An appraisal is an opinion of market value rendered by a real estate appraiser.
It’s the appraiser’s job to research multiple listing and other data sources to compare the sale price of the subject property to those of recently sold homes in the area. The determination of value is based on a side-by-side comparison of the subject property to a minimum of three comparable properties.
To be considered a “comp” the other properties will preferably be the same type of property, apples to apples, so to speak. So one can’t compare a detached condominium to a single-family detached home, even though they may look alike. Once qualifying comps have been located, the appraiser compares aspects of the most similar properties which have recently sold and makes adjustments, based on market data, to determine the final estimated value of the property.
From time to time a lender may refer to an appraisal as an “inspection” because from their perspective, the appraiser acts like the eyes and ears of the lender when they visit the property site. Even though it’s not their primary purpose, if the appraiser notices items such as shoddy construction, a worn or potentially leaking roof or inadequate electrical wiring in the course of their visit to the property, they will remark on that to the lender and will recommend a property inspection, or defer to the property inspection if one has already been performed.
A home inspection is performed by a professional individual who checks the property for condition and likelihood of potential problems (or not) based on the overall condition of the structure, roof, siding, plumbing, electrical, as well as other systems such as heating and cooling.
Depending on what types of inspections they have been hired to do, they may also sub-contract out to check for wood-destroying insects, septic, water and radon testing.
Today, the standard types of commonly requested inspections are worded directly into the purchase and sale agreement. The vast majority of home buyers have a home inspection done as a routine part of purchasing a property.
Appraisals and home inspections are both useful tools in determining a property’s value and condition, but they are two distinct types of reports.