Have you been told that you don’t really need a home inspection because your Appraiser is performing the same inspection? Are you confused because so many bulletin board posts, or others, are discussing a home appraisal and keep referring to it as an “inspection”? Don’t mistake a home appraisal for a home inspection as they are vastly different!
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I constantly hear in conversations, read in bulletin board posts, and read in articles where the home appraisal is referred to as an “Inspection”. These references are from real Estate professionals and even some Appraisers widely use this “Inspection” reference to their appraisal work. As a result I have heard from consumers, and believe it or not even some real estate professionals, that a home buyer doesn’t really need a home inspection as the appraisal is the same thing, or is doing the same thing. This can not be farther from the truth! Obviously I would hope that at least the real estate professionals would stop proliferating such a bad misinterpretation of the difference between an appraisal and a home inspection.
A home inspection is performed by a Professional Home Inspector and is used to help find issues in a home and determine the actual condition of the home. The Home Inspector will go through your home from top to bottom including walking through attics, walking roofs, crawling through crawlspaces, and checking/testing everything in site. The Home Inspector is specially trained and experienced on just about all aspects of a home. The good Home Inspector also uses special, high tech equipment and tools as well as their brainpower to inspect that home. Home inspection is an in depth review of the homes condition as well as all of the systems and components in it. The Home Inspector does not, nor should they, take any action to determine the value of the home or even any of its components.
On the other hand the job of a Professional Appraiser is to create what is called a valuation analysis of the home to determine what its potential value is in dollars. By that I do mean they create an opinion of what the home is worth if a person was to buy it at that time. Typically the Professional Appraiser spends a very short amount of time in the home to gather information, take pictures, and potentially speak with the homeowner to obtain answers to questions the Appraiser might have. There are other steps an Appraiser takes for their job but these do not involve actual on-site time. There are three methods that Appraisers use to perform a valuation analysis of a property and each of these have various other requirements, but the on-site time for all are near the same amount. These three appraisal methods are:
- Sales Comparison Approach – The Appraiser will compare your property to other recently sold properties whose characteristics are as close to yours as possible.
- Cost Approach – The Appraiser will spend a little more time on site for this gathering a little more information about your home. In this approach the Appraiser calculates how much it would cost in current day dollars to build your home again.
- Income Capitalization Approach – This method is typically used for income generating properties such as rental units (on the residential side). Unless you are an investor you won’t ever need to be concerned of the details of this approach.
The main confusion and why an Appraiser, or other real estate professional, are calling an appraisal an inspection, or referring to it as an inspection, comes from the Federal Housing Administration (FHA) requirements for property appraisals. The FHA is the Federal agency that issues mortgage insurance for FHA backed mortgages that the FHA approved partners issue. If you are obtaining an FHA backed loan your lender will require a Professional Appraiser that is registered as an FHA Approved Appraiser. FHA does require the Appraiser to perform some actions to verify what the basic condition is of the home. The FHA uses the Housing and Urban Development (HUD) “Minimum Property Standards” (MPS) for new construction, and the “Minimum Property Requirements” (MPR) for existing homes.
Look at the names of these HUD standards and be sure you understand that these are very, very minimum standards that have to be met for the FHA to provide the mortgage insurance on the home. The requirements on the Professional Appraiser are significantly less than those that are used to perform a home inspection. Where these standards appear to be similar to a full home inspection they are quite far from it. Even HUD will advise you to have a home inspection and that appraisals are not home inspections. You can see this here “For Your Protection: Get a Home Inspection”. Another thing that you have to consider is that Professional Appraisers are not trained to be Professional Home Inspectors. An Appraiser may not have any knowledge of home construction and might only know enough to possibly determine if an issue exists if it is not completely obvious. It is certainly not their fault they don’t know as they have enough they need to know just to perform their own job of appraising. If you want to read about the appraisal requirements and the MPR’ and MPS’ you can view them at the HUD site HERE. Hold onto your socks as just like any other government publication it can be very confusing itself.
An additional source of the confusion is the appraisal requirements even for a non-FHA backed loan. During the appraisal process the Appraiser must make a general determination as to the overall condition of the home. To do this the Appraiser will look for obvious issues with the home. But this view is extremely cursory, and the Appraiser can easily miss even obvious deficiencies. They will use the deficiencies as a weighting factor to determine the value of the home, along with other criteria. If they intend to value the home less than it might be worth, as opposed to being in great condition, they will add various comments to justify the lower value. However those comments must be taken with a grain of salt because the Appraiser’s observations might really be accurate if they do not have the knowledge or other supporting conditions to validate them. Unfortunately many banks will use these conditions the Appraiser notes to take into consideration whether the home is a good mortgage investment for them.
So just remember that the next time you hear someone say that you don’t need a home inspection because the appraiser is doing the same thing, then think long and hard if you really want to take that chance! Just because the Appraiser did not mark any deficiencies does not mean that deficiencies are not there. To use the HUD phrase you should get a home inspection for your own protection!
[tab: Links and References]
PS Inspection & Property Services LLC is a full service home inspection and light commercial inspection company servicing the entire Dallas/Fort Worth metroplex. We strive to for the satisfaction of our customers in everything we do. Our services offerings include:
Buyer home inspections
New Home Warranty Inspections
New Home Draw Inspections
Home Maintenance Inspections
Home Remodeling Inspections
Rental And Renter Inspections
Infrared Thermal Imaging Inspections
Energy Audit Inspections
Whole Inspections Or Inspections Customized To Your Needs
If you have an inspection need we can customize an inspection for it. Please visit our main site at PS Inspection & Property Service LLC.
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