Understanding the Home Inspection and Appraisal Process- Step 7

The home inspection is a crucial phase in the home buying journey. Your real estate agent can recommend a reliable home inspector, as they often collaborate with inspectors. If you prefer to explore options, research local inspectors or seek referrals from friends and family who recently bought homes. Ensure the chosen inspector focuses solely on inspections without offering repair services for impartiality. As the buyer, it's your responsibility to find, schedule, and pay for the inspection, so selecting a trustworthy professional is essential.

During your interaction with the inspector, don't hesitate to pose questions. Inquire about their examination of potential issues like asbestos and lead paint. The inspector can provide insights into state and local regulations. While most inspectors don't assess pests, if signs are observed, consider hiring a pest specialist for a comprehensive evaluation of the property.

Inspection Day:

Your In-Depth Guide If possible, attend the inspection – the seller’s agent is likely to be present, providing valuable insights. Following the inspector as they examine the home offers you the chance to hear essential answers to potential questions. Consider it an opportunity to gather tips on home maintenance throughout its lifespan, akin to a "driver's manual" for your new residence, rather than solely focusing on identifying issues.

Typically lasting two to four hours, the inspection duration may vary based on the property and findings. Significant discoveries, like mold or lead piping, may prompt you to seek further evaluation from a specialist.

Expect a comprehensive report covering various aspects, with many items likely being minor. Thorough inspectors assess everything, from the foundation to the roof and all in between. This includes standard evaluations of electrical, plumbing, and HVAC systems, alongside more nuanced considerations such as door functionality, room outlet count, stair risers, and even the condition of light switches. Fireplaces are also scrutinized if present in the home.

Common Areas Covered in Inspection Reports:

Foundation: Assessing for cracks, shifts, and the levelness of walls where they meet floors/ceilings.
Roof: Evaluating the general age and condition.
Exterior/Lot: Checking drainage flow, identifying soggy yard areas, reviewing the house's paint status, and assessing the gutter system.
Attic: Examining the interior condition of the roof and searching for potential leaks.
Room Leaks: Investigating for leaks around and below windows.
Basement: Analyzing moisture levels and insulation.
Electrical: Inspecting grounding, circuit breakers, switches, and any signs of DIY work.
Plumbing: Checking the sewer line's condition and looking for drips, noises, or leaks.
Appliances: Noting the age and condition of applicable appliances such as the refrigerator, oven, and dishwasher.
Heating/Cooling System: Evaluating the age and condition of the furnace and/or central air.

Impact of Home Inspection on Your Offer

The home inspector's role is to provide an unbiased assessment of the house's condition, indicating if it should influence the home's pricing. Typically, the inspection acts as a precautionary measure, alerting the buyer to potential future issues rather than altering the initial offer. However, if a significant problem arises, the buyer has three choices:

Negotiate a reduced offer.
Request repairs.
Rescind the offer.

When considering these options, several factors should be weighed. Was the home's damage already factored into the below-market listing price by the seller? What's the repair cost relative to the overall home price? For instance, sewer problems might be a fraction of the home's cost or exceed its value. If requesting repairs, is there confidence in the seller's ability to address issues adequately, or is negotiating a lower offer a preferable choice, especially if expediency could lead to shortcuts in repairs? Careful consideration of these aspects helps in making an informed decision.

Home Inspections vs. Appraisals

In contrast to a meticulous home inspector, the appraiser has a broader focus – determining the overall value of the home. The appraisal considers the structure, condition, landscape, and neighborhood, ensuring compliance with specific codes like having closets and windows in bedrooms. Livability is a vital factor, as a non-livable condition significantly reduces the home's value.

Beyond the home's condition, the appraiser evaluates its location, the local housing market, and curb appeal. Upgrades made by the seller, such as kitchen renovations, impact the appraisal. Hazards like flood zones in the vicinity are also taken into account. However, the appraiser disregards removable aspects like appliances, fans, or décor.

Buyers typically cover the appraisal cost, unless negotiated otherwise with the seller. Lenders often mandate an appraisal to confirm the home's value aligns with the loan amount. Unlike lengthy home inspections, appraisals usually last under an hour. The appraiser, acting on behalf of the lender, doesn't engage directly with the buyer, making any concerns about the appraisal process addressed through the lender. While you can't alter the outcome, understanding the property's sale history and past appraisals, provided by your real estate agent, can offer insight into your position.

Obtaining an Appraisal for an FHA Loan

When securing a Federal Housing Administration (FHA) loan, be aware that the appraisal criteria are more stringent compared to those for a conventional loan. An FHA loan is a government-backed mortgage, combining bank issuance with FHA insurance. If opting for an FHA loan, the appraiser adheres to FHA guidelines during property assessments. Specific requirements for this type of appraisal encompass:

A thorough visual inspection of the property, both interior and exterior.
Capture of photographs depicting the property's sides, front, and back, including an image of the street frontage.
Presentation of a map outlining any proposed construction, with clearly marked roadways.
Inclusion of a local street map copy indicating the property's location and comparable sales.

Assessing the house according to FHA guidelines requires the appraiser to consider "desirability, utility, and appropriateness" in determining overall value. Factors considered under these guidelines include:

Gross living area: Calculating the finished, above-grade residential space, excluding finished basements and unfinished attic spaces.
Basement bedrooms and/or apartments: To be part of the gross living area, basement rooms must meet specific window size and height criteria.
Design: Evaluating the cohesive blend of structural, functional, and decorative elements for a desirable overall design.
Conformity to the neighborhood: Ensuring the property complements its surroundings and doesn't stand out negatively.
Remaining economic life of building improvements: Examining the overall condition to ensure the home has sufficient physical and economic life remaining.

The appraisal holds substantial significance in the home buying process, impacting your financial commitment. If the home appraises below the agreed-upon price, you may need to cover the shortfall. Communicate with your lender post-appraisal for results, and if unexpected, consider requesting a reassessment. A significant variance in the appraisal value may warrant renegotiation or reconsidering the purchase.