Appraisal vs. inspection: 4 key differences

Both steps are different but equally important in the homebuying process

Author pictureAuthor picture
Author picture
Written by
Author picture
Edited by
man inspecting a finished section of a house

Purchasing a home is often a lengthy process, and a home appraisal and inspection are two important steps. Although they both involve a professional looking over the house carefully, they’re not interchangeable, so it’s smart to understand the purpose of each one.

A home appraisal and inspection help ensure you’re satisfied with your home purchase, whether it’s your first home, refinancing or building a new home. An appraisal focuses on the monetary value of a property, while an inspection focuses on evaluating the property's structural integrity and its major systems and components.

A transaction that may cost six or seven figures (or more) and affect you for decades to come means you don’t want to skimp on a thorough appraisal and inspection. 


Key insights

  • Appraisals and inspections are key parts of the homebuying process.
  • An appraisal estimates the home’s current market value, while an inspection evaluates the structure and systems of the property.
  • Mortgage lenders typically require an appraisal before approval of a home loan.
  • While lenders don’t usually require an inspection, skipping this step poses significant risks for homebuyers.

What is a home appraisal?

A home appraisal assesses the value of a property, and mortgage lenders use this information to determine the home loan amount a buyer may qualify for. According to the Federal Deposit Insurance Corporation, lenders rely on appraisals to determine the value of a property as well as vital financial factors like your down payment and interest rate.

Getting a proper appraisal is a lender requirement for new home purchases, refinances and home equity loans, since lenders use the property as collateral to approve a home loan. Freida Curry-Terry, principal broker at 1st Choice Realty in Richmond, Kentucky, said, “Appraisals provide a professional objective assessment of a property's worth based on factors like its condition, location, size and comparable sales in the area.”

The cost of an appraisal is usually rolled into your closing costs for the home loan. In 2022 and 2023, surveys by the National Association of Realtors (NAR) found the median cost of a home appraisal to be $500.

» MORE: What does clear to close mean?

What is a home inspection?

Even though home inspections are another important part of the homebuying process, they aren’t a lender requirement. The buyer foots the bill for this step, which can cost around $300 to $415, according to online home resource HomeAdvisor. Cost may vary depending on factors like location and amount of competition among licensed home inspectors.

Inspectors look at structural aspects of the property to identify problems that could become costly for the buyer down the road. They evaluate crucial systems like heat, electricity and plumbing.

The American Society of Home Inspectors (ASHI) is one of the organizations that can help homebuyers find a qualified inspector in their area. ASHI explains that inspectors look at major structural components of a property such as roofs, walls, foundation and basement.

As Curry-Terry notes, the inspection usually takes place before the appraisal and helps the homebuyer make an informed decision. If your inspector finds issues or problems, it’s up to you as the buyer to decide whether to try to negotiate the terms of your contract by adjusting the purchase price or requesting the seller perform certain repairs.

The purpose of a home appraisal vs. inspection

While the home appraisal and the inspection help safeguard the investment, they serve different purposes. An appraisal’s main purpose is to provide a dollar value for the property as it is. This helps ensure the lender can determine the amount for the loan along with the interest rate and down payment.

Keep in mind that if you’re buying a home using an FHA loan or other types of government-backed loans, the appraisal will need to pass certain safety guidelines as specified by the Department of Housing and Urban Development. For example, Curry-Terry notes that buying a “fixer-upper” is not always possible with FHA loans. This is something to consider before buying an older house.

A home inspection is technically optional, but it’s wise not to skip it because an inspector can identify important issues. This gives the buyer the opportunity to have their representative negotiate with the seller.

Negotiating after a home inspection helps protect you from facing major expenses soon after closing. You can ask for a price adjustment or the completion of repairs before proceeding with the purchase. As Curry-Terry explained, “I highly recommend any buyer perform an inspection, even on new-construction homes.”

» MORE: What to expect from a home inspection

Who conducts an appraisal vs. an inspection?

A certified appraiser conducts home appraisals, while a certified home inspector performs home inspections. An appraiser is trained to identify factors that determine the current value of a home to help lenders determine the loan amount, interest rate and down payment.

Home appraisers must be impartial when assigning value to property. While the buyer covers the cost of an appraisal, the mortgage lender hires an independent person to conduct this appraisal.

For inspections, you’ll want to hire a certified home inspector to conduct your inspection before buying. Several reputable organizations provide certification for inspectors:

  • American Society of Home Inspectors
  • International Association of Certified Home Inspectors
  • National Institute of Building Inspectors

Appraisal vs. inspection lender requirements

A key difference between appraisals and inspections is how lenders view them. Lenders typically require a home appraisal before approving a loan, but they don’t usually require a home inspection. Buyers will be expected to pay for the home appraisal as part of their closing costs during the final stages of a property purchase. This important step provides an official estimate of the property's market value, ensuring the buyer pays a fair price for their new home.

