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Appraisal vs. Inspection: What California Home Buyers Need to Know

Home buyers in California sometimes confuse the home inspection with the home appraisal, and vice versa. This subject can be especially confusing for first-time buyers who have never experienced either process.

To add to the confusion, there are certain types of property appraisals that also have an inspection component built in. So it’s easy to see why some people confuse these two procedures.

So let’s end the confusion! Today, we’ll explain the key differences between home inspections and appraisals in California, from a buyer’s perspective.

Home Appraisal vs. Inspection

In California, home appraisals and inspections are an important part of the buying process. Some buyers have both of these procedures performed, while other buyers might skip the inspection.

But what’s the difference between them?

In short: A home appraisal is the valuation of a property conducted by an authorized appraiser. The primary goal of an appraisal is to determine the current market value of the home. A home inspection is an examination of the property’s condition and safety. The primary goal of the inspection is to discover any issues, or potential issues, that might become a problem down the road.

So that’s the main difference between California home appraisals and inspections. The appraiser focuses on the market value of the house. The inspector focuses on the condition of the property and all installed systems.

Let’s drill down on these two procedures, and how they can affect you as a home buyer.

The Home Appraisal Determines Value

What is a home appraisal? It is a written estimate of a property’s value in the current market, as determined by a licensed appraiser.

In a typical real estate transaction, the appraisal is requested by the buyer’s mortgage lender. The lender wants to ensure the property is worth the amount that the buyer / borrower has agreed to pay for it. The process results in an appraiser’s report that includes an estimated value.

Lenders typically base the loan amount on the appraised value of the home, not on the asking price. That’s why the appraisal process is so important to both the buyer and the seller. It’s an important document that affects negotiations as well as the final outcome.

The key takeaway here is that California home appraisals focus on valuation, as opposed to the property condition.

The Home Inspection Assesses Condition

Unlike the appraisal, the home inspection process does not determine the value. In fact, a home inspector will offer no insight as to the market value of the property being inspected. That’s not their job.

Instead, the inspector will perform a comprehensive review and assessment of the home being purchased. It’s the buyer who hires the inspector, so the inspection is performed on their behalf. This process gives the buyer more insight into the property’s overall condition, including future repairs that might be needed.

In California, home inspectors typically examine the foundation, roof, plumbing, electrical system, heating and cooling, and any other installed systems. They then provide a written report to the home buyer. The buyer can then decide if they want to request repairs from the seller, or purchase the house as-is.

Are They Both Required in California?

As we’ve covered in a separate blog post, home inspections are usually optional in California. This is true for both conventional and government-backed mortgage loans, like FHA and VA. A home buyer in California can choose to have an inspection — or not. It’s up to you.

That being said, home inspections do provide valuable insight into the property’s condition. An inspector will be able to spot issues with the home that you might not even notice. They have a keen eye for such things, and usually a lot of experience. So if you’re concerned about future repairs and/or safety-related issues, you might want to have an inspection performed.

The home appraisal process works differently. If you’re using a mortgage loan to finance your purchase, the bank or lender will most likely require an appraisal to be performed. They do this to determine the market value of the property, since they are providing funds toward the purchase.

So that’s another key difference between California home inspections and appraisals. Inspections are usually optional, whereas the appraisal is almost always mandatory when a mortgage loan is being used.

FHA and VA Loans Are a Little Different

Earlier, we mentioned there are times when the property appraisal has an inspection component “built into it.” This is typically how it works with FHA and VA home loans.

Unlike a conventional loan, FHA and VA loans receive government backing in the form of insurance or guarantees. This backing offers extra protection for lenders, allowing them to be more flexible when approving borrowers for loans.

Because the government is partly involved in these loans, the home appraisal process works differently.

With a conventional loan, the appraiser is only concerned with the market value. But with an FHA or VA-backed mortgage loan, the appraiser must also ensure that the house being purchased meets the government’s minimum property requirements.

The bottom line: The primary difference between California home inspections and appraisals has to do with the goal or purpose. An appraisal seeks to determine the market value of the house, while the inspection is designed to evaluate the property condition. VA and FHA home appraisals include a little of both.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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