United States
Hong KongAppraisal against home inspection
An appraisal estimates market value for the lender and is required. A home inspection assesses condition for the buyer and is optional. Both are usually paid for by the buyer.
Confused constantly by borrowers, and the exam asks originators to keep them apart.
The comparison
| Appraisal | Home inspection | |
|---|---|---|
| Client | The lender | The buyer |
| Question answered | What is it worth | What condition is it in |
| Required | By the lender, yes | No, it is optional |
| Who pays | Usually the buyer | The buyer |
| Result used for | Loan-to-value and the lending decision | Negotiation and the decision to proceed |
Why the borrower pays for the lender's document
Because the loan is being made for them. It is a cost of obtaining credit, disclosed on the Loan Estimate, and it is a service the consumer generally cannot shop for - which puts it in the zero tolerance bucket.
What an appraisal will not tell you
Whether the roof has two years left. Whether the electrics are safe. Whether there is damp behind the plaster.
An appraiser notes obvious defects affecting value and does not test systems or crawl through roof spaces.
And an originator explaining that the appraisal covers it is giving wrong information. It does not. That is a factual correction worth making rather than a matter of opinion.
The appraisal rules that are examinable
Notice of the right to a copy within 3 business days of application. Delivery promptly on completion or 3 business days before consummation, whichever is earlier. And the prohibition on influencing the appraiser at 12 CFR 1026.42.
Common questions
What is the difference between an appraisal and a home inspection?
An appraisal estimates value for the lender and is required. An inspection assesses condition for the buyer and is optional.
Does an appraisal check the condition of the house?
Only as it affects value. It does not test systems or inspect a roof space.
Who pays for the appraisal?
Usually the buyer, as a cost of obtaining credit disclosed on the Loan Estimate.
Is a home inspection required?
No. It is optional, and skipping it is a risk the buyer takes.
When must the appraisal copy be delivered?
Promptly on completion, or 3 business days before consummation, whichever is earlier.