Step 7: The Home Inspection and Appraisal

The home inspection is an important step in the home buying process. Your real estate agent should be able to recommend a home inspector; real estate agents work with inspectors regularly and get to know them well. If you want to look around a bit, research home inspectors in your area or ask for recommendations from friends or family who’ve recently purchased a home. When looking, make sure the home inspector only does home inspections – they don’t also offer home repairs. You want your inspector to be as impartial as possible, and you don’t want to risk getting an inspector who could have an ulterior motive. As the home buyer, you’ll be responsible for finding a home inspector, making the appointment, and paying for the inspection, so make sure you’ve found someone you trust.

When you speak to the inspector, don’t be afraid to ask questions. Ask if they check for things like asbestos and lead paint. The home inspector will be able to answer any questions you have about state and local ordinances, as well. Typically, home inspectors won’t check for pests. If the inspector sees signs of termites or other insects, you might want to hire a pest specialist to look over the home, as well.

Home Inspection Day

Try and make it to the inspection if you can. The seller’s agent will likely be there to answer any questions the inspector has, and these are answers you’ll want to hear. Whenever you’re able, follow the inspector around the home. The inspector may give you tips and advice about how to take care of the home as it ages. Consider this the “driver’s manual” for the home, rather than just looking for issues.

A home inspection typically takes between two to four hours, but yours could be shorter or longer depending on the house and what the inspector finds. If the inspector finds something major, like mold or lead piping, you may want to call a specialist for further evaluation.

There will be a lot on the inspection report, but many of the items will probably be very minor. Most home inspectors are very thorough. They’ll check the house from the foundation to the roof and everything in between. This includes things you’d expect, like the electrical, plumbing, and the HVAC system, to things you might not consider, such as how well the doors close, how many outlets a room has, the risers on the stairs, and even the condition of light switches. If the home has a fireplace, the inspector will look this over, as well.

Here are the areas you generally find on the inspector’s report (your actual report may be slightly different):

  • Foundation: The inspector will check for cracks or shifts in the foundation and if the walls where they meet the floors/ceilings are level
  • Roof: The general age and condition
  • Exterior/Lot: Does the drainage flow away from the house? Are there soggy parts of the yard? When was the house painted? Is the gutter system working?
  • Attic: The inspector will check the interior condition of the roof and look for leaks
  • Room leaks: The inspector will also check for leaks around and below windows
  • Basement: The moisture levels and the insulation
  • Electrical: This includes things like grounding, circuit breakers, switches, and if there has been any DIY work
  • Plumbing: Your inspector will check the condition of the sewer line and look for any drips, noises, or leaks
  • Appliances: If applicable, the inspector will note the age and condition of the refrigerator, oven, and dishwasher
  • Heating/cooling system: Age and condition of the furnace and/or central air

How the Home Inspection Might Impact Your Offer

The inspector should be impartial to the sale of the house. They’re required to tell you about the condition of the house and whether it should affect your home’s price. In most cases, the inspection doesn’t change the offer, but instead gives the buyer a heads up on things to look for in the home’s future. However, if the inspector does find a major issue, the buyer has three options:

  • Negotiate a lower offer
  • Request repairs
  • Rescind the offer

When it comes to requesting repairs, a buyer can ask for something as small as a new screen on a window to something major like a new roof. When trying to decide from the three options above, consider the following: Did the seller already reflect the home’s damage by listing the home at lower-than-market value? What is the cost to fix the issue, compared to the overall cost of the house? Depending on the house, sewer problems might be a fraction of the home’s cost, or they might be more than the house is worth. If you request repairs, do you trust the seller to make the repairs in the best way possible? If you believe the seller might cut corners to close faster, you might want to negotiate a lower offer rather than request repairs.

Home Inspections vs. Appraisals

Unlike the home inspector, the appraiser isn’t there to go over the house with a fine-tooth comb, looking for flaws. The appraiser has a much broader scope: to determine the home’s overall value. To do this, the appraiser will look at the structure and condition of the house, the landscape, and even the neighborhood. They will ensure the house meets certain codes, such as making sure the bedrooms each contain a closet and a window. Livability is also a consideration for the appraiser. If the house isn’t in livable condition, the value decreases significantly.

Aside from the overall condition of the house, appraisers will consider the location of the house, the area’s housing market, and curb appeal. If the seller made upgrades to the home, such as updating the kitchen or adding a bathroom, those features will impact the appraisal. The appraiser will also check to see if the property is in a flood zone or if there are other hazards in the area. The appraiser won’t consider any part of the house that is removable, such as small appliances, ceiling fans, or home décor.

As with the home inspection, the buyer will pay for the appraisal unless they’ve negotiated something with the seller. An appraisal is usually required by the mortgage lender to make sure the house is worth the money they’ll be lending.
Unlike home inspections, which typically take hours, the actual appraisal is usually over in less than an hour (although the process could take days). Also, the appraiser likely won’t talk to you as the home inspector will. Even though you’re the one paying for the appraisal (in most cases), the appraiser is there on behalf of the mortgage lender, and they will report directly to the lender. If you have an issue with the appraisal, you will have to contact the lender to learn why the appraisal came in at the value it did.

As the buyer, there isn’t much you can do to prepare for the appraisal, aside from asking your real estate agent for the property’s sale history and past appraisals. While you can’t change the outcome, this history may give you an idea where you stand.

Getting an Appraisal for an FHA Loan

If you’ll be getting a Federal Housing Administration (FHA) loan, the appraisal requirements are stricter than those for a conventional loan. An FHA loan is a government-backed mortgage loan. It is issued by a bank but insured by the FHA. If you are getting an FHA loan, the appraiser must follow FHA guidelines when evaluating a property. Some of the requirements for this type of appraisal are:

  • A complete visual inspection of the property, interior and exterior
  • Photographs of the sides, front, and back of the property, along with a photo of the street frontage
  • A map of any proposed construction, with roadways clearly marked
  • The appraiser must include a copy of a local street map that shows the location of the property and comparable sales

When looking at the house itself, the appraiser is required to consider the “desirability, utility, and appropriateness” when determining the overall value. Factors the appraiser will consider for these FHA guidelines include:

  • The gross living area: The calculation of the finished, above-grade residential space. As a rule, finished basements and unfinished attic spaces aren’t included in the gross living area.
  • Basement bedrooms and/or apartments: To count toward the gross living area, any rooms in the basement must have a windowsill no higher than 44 inches from the floor, the window must be at least 24 inches by 36 inches, and the window should be at ground level.
  • Design: A cohesive blend of structural, functional, and decorative elements. The whole property should be in harmony with its immediate site and environment. Basically, if the design of the house is considered desirable, it has more value than a house with the same rooms and area but is lacking in good design.
  • Conformity of property to the neighborhood: The home shouldn’t be displeasing or out of place in relation to its surroundings.
  • Remaining economic life of building improvements: This addresses the overall condition of the home. The house should have many years of physical and economic life remaining.

The appraisal is a critical part of the home buying journey, whether your loan is conventional or backed by the FHA. If the home doesn’t appraise for what you agreed to pay, you may end up having to make up the difference out of your own pocket. The mortgage lender won’t lend more than the property is worth, so a lot hinges on the outcome of the appraisal. Contact your lender after the appraisal and get the results. If they aren’t what you expected, you can request another appraisal. In the end, an appraisal that’s significantly less than what you agreed to pay could mean it’s time to renegotiate or even walk away.