When buying or selling a home, two important steps can cause some confusion: the home inspection and the home appraisal. While both involve someone coming out to evaluate the property, they serve very different purposes. One looks closely at the physical condition of the home, while the other focuses on value. 

Understanding the difference between the two can help buyers make more confident decisions and give sellers a better idea of what to expect along the way.

What is it and why does it matter?
After an offer is accepted, but before the deal closes, the buyer typically hires a licensed, independent home inspector to thoroughly examine the property’s condition.

With an investment this big, buyers want to know exactly what they’re getting into, especially if there are hidden issues that could cost them down the line. A thorough inspection can provide peace of mind and give you the information needed to make smart financial decisions. This is especially true in Alabama, which is a caveat emptor, or “buyer beware,” state. In Alabama, the seller is only legally required to disclose 1) issues that affect health and safety and are not readily apparent and 2) items that the buyer directly asks about. So, it’s critical for the buyer to have the property inspected.  

What does an inspector look for?
The main goal of the inspection is to uncover any defects, safety concerns, or signs of deferred maintenance. After examining a property, an inspector will put together a detailed report that usually includes photos, notes, and recommendations for repairs or further evaluation, if needed.

According to the American Society of Home Inspectors (ASHI), “The standard home inspector’s report will cover the condition of the home’s heating system; central air conditioning system (temperature permitting); interior plumbing system; electrical system; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; and the foundation, basement and structural components.” If you want a specific system or component of the home inspected, specialized inspectors can often be hired. 

What happens after the inspection?
The inspection report helps buyers make informed decisions about whether to move forward with the purchase. If significant issues come up, buyers can ask the seller to make repairs, ask for money for the buyer to use to make repairs, or request a reduction in purchase price. In some situations, if the problems are serious enough, buyers may even utilize their inspection contingency and walk away from the deal altogether.

The good news is you can hire a real estate professional to walk you through the entire process. Buyers can hire a REALTOR® (a member of the National Association of REALTORS®) to assist them during the home buying process, including with both the inspection and appraisal. They’ll help you make sense of the inspection report, help you decide what issues are worth negotiating, and communicate with the seller to help keep the deal going. 

Keep in mind that a home inspection isn’t meant to predict future problems. It’s simply a way to understand the property’s current condition and help you prepare for possible upcoming maintenance. While it’s not always legally required, skipping the inspection can be an extremely risky move, especially given Alabama’s “buyer beware” laws. 

What is it and why does it matter?
The home appraisal serves a completely different purpose from the inspection. It’s often required by the buyer’s mortgage lender, if any, but a buyer can request an appraisal directly even if their lender doesn’t require one. The buyer often pays for the appraisal as part of their closing costs, although they can request that the seller pay for it. The main purpose of an appraisal is to determine the fair market value of the home so the lender can be sure they’re not loaning more money than the property is worth. This helps protect the lender if, for any reason, the buyer defaults on the loan and the home has to be sold.

What does an appraiser look for?
Unlike a home inspector, the appraiser doesn’t typically dig into the home’s mechanical systems or try to uncover defects. Their focus is bigger picture: How much is the home worth in the current market?

To figure that out, the appraiser walks the property, taking pictures and making notes of things like the home’s size, overall design and condition, number of bedrooms and bathrooms, upgrades or renovations, lot size, location, etc. They’ll also compare the home to recent sales of similar properties in the area, sometimes called “comps.” Then, they’ll put together a detailed report with their estimated value, including the data to back it up.

What happens after the appraisal?
If the appraised value comes in at or above the contract price, great! The loan will move forward without appraisal issues. However, if the appraisal comes in lower than expected, things can get a little tricky. The lender typically won’t approve a loan amount higher than the home’s appraised value, so someone has to make up the difference. 

This could mean the buyer bringing extra cash to the table, the seller lowering the price, or both parties renegotiating. In some cases, if the parties can’t reach an agreement, the deal could fall through, especially if the buyer included an appraisal contingency in the offer.

Just like with inspections, your REALTOR® will be there to help you understand the appraisal process, discuss your options, and guide you through the next steps.

While the home inspection and appraisal both play crucial roles in a real estate transaction, they serve very different purposes. Understanding how these steps work and leaning on your REALTOR® to guide you through them can make the process feel a lot less overwhelming and help you avoid costly surprises down the road.