As someone hoping to buy residential real estate, you will have to assume numerous secondary costs in addition to the price you offer for the home. Closing costs include title company fees, as well as costs for an appraisal and an inspection.
Individuals buying a home with cash may have the option of declining some of these costs. Those using a mortgage for the purchase will have to comply with the rules set by their mortgage company, which will likely include having an appraisal and an inspection done.
Why do you have to pay for two different professionals to come check the property?
Appraisals and inspections involve different concerns
The purpose of an appraisal is significantly different than the purpose of an inspection.
When a professional inspector comes to a property, the main focus is to find issues with the property, especially hard-to-notice latent defects. The inspector will look for signs of everything from foundation issues to bad wiring. He will then include all of these potential property issues in a report so that the buyer knows the true condition of the property before closing.
An appraisal, on the other hand, involves looking at the interior and exterior of a property and then comparing it with other, similar properties nearby to establish the current fair market value of the property.
Appraisals are crucial for the protection of mortgage lenders, as buyers could offer far more than a property is worth. If the lender were later to foreclose on a property overvalued by the buyers, it may lose more than it stands to recoup during the foreclosure process. You will need to pay for an inspection to protect yourself and an appraisal to protect the mortgage company.
More professionals mean more protection before you sign
Ideally, your initial offer on the property included contingencies that allow you to cancel the closing if the appraisal comes in low or the inspection turns up significant, undisclosed problems with the property.
By having outside professionals verify the value and condition of the property, you can feel confident moving forward with your transaction. Understanding the different stages of a residential real estate purchase will empower you to make the best choices during this risky process.