Appraisals and Inspections

Before purchasing a home, you must complete both a property appraisal and a property inspection. You will also need to do this when refinancing. Not only should buyers complete an appraisal for their own benefit to make sure they are getting the best deal possible on their new home, it is the only valuation report most banks will consider when deciding whether or not to lend the money.

Appraisers are certified, state-licensed professionals who have no personal stake in the worth of a property. Real estate agents who put a house on the market will often complete a Comparative Market Analysis, or CMA, before pricing the home, but this is not the same as a full appraisal, although experienced professionals' value estimates may come close to the appraisal. The lender may use their own appraiser, or if they let you select the appraiser, the appraisal may be subject to review.

Appraisals typically include details about the subject property and side by side comparisons of a few similar properties; an evaluation of market in your area, notes on issues the appraiser believes may negatively affect the property value or are serious flaws, and an estimate of the average sales time for the property.

There are two types of appraisals: the sales comparison approach, in which the appraiser determines a property's value by comparing it to similar properties, and the cost approach, in which the appraiser estimates how much it would cost to replace the structure. The second is more common for newer homes, while the former is more frequently used for older homes.

It is important to note that an appraisal is not a home inspection. An inspection is designed to find any problems that may prove costly for the owner of the property and involves testing appliances, heating and air conditioning, making sure the plumbing and wiring are up to code and other tasks. The appraisal will not check for these and thus cannot tell you whether many parts of the home are in good condition.