Home Inspections and Appraisals

AM 570 Podcast

Column from The Wave

Oftentimes when people decide to sell their house they're unjustifiably worried, and often confused, about the inevitable home inspection and appraisal. Each distinct event has its own function and purpose. Many times I meet people who don't understand the actual role each has in a real estate transaction. Buyers will first hire a licensed home inspector (or engineer) to have a professionally trained eye look over the condition of the desired house. Later on, their bank will hire a licensed appraiser to get a professional opinion of its market value.

So many times home sellers stress to me that they want their house sold "As is". I then explain to them that just about every house sold in NY is done so "As is" because buyers typically hire an inspector to examine the house prior to signing a purchase contract, not afterwards. Home inspectors aim to reveal all of the visible issues and defects of a house. It's important to know that every house, including new construction, has defects. With that in mind, a good inspection will shed light on most of the imperfections and issues so that the buyer can move forward and sign the contract with their eyes wide open and fully aware of the property's condition. It behooves the seller to correct any major issues prior to bringing their property to market (or at least reveal the issues to the broker) so that there's no major surprises for the buyer when reviewing the home inspection report. Sometimes major issues are discovered during the inspection that the seller either honestly wasn't aware of, or knew about and didn't disclose when listing. In those cases, the buyer will typically either look to renegotiate the deal before signing, or simply refuse to sign the contract because the house isn't in the condition promised when their offer was accepted. For example, and to keep things in perspective, a typical home heating system has about a 30-year lifespan. Does that mean that a seller needs to disclose to the buyers that his furnace is relatively old? Absolutely not, as long as it's properly heating the house, it's fine. A good inspector will cite the age and life expectancy of the furnace and advise the buyer to plan on replacing it sometime in the future. When a property is accurately presented to the market, and generally in good working condition, buyers usually sign and move into the contract phase soon after the inspection.

The appraisal, on the other hand, usually takes place several weeks after the contract signing. The appraisal is mandated by the bank but paid for by the borrower. It's done before the bank essentially agrees to partner with the buyer by providing the mortgage financing. Whereas a thorough home inspector typically spends 2-3 hours at a property, an appraiser is usually there for only about 20 minutes simply making sure that the house is "habitable" with running water, lights, walls, a functioning roof, etc. Afterwards, they spend more time in the field and at their office estimating the subject property's value against comparable sales nearby. As far as the bank is concerned, the value of the property is established by the appraisal, not by the final sale price. The ultimate function of the appraiser is to make sure that the bank is making a sound investment. Rarely, if ever, does a bank care to review the home inspection report. As long as there's no signs of termites, the home is habitable, the buyer is creditworthy and the price is fair, the loan will be approved by the bank and the deal will close successfully.