Appraisal and inspection may seem like interchangeable terms when it comes to houses – you have to inspect a home to appraise its value, right? In fact, they’re kind of like a Venn diagram: they have overlapping similarities, but they ultimately perform two different functions for the homebuyer.

1. Appraisals estimate the value of a home.

First, a brief overview of what an appraisal is. An appraisal involves a neutral third party, or appraiser, verifying the monetary and market value of the home based on its specs and its current market value based on comparable homes in the area. The appraiser will check the overall condition of the home and its major systems, but they won’t look much beyond the surface.

How does the appraiser assess the home’s value? Well, the appraiser will do a walk-through of the home, looking at the home’s size and layout, the materials used to construct the inside of the home, and how well it’s been maintained. The exterior of the home is treated similarly, with the appraiser examining the overall structure of the home, the materials used and ensure the foundation has no cracks or other signs of damage.

2. Inspections evaluate the safety of the home.

Home inspections examine the integrity, condition and functionality of the home. The inspector will take a fine-tooth comb through the entire home – attics, furnaces, foundations, crawl spaces, you name it – to ensure the home is safe to live in and predict any future problems the buyer might run in to. This has to do with the overall safety of the home; it has nothing to do with its monetary value.

The inspection process should take around two to three hours. During this time, the inspector will do an exhaustive analysis of the structure of the home and the important internal systems, including things like the electrical, plumbing, and heating and cooling systems, attic, roofing, basement, walls, ceiling and flooring, and windows and doors, among many others.

3. Appraisals are required...

As I said previously, appraisals are needed to verify the value of a home. So, for lenders, they’re a necessary step in the home loan process to confirm the amount they’re loaning you is correct. If, for whatever reason, the buyer defaults on their mortgage and the market value of the house turns out to be less than the loan amount, the lender won’t be able to sell the house for enough money to cover it. Essentially, it’s the way lenders protect their investment.

4. ...inspections are not.

Inspections are 100% for the buyer, so you can choose whether or not you want to get one. They’re there to protect your interests. I would always recommend to get one because you never know what problems could lie beneath the surface, and then it’s up to you to decide if it’s worth it. It’s certainly better than discovering thousands of dollars’ worth of damage a year down the road.

A home inspection can be a great negotiation tool, as long as you have contingencies in the purchase contract. If the home inspection turns up more problems than you want to deal with, this inspection contingency allows you to back out of the sale. You can also ask the seller to fix the problems for you or to reduce the purchase price to alleviate the cost of the repairs. Keep in mind that nine times out of ten, the inspection will find issues with the home. Don’t be deterred just because the home needs a couple of repairs!

Appraisals and home inspections are both different, but necessary parts of the homebuying process. They both protect you from sinking your money into something that isn’t worth it – but if it is, you’ll be able to truly invest into something worthwhile.

4 Important Differences between Appraisals and Inspections