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Buying a Spokane Home? Know the difference between an Appraisal and Inspection.

Posted by Holly McDowell on July 29, 2021

One of the first questions I get from new home buyers, is what is an appraisal, and is that different than an inspection?  Yes! These are two very different processes, completed for different reasons.

Appraisal vs Inspection

An inspection is an examination of the home’s condition by a licensed home inspector.  They look for defects and maintenance issues throughout the home and submit a report to the buyer.  This report is not submitted to the lender and occurs outside of the loan process. 

The appraisal is an estimation of a home’s current value.  A licensed appraiser conducts the appraisal, which consists of inspecting the home, analyzing the neighborhood, and reviewing recent sales of similar properties.  Lenders require appraisals on nearly all home purchases. The purchase and the loan approval are often contingent on an appraisal that confirms the home value isn’t lower than the contract price.  Appraisals make or break mortgage dependant home purchases.

Appraisal Scenarios

In the current seller’s market, the outcome of the appraisal is a valid and real concern.  In the Spokane market, and especially on the South Hill, homes are selling for an average of 6% over the listing price. It isn’t uncommon to have a house sell for $50,000 above the list price.  In fact, it isn’t even uncommon to see an excess of $100,000!  

Are homes appraising at value when the contract price is so far above the list price? This is difficult to ascertain for a few reasons. First, the appraisal belongs to the buyer and the results of the appraisal aren’t publicly disclosed. Second, many buyers are offering to bring extra cash to the purchase should the house not appraise, which also is not publicly disclosed. 

There are three outcomes for an appraisal: at contract value (the purchase price), below the contract price, or above the contract price. At value and above value create no issues – the home purchase will proceed according to the contract.  I have had buyers ask if the appraisal comes in above value, does that mean they have to pay more?  The answer is a resounding NO.  The sale proceeds according to the price agreed upon in the contract.

Under Value Options

If the appraisal comes in under value, then the buyer and seller have some options to consider.

  1. The buyer can choose to bring additional funds to closing and proceed with the purchase at the contract price.  
  2. The buyer and their Realtor can contest the valuation.  There is no guarantee the appraiser will adjust the value and this process can take time.  If an extension is needed to complete the re-evaluation, then the seller will have to agree to provide more time. I have also seen buyers change lenders, and have a new appraisal ordered.  Again, this will lengthen the closing process, and the seller will need to approve.
  3. Renegotiate the purchase price with the seller.  

Be sure to check out Four Ways to Negotiate a Low Appraisal where I will cover the different options when an appraisal comes in under value more thoroughly.

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