When you purchase a home it is likely one of the largest purchases you will ever make in your life. It is important to know the item you are buying is in good condition an that it is a safe investment. There are steps you can take before you purchase your home that will insure the property condition and value is acceptable. Even better news. Most loan programs require them.
Often times when we discuss these options with a borrower the conversation turns to confusion as many people do not understand the difference between a Home Inspection, an Appraisal, and the home assessment.
The appraisal is a report that is used to determine the market value of a home. THe appraiser computes the value of the home by evaluating the home’s location, condition, and the value of similar recently sold homes. These sold homes are known as comparable sales. THe appraiser will walk through the home, and research comparable sales to determine the final value of the home. WHen compared to comparable sales, if the property is superior to the comparable it adds value and an inferior home subtracts value. The lender uses the final appraisal report to determine the maximum loan amount you can qualify for.
Example; You are purchasing a home for $100,000 and the value is $98,000. If you were to obtain a loan with 100% financing, you would only qualify for a loan amount of $98,000.
As stated above, the maximum loan amount is always based on the lower of the appraised value or purchase price. If the value is less than the appraised value, you may need to renegotiate the sales price of the home or come out of pocket with the additional needed funds to close. The good news is that the opposite is also true. If the home is valued higher than the sales price you will be walking into a situation where you already have built in equity.
Appraiser will typically go no more in depth than what is visible to the naked eye. They do not remove light fixtures, inspect septic systems, or look at the “bones” of a property. In addition, the final appraisal report, can impact the total loan amount.
A home inspection is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. … The home inspector describes the condition of the home at the time of inspection but does not guarantee future condition, efficiency, or life expectancy of systems or components.
During the home inspection, the inspector will examine the structure of the home, including the basement, attic, plumbing, and electrical. In most cases you can be present for the home inspection. The inspector will typically walk you through the process so you understand the home and any items that could become a problem in the future.
While the appraisal determines the value of a home, the Home Inspection determines the condition of the home.
When the home inspection is completed you will receive the home inspection report. This report will go into great detail about what items were inspected and what the findings were. The Home Inspection is not necessarily needed by the bank but it is always highly recommended you have an inspection completed. Based on the findings of the Home Inspection you may want to renegotiate the sales price with the seller or request that the selller repair certain items.
The tax asessment of a property is the dollar value given to a property to measure applicable taxes by the properties taxing authority. Assessed value (valuation) determines the value of a home for tax purposes. It is the price placed on a home by the corresponding government municipality to calculate property taxes. The assessment is unrelated to the property appraisal report as the appraisal findings are not reported to the taxing authority.
In general, the assessed value tends to be lower than the appraisal fair market value of property.
The assessed value of a home is only used for measuring the applicable property tax. According to investopedia.com A government assessor is responsible for assigning the assessed value. Government assessors are usually designated by specified tax districts. Each tax region has different procedures for calculating assessed value however the basic standards are primarily the same. Assessed value determines the value of a residence for tax purposes and takes comparable home sales and inspections into consideration.
In the most simple terms; the home Appraisal determines value wjhile a Home Inpsection looks at the condition of a home and the assesment is the value assigned to a property by the taxing authority to determine property tax amounts.
Appraisals are required to obtain a home loan and home inspections are not required, although Home Inspections are highly recommended
Your home lender will schedule the appraisal while you are responsible for the home inspection
While Appraisals, Home Inspections, and Assessments tend to be very different, they do have a few things in common.
First, they do offer benefits to the buyer and the bank to ensure the home is worth the sales price and that it is safe to live in. If the Assessment is lower than the sales price, even before the appraisal is received, this could raise a red flag. All three reports can help you determine if the offer to purchase real estate is fair and you are moving into a safe home. With these reports in hand you can feel very confident when you move into your new home.
First, the appraisal or home assessment should never be used to replace the Home Inspection. Neither report will look at the condition of the property. In short, YES you should. It will help you feel safe and comfortable in your home and will help you learn the little details about your home. Having familiarity with the property is just as important as liking the comforts of the home you purchase.
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