value of the real estate.
AVMs: An automated valuation model is a digital evaluation of the value of a home. An AVM will quickly research the database of similar homes in the area and compare them with the value of the subject property. AVMs are often used to assess the value of a property portfolio, and have the advantage of saving time and money since no one physically visits the property. However, AVMs can’t take into account the true condition of a property and often aren’t enough to secure a conventional loan for a home buyer.
CMA – Not to add confusion but you may have heard the term CMA as well. If you ever sold a home, your Realtor may have used this term. It stands for Comparitive Market Analysis. Much like an appraisal but not nearly as in depth. A Realtor will look at homes similar to the home being sold and give an opinion as to what the home could list for or reasonably sell for.