Home evaluation lingo: Appraisal vs. inspection vs. assessment

By Liz Keuler

May 2023

As part of the homebuying process, the house you want to purchase will be evaluated in different ways by different parties. You’ll hear home evaluation terms that sound similar but mean different things. Inspection, appraisal, assessment: What do these terms mean, and how can each affect your home purchase? Read on for an explanation.

Are a home inspection and an appraisal the same thing?

The short answer: no! While both a home inspection and an appraisal involve an evaluation of the home you wish to buy, they have different purposes in the home purchase process. Most buyers get a home inspection to understand the condition of the home and to avoid buying a lemon. A lender orders an appraisal to make sure the price you agreed to pay matches the value of the home, to protect their own interests.

A home inspection evaluates the condition of a house

A home inspection is an independent evaluation of the condition of the home you want to purchase, usually conducted after your offer is accepted. 

While optional, most buyers include a home inspection contingency in the offer to purchase. That way, if the inspection uncovers a serious issue, you’ll be able to walk away from the sale without losing your earnest money. The inspection may uncover smaller issues you may want to address before your loan closing, by requesting the seller to either make the repairs or reduce the purchase price. At the very least, an inspection will ensure you are familiar with the house and potential repairs it may require. You should plan to be present at the home inspection; be prepared to ask your home inspector about anything you don’t understand. You’ll be glad you did!

An appraisal evaluates the value of a house

An appraisal is conducted to assess the current market value of a home so a lender can avoid lending you more money than the house is worth. The lender orders the appraisal to protect their own investment in the event you should default on the loan and go into foreclosure; if they lend you more money than the house is worth, they wouldn’t be able to recoup their costs. 

In brief, an appraiser will evaluate the home based on its physical condition (both exterior and interior), features, and location. They’ll research similar real estate sales in the area, often known as “real estate comps.” They’ll use the information they gather to create an appraisal report that lists the appraised value.

If the house appraises for a lower amount than the sales price, you may experience roadblocks in continuing the mortgage process, but your loan officer should be able to guide you. You may be able to renegotiate with the seller, redistribute or add down payment funds, or even dispute an appraisal that seems too low. See more about dealing with a low appraisal on The Balance.

Some buyers include an appraisal contingency in the purchase offer so they’ll be able to walk away if the appraisal comes in under the sales price.

Appraised value vs. assessed value

They’re both “A” words that put a value on a house, so it’s understandable to confuse appraised value with assessed value. However, they aren’t quite the same thing. Remember, the appraisal is ordered by the lender to protect their own interests, and the appraised value will reflect what the home would be expected to sell for on the market at a given time. A home assessment is undertaken by your local government to determine the property tax you’ll pay as a homeowner.

How often homes are assessed and how exactly assessments are calculated varies by state and municipality.

Who pays for an inspection and appraisal? 

The buyer generally pays for both the appraisal and the home inspection. The difference is that the buyer will choose the home inspector and pay them directly, but the lender will order the appraisal and charge the fee to the buyer. Often the appraisal fee needs to be paid upfront, prior to closing.

Don’t be afraid to ask for clarification 

A house is one of the largest (if not the largest) purchases you’ll ever make. Your homebuying team is there to guide you through the process, and they’re invested in your success. Don’t be afraid to ask questions of your loan officer or real estate agent about the appraisal and inspection – or anything else, for that matter!

Weigh In

Readynest reviews all comments to ensure a respectful dialogue, so your comment may take a day to appear. We do not post inappropriate or abusive comments. Read our commenting policy

Liz Keuler is the editor of Readynest. She spent a decade meandering through radio, nonprofits and the corporate world before convincing MGIC to hire her based on her staunch grammatical convictions. She lives in a charming 100-year-old bungalow on Milwaukee’s East Side. Her interests include old Ernst Lubitsch films, new action movies, 60s girl pop, Regency romance novels, word games, sewing and shallots.
We use cookies on this site to enhance your experience. By continuing to use this site you agree with our use of cookies.    Privacy Policy    accept