What To Expect During The Inspection & Appraisal as a Buyer
There are two major milestones when you are purchasing a home. The inspection & the appraisal.
We’re about to break them down right now.
The inspection, although not required by the bank, is a 10/10 good idea to move forward with.
The inspection is conducted by a licensed home inspector. The inspector performs their inspection that will uncover things about your home that you may not see at first sight. Think of it as an in-depth doctor's appointment to discover your home's health - the inspector will find any ongoing issues, anything that may look suspicious and tell you the great things about your new home as well! You then have the opportunity to negotiate items in that inspection with the Seller. These could be things you’d like fixed prior to closing on the property.
In this market we are seeing a lot of inspection waivers - meaning Buyers aren’t making their offers reliant on a home inspection. I just don’t agree with that. The inspection process is truly a chance to get to know your new home and if there is anything that is going to hinder your ability to do life in your home – you should know about it!
The inspection process can be as extensive or as simple as you’d like it to be. I’ve seen inspectors give you a word document to a full blown binder. Definitely research your inspectors before deciding who you want to hire. You want to ask these three questions:
Are they Licensed + Bonded? - meaning they have passed certain criteria that makes them the professional & are they carrying the correct insurance incase of an accident.
Inspection Count? - how many inspections do they do a week? If it’s any more than 5 that means that they are doing over 1,000 inspections a year. That is A LOT of homes.
What Certifications do they have? - Many states do not regulate home inspectors. If you don’t have any state regulations, look for certifications such as ASHI (American Society of Home Inspectors) Not only is this certification process extensive, they require a minimum of 250 paid home inspections prior to certification.
Its important to favor the inspectors creditials but also know their limits. Inspectors are giving you a general idea of the health of your potential home. They are there to call out health & safety items that could affect you down the road. They are not there to call out code infringements. Building code changes all the time - trying to bring every single home up to code would be an audacious endeavor.
The inspection will take anywhere between 2-4 hours depending on the size of the home & its components. Here is a list of some of the things they look for - a home inspector isn’t going to tear apart the home looking at wiring & piping, but the more accessible things are the better!
Heating system & central air conditioning system (temperature permitting)
Roof
Attic, including visible insulation
Electrical components
Plumbing components
Ceilings/Walls
Floors
Windows and doors
Foundation
Basement
Structural components
They will then put their findings into a report and present it to you at inspection.
Wait what if my home comes back with pages of defects?! 😱
Okay breathe! Most reports are extensive, listing dozens of defects - especially if they home is an older one. Some of the mentioned notes in the inspectors report won't even be things that you address - your key goal here is to focus on the severity of the problem. What are the deal breakers?
You will often see a home inspector call for a licensed professional to come check something out. So lets say they found a double tapped breaker in the main electrical panel - they will ask that a licensed professional (an electrician) come give insight. You will have the opportunity to bring what ever professional you like into the home to conduct what ever inspection you deem necessary. The goal is for you to have as much information as possible when negotiating your home inspection. Pro tip: This is where your Realtors connections with local contractors is going to com in haaaannndy. If you’re local to Billings, check out our Vendor List of go to’s here!
Some homes might not be worth the work - at that point you can cancel your contract and move on to the next. If you’re like most of the home buyers in this market, you’ll negotiate with the seller and you two will come to an agreement of what will be fixed or compensated for. This is what we call your “inspection negotiation period”
If you can’t come to an agreement, the contract is terminated and you get your earnest money back. More often than not - the seller & buyer come to an agreement and the contract will then enter into its next phase…
The appraisal.
The appraisal is an estimate of the home's value. This will be determined by a licensed appraiser inspecting the home and researching comparable home sales in the area. The appraisal is required when you are obtaining a loan so that the bank can make sure the home is worth the loan value.
The appraisal is ordered by the lender through a third party management company to keep things unbiased. As soon as an appraiser accepts the appraisal, they will let the lender know when the lender can expect a fully executed appraisal report - this is important because the appraisal is an imperative piece in order to plan a closing date.
The appraiser will analyze the following things when determining their value:
General Condition
Location
Age
Exterior - Siding, Roof, Windows
Size - Square footage
Design - remodeled, new, dated
Interior - Bedrooms, bathrooms, basement space etc.
Improvements
Safety Features
Certain loans (FHA/VA) loans will have certain requirements of the property. If there are any missing requirements, the appraiser will note it in the report and ask for it to be remedied. Common requirements are clean and seal peeling paint, install handrails on staircases & other safety measures.
The appraiser will usually spend no more than an hour inspecting the home. The majority of their work is done at the computer researching comparable property. They will pull comparable sales within a recent time frame to determine comparable value.
Their report is then submitted to the lender and the lender will give you the results of the appraisal.
What happens if it comes in low?
If the home’s appraisal value comes back lower than the asking price, two things typically happen: the seller may agree to lower the price to move forward with the transaction, or the buyer may decide to increase their down payment or both! It becomes a whole new negotiation.
Once you have completed your inspection & your appraisal comes in at value – you are on the road to closing! 🥳
