Appraisal vs. Inspection: 4 Key Differences

What is a home appraisal?

A home appraisal assesses a property’s value, 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.

“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,” said Freida Curry-Terry, principal broker at 1st Choice Realty in Richmond, Kentucky.

Buyers will be expected to pay for the home appraisal as part of their closing costs during the final stages of a property purchase. 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 from $300 to $500, according to the National Association of Realtors (NAR). Cost may vary depending on factors like location and the 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 such as heating, 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, it’s up to you, as the buyer, to decide whether to negotiate the terms of your contract by adjusting the purchase price or requesting that the seller perform certain repairs.

Home appraisal vs. inspection: comparison overview

Here’s a high-level breakdown of how home appraisals and inspections compare.

Home appraisal vs. inspection: key purpose

While the home appraisal and the inspection both help safeguard your investment, they serve different purposes.

An appraisal’s main purpose is to provide a dollar value for the property as it is, and this step is required by lenders. This helps ensure the lender can determine the amount for the loan, along with the interest rate and down payment.

The key purpose of a home inspection is to give 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 request a price adjustment or completion of repairs before proceeding with the purchase. “I highly recommend any buyer perform an inspection, even on new-construction homes,” advised Curry-Terry.

» MORE: What to expect from a home inspection

Home appraisal vs. inspection: lender requirements

Lenders typically require a home appraisal before approving a loan. This important step provides an official estimate of the property’s market value, ensuring the buyer pays a fair price for their new home.

Additionally, if you’re buying a home using a Federal Housing Administration (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.

Unlike an appraisal, a home inspection is technically optional, but it’s wise not to skip it because an inspector can identify important issues. 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

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.

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 a home's current value to help lenders determine the loan amount, interest rate and down payment.

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

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

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

What do appraisers vs. inspectors look for?

An appraiser’s review of a property focuses on its market value as it compares to similar homes in the area. An inspector, on the other hand, looks for problems with the home’s systems and structures, giving the buyer an opportunity to request repairs or negotiate the home price.

What appraisers look for

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.

What inspectors look for

Unlike an appraisal, a home inspector’s goal is to assess the home’s structural integrity and 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 whether any areas are inaccessible due to structural integrity issues (or if any part of the property is locked).