Home Appraisal: What it is, How it Works, FAQ

What Is a Home Inspection?

A home inspection is an examination of the condition and safety of a piece of real estate, often conducted when the home is being sold.

A qualified home inspector will assess the heating and cooling system, water and sewage systems, other plumbing, and electrical work, and look for any potential fire or safety hazards. In addition, the home inspector may check for evidence of insect, water, fire damage, or any other issue that can affect the property's value.

How a Home Inspection Works

Potential home buyers often hire home inspectors to visit a property and produce a written report that details its condition, including any necessary or recommended repairs, maintenance concerns, and any other potentially costly or hazardous issues. The home inspector will assess the physical structure of the home, from the foundation to the roof and the home's systems. This assessment will determine whether the home is up to current housing codes.

A home inspection can tell a home buyer a lot about a newly constructed home or an existing one and save them money and aggravation. For sellers, meanwhile, having an inspection done before putting their home on the market can afford them the chance to make any necessary structural repairs or upgrade and replace systems that may help increase the likelihood of a sale.

Typically, a home inspection is done after a sales contract, or purchase agreement between a buyer and a seller has been signed. For this reason, it's important that the contract include an inspection contingency (also known as a "due diligence" contingency), which allows a buyer time to find an inspector, schedule, and attend—if they wish—an inspection, receive the inspector's report, and decide how to proceed based on the information they've obtained.

An inspection report can include everything from material defects that negatively impact a home's value to minor cosmetic issues. Based on the report, the buyer may decide to proceed with the sale, schedule additional inspections, renegotiate the sale price with the homeowner, ask that certain repairs be made and paid for by the seller, or cancel the contract. If the buyer requests major repairs, they may also ask for a re-inspection with the original inspector to verify that the original problem that was identified has been remedied.

Other, more specialized inspections may be conducted for problems such as asbestos, mold or mildew, termites, pests, radon, or lead, or to check sewer lines, chimneys, or other structural components. These may involve additional fees.

Home Inspection vs. Appraisal

A home inspection focuses on the home's condition and should not be confused with a home appraisal, which is intended to determine the property's current market value. Both are essential steps in a typical home sale but are done for different reasons.

The buyer sets up a home inspection and can then attend it to become educated about the condition and safety of the home and its systems. In contrast, an appraisal performed by a certified or licensed appraiser is required and scheduled by a lender when a buyer applies for a mortgage to purchase a home.

An appraisal can affect the amount that can be borrowed and is typically done behind closed doors without the buyer's presence. The appraiser uses several valuation methods, including comparable home prices, the size and quality of the home, lot size, and more.

The Bottom Line

Home inspections are often optional, but relatively inexpensive compared to the overall cost of buying a home. The cost of an inspection can be money well spent, alerting the would-be home buyer to necessary repairs or other potentially expensive problems that they might not have noticed on their own.