If you are looking to buy a house, it is crucial you understand the difference between an appraisal and inspection. You will be dealing with these two elements till you sign on the dotted line, pay the seller and get the keys to your new home. Both elements are important and required if you and the seller want to close the deal.
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Under normal circumstances, a buyer will not have that much cash lying in the bank to pay the asking price of the property. He would need to approach a lending institution to get a mortgage to make the payment. Any lending institution will not sanction a mortgage unless the appraisal is done. This is mandated by law.
The appraiser assesses the value of the property based on the price at which comparable properties in the area were sold recently. Besides, the appraiser also observes the cracks and obvious signs of wear and tear in the property like broken windows and damaged floors. After determining the value of a property, the appraiser lets the lending institution determine whether it will be able to recover the loan amount should you default.
Basically, appraisals let banks see whether they can recover the mortgage amount should the property get foreclosed. They use the value of the property as collateral and give the buyer the 80 percent of the agreed sale price. The remaining 20 percent has to come out of the buyer’s own pocket.
While an appraisal benefits the lender the most, it can also be used as a benchmark by the buyer to determine whether they are paying too much for the property. Besides getting an idea about the value of the property, the buyer also gets to learn more about the site’s size, zoning, flooding zoning, earthquake zoning and also room count.
When you are buying a home, it is important to know the state the house is in and how much money you would have to spend over and above the mortgage to rectify problems. An inspection ensures you are not stuck with a lemon, so to say.
While most homeowners are honest about issues their homes may have, some may not know about termites or mold as they are not visible to the naked eye. These issues can cost a fortune to fix.
A home inspection performed by a qualified and licensed inspector checks every aspect of the structure and gives you a fair idea how much you would have to pay to fix issues with the property. This information is important, as you can decide whether it is worthwhile buying the property or walking away from it. It also allows you to negotiate the price.
To get a property inspected thoroughly and in the right manner, you need a good inspector. Always use a licensed inspector, who is in no way connected or associated with the buyer, real estate agent or any other party involved in the deal.
When you approach a bank for a mortgage, you will have to pay for the appraisal up front. While the bank gets the actual appraisal report, you can ask for a copy. You are legally entitled to one. After receiving the copy, review it thoroughly. If you don’t understand it, request your real estate consultant to explain it to you.
The appraisal will also highlight whether the market you are buying the property in is increasing, declining or remaining stable. If the market is declining, the lender will not be willing to give you the mortgage or may reduce the amount they are willing to lend.
When getting the property inspected professionally, do some research to find out what you should specifically ask the inspector to look for? An online search should easily reveal what a good inspection should cover. Before the inspection begins, talk to the inspector and discuss each item that he is going to review. Also, make it a point to be with the inspector during the inspection process, so that you are certain nothing has been missed out and the inspection was conducted thoroughly.
Both appraisal and home inspection can help you make an informed decision. One allows you to check the value of the property and ensure you are not being taken for a ride by the seller; while the other ensures you are getting value for your money and a home that will not eat up your bank account.
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