What Are the Differences Between a Home Inspection and a Home Appraisal?

The Weekly Recap

Good morning and happy Friday! The MTA voted to approve the $9 congestion tax that nobody wants, Thanksgiving travel is expected to hit record numbers in NYC, people looking to ditch NY for Florida may find that its not that cost effective anymore. Home sales rose 2.9% YoY in October nationwide which is the first such increase in three years, Bitcoin is charging towards $100,000, Jerome Powell is not in rush to cut rates more and someone bought a banana duct-taped to a wall at a Sotheby’s art auction for $6.2 million.

If you missed last weeks newsletter on How Are Business Leaders Viewing the Post-Election Market Rally and What That Means for Real Estate, you can read that through the link.

What Are the Differences Between a Home Inspection and a Home Appraisal?

This is a question I get asked frequently from buyers. What is the purpose and/or difference between a home inspection versus an appraisal. A home inspection and a home appraisal are essential but distinct components of the home-buying process. They are similar in that they both involve an evaluation of the property but serve entirely different purposes and are conducted by professionals with specific expertise.

Home Inspection

The purpose of the inspection is to assess the condition of an existing property with the goal of identifying any potential issues or necessary repairs that are either structural, mechanical or electrical. These types of inspections are always encouraged for those that are purchasing single or multi-family homes. Very rarely do people do inspections in Condos or CO-OPs since the units are part of a larger structure where issues can be found through your attorneys due diligence exercise from the board minutes.

Inspections are done by licensed inspectors trained to evaluate the physical aspects of a property. An inspection should occur before going into contract on a home so if there are any issues that come up, they can be addressed and negotiated before you are fully committed to the purchase. Buyers are responsible for paying for inspections and they operate as a sort of an insurance policy that the home is a safe place not only to live, but also invest in.

Home Appraisals

The purpose of the appraisal is to determine the market value of the property and to ensure the home is worth the price that is being paid. Appraisals will always be necessary for a purchase, regardless as to what kind of property type it is, when you are financing the purchase of the home. The bank wants to make sure that they are not underwriting a loan for a home that is worth way less than what a buyer is paying for it.

Appraisals are completed by licensed appraisers who are trained to assess property value based on market trends, property features, and comparable sales. Appraisals take place after you go into contract and send a fully executed contract to your lender so they can begin the underwriting process. The bank is who orders the appraisal and initially pays for it (if you are purchasing all cash you can order your own appraisal if you’d like) but the expense of the then added as part of your closing costs. Since an appraisal is used to justify the value of the home and is a financial assessment, an appraisal that comes back LESS than what the contract price is may create issues from the lender perspective with their willingness to finance the home.

If an appraisal comes in lower (normally more than $20,000) than the asking price, the bank will tell the potential borrower that they should renegotiate the deal with the sellers based on the new information. If the seller is unwilling to negotiate, the bank would require the buyers to put up the difference in cash between the contract price and the appraised price, as an additional down payment. If the deal does get renegotiated to a lower price, then an amendment is added to the already signed contract with the new purchase price.

Both the appraisal and the inspection are critical steps to when purchasing a home. The inspection ensures you know what you’re buying, while a home appraisal ensures you’re not overpaying.

Market Performance

Here are how some other indexes and asset classes have performed as of this morning’s opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past WEEK as well as newly signed contracts in Manhattan. MoM NYC has seen a 14% increase in signed contracts.

Mortgage Rate Update

Rates ticked back up slightly this week. Heading into the holidays purchase demand is expected to slow down but there has been an increase in activity in the two weeks following the election. While for-sale inventory is increasing modestly, the elevated rate environment has caused new construction to soften.

News You Can Use

• New York’s Transit Agency Approves $9 Congestion Toll Bloomberg

• Home Sales Post First Year Over Year Sales Increase in Three Years NY Post

• Fed’s Powell: Rate Cuts Are Still Underway, But There’s No Hurry CNN Business

• Bitcoin Climbs Closer to $100,000 on Trump’s Support for Crypto Bloomberg

• The ‘Oracle of Wall Street’ Says Home Prices need to Fall 20% Yahoo Finance

• US Retail Sales Increase in October Bloomberg

• Goldman Sachs Chairman Expects Deals to Pick Up in 2025 Reuters

• Florida Is Not So Cheap Compared With New York These Days Bloomberg

• Right Now May Be the Best Time for Homebuyers in Five Years NY Post

• Trump’s Victory Sparks Consumer Confidence Surge Axios

• Record NYC Thanksgiving Travel Signals Airport, Traffic Mess Bloomberg

• Crypto Tycoon Pays $6.2 Million for Banana Duct-Taped to Wall Bloomberg

The Deep Insight

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