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Let's talk about the home inspection and appraisal. These two reports are created by two different real estate professionals and serve two very different purposes. So, let's start with a summary of each:
Home Inspection: This detailed examination assesses the property’s condition, uncovering potential issues from the roof to the foundation, including plumbing, electrical systems, and structural integrity. It ensures you know exactly what you’re getting into before making the purchase and is conducted by a licensed Home Inspector. A home inspection is not usually required by a lender, but is HIGHLY recommended for ALL property purchases.
Appraisal: Performed by a licensed appraiser, this process estimates the property’s fair market value to ensure the price aligns with the home’s true worth, protecting both the buyer and the lender. If you are financing your home purchase, your lender will likely require a home appraisal. Many cash buyers waive the home appraisal.
Now that we know the purpose of each report, let's discuss the details of what you'll see on them.
Home Inspection
Your home inspector will likely provide you with PDF report and some even provide online summary portals with videos! When you are reviewing your report expect to see A LOT of red, especially on older homes. This is because inspectors are required to call out anything that is not up to code... and with the codes getting updates every year, a lot of older homes just weren't built with the same standards. Now, with that said there are some BIG TICKET items you want to pay EXTRA attention to:
Roof: If there is roof damage, is there also evidence of water getting through? Do you need a total roof replacement or is there just normal wear? If there is roof damage, I'd get a roofer out there ASAP to provide a quote. Most roofers will do a free inspection, so go ahead and get one!
Foundation: Here in central Texas, foundation issues are VERY common. Look for cracks or signs of structural issues. If you or your inspector suspect foundation issues, ask the seller about any previous foundation repairs and check county records to see if you can find anything there about pier installation. Consider having a foundation specialist out there to estimate repair costs if needed. Also, when foundations move, it is important to verify plumbing is in good condition.
Plumbing: Most home inspectors do not check inside the pipes unless you pay for an add-on. If you get a sewer scope add-on, the inspector will likely run a camera down your main line. If the home is older than 10 years and/or has had foundation issues, I recommend hiring a plumber to do a more thorough check of the home's plumbing system.
Electrical Systems: Most re-sale homes have some sort of code issue when it comes to electrical systems. Consult a professional if you have questions about anything that is called out on the home's system. You can hire an electrician to come out and give you a quote on repairs if needed.
HVAC Systems: Aside from checking if the heating and cooling works, you will want to know the age of your HVAC system. Replacing an HVAC system can be very costly. Hire an HVAC pro for an estimate if needed.
Appraisal
The appraisal will be a long document. The most important information on the document is the final appraised value. If the value is equal to or higher than your offer price, then you are golden. If it is lower, you may need to appeal the report OR negotiate new terms with the seller. Consult your real estate agent for council on this.
Using Home Inspection and Appraisal as Negotiation Tools
These assessments can and DO significantly influence negotiations:
Home Inspection Findings can be leveraged to negotiate repairs, price reductions or repair credits.
Appraisal Results: a lower than expected appraisal can be used to renegotiate the purchase price.
When it comes time to review home inspections or appraisals, real bumps in the road can occur. It is important to discuss your options with your agent who should understand your situation and the neighborhood. If any bumps in the road occur, it is important to ask yourself if this is unique to this home, or is this likely to happen on other homes. For example, I had some clients that were purchasing a home in their ideal neighborhood. After their inspection report came back, we discovered that the home was in nearly perfect condition except the plumbing. The homes in that neighborhood were built in the 1970's and this home still had it's original plumbing (everything else had been upgraded). We had a plumber go out and were quoted $10k to get the "emergency" items taken care of and $40k to have the entire system replaced. Those are some big numbers! But, nearly all the homes in that neighborhood are going to have original plumbing, so at the end of the day, it didn't make sense to lose out on this otherwise perfect home even with that repair being needed. Instead of backing out, we negotiated and I got them a $10k price reduction and $10k in seller credits for closing costs.
Every home and situation is different. Never hesitate to ask questions and look into your options and when it comes to your home inspection and appraisal, know that they are important to understand and can serve as great tools.
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