If you’re under a caveat emptor disclaimer, the burden of ensuring the home is safe and acceptable is on the buyer. That’s why an inspection is especially important in these situations.

Risk factors of skipping a home inspection

As mentioned, just because a home inspection is optional doesn’t mean you shouldn’t get one. Curry-Terry warns of the risks involved if you don’t have a professional inspection:

  • Not identifying hidden issues, such as structural damage
  • Missing safety issues like faulty wiring or plumbing leaks
  • Added financial burden for repairing these missed problems
  • Loss of negotiation leverage that could help you get a better deal
  • Loss of legal protection (in some cases, you waive your right to recourse)

Skipping a home inspection may seem like a way to expedite the homebuying process or save money upfront, but the potential risks far outweigh any assumed benefits.

» MORE: Contingent vs pending: What’s the difference?

What does an appraisal vs. inspection look like?

Appraisal

Remember that an appraisal examines factors that contribute to a property’s fair market value. Here are some of the primary factors that go into an appraisal, per the NAR.

Comparable property values: Appraisers look at recent sales and listings of similar properties within the same area when coming up with your home’s appraisal value. If this data is lacking, appraisers may use recent sale data from nearby neighborhoods.

Interior inspection: For real estate sales, an appraiser will generally conduct an interior inspection of the home.

County and municipal records and multiple listing service (MLS) records: Appraisers look at various public records to learn about the property and its market area.

Inspection

Unlike an appraisal, a home inspector's goal is to examine the structural integrity of the home and its systems. An inspector will evaluate the following:

  • Exterior grounds (walkways, driveways, stairs, fences, yard, etc.)
  • Foundation and structure (inspectors check whether the home’s structure is sound)
  • Roof, windows, walls, ceilings and doors
  • Plumbing
  • Heating and cooling systems
  • Visible insulation

Although these are typically what they focus on, it’s important to ask your home inspector for a detailed listing of what they offer (or don’t). Some may offer checks of other nonstandard issues like asbestos or mold for an additional cost. They may also be able to recommend another professional who specializes in that type of inspection.

Another potential snag your inspector may find is that certain areas of the home may be unsafe to check properly. They should include in their report if any areas are inaccessible because of a lack of structural integrity (or if a part of the property is locked).

View rates from leading lenders now.

    FAQ

    Are a home inspection and home appraisal the same thing?

    An inspection and an appraisal involve a professional carefully looking over a home. However, an appraisal is a real estate appraiser’s estimate of what the house is currently worth and helps a lender determine the loan amount. An inspection assesses the condition of the house to identify safety or quality issues.

    What if an appraisal is lower than the listed sale price?

    An appraisal gap occurs when the appraised value is below the agreed-on purchase price for a home. A buyer may dispute the appraisal, negotiate a new purchase price with the seller, pay the difference between the appraisal and the purchase price or decide not to purchase the house if a contingency offer is made.

    Is appraisal value the same as market value?

    Not necessarily. As Curry-Terry explains, “An appraiser will do extensive research of the home and intend to provide an estimate of a property's market value, but they may not always align perfectly with the actual market value.” True market value depends on subjective factors, including what a buyer is willing to pay and what a seller is willing to accept.

    What is included in a home inspection?

    Home inspections typically cover significant parts of the home’s physical structure and systems. However, a home inspection checklist excludes issues like asbestos, radon, toxic mold, lead paint and pests like termites. Swimming pools and indoor air quality are also not standard. Ask your inspector if they perform add-on inspections for areas of concern.

    Bottom line

    You’re required to get your home appraised before purchase, but you’re not obligated to get a home inspection. However, it’s a wise investment. The appraisal guides lenders’ mortgage decisions, while the inspection draws your awareness to current or potential future issues with the home’s structure. An appraisal and an inspection help protect all parties involved in the purchase of a home or refinancing of a home loan.


    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. American Society of Home Inspectors, “FAQs about Home Inspection.” Accessed Feb. 20, 2024.
    2. Federal Deposit Insurance Corporation, “Understanding Appraisals and Why They Matter.” Accessed Feb. 21, 2024.
    3. HomeAdvisor. “Home Inspection And Appraisal Cost Guides.” Accessed Feb. 21, 2024.
    4. National Association of Realtors, “A Guide to Understanding a Residential Appraisal.” Accessed Feb. 21, 2024.
    5. National Association of Realtors, “2023 Appraisal Survey.” Accessed Feb. 21, 2024.
    6. U.S. Department of Housing and Urban Development. “Appendix D: Valuation Protocol.” Accessed Feb. 23, 2024.
    Did you find this article helpful? |
    Share this article