| Inspections vs. Appraisals vs. AVMs |
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Inspections, appraisals, and automated valuation models, while related,
all have different functions but can be easily confused. Let's take a
closer look.
Inspections: A property
inspection is ordered by the buyer and is meant to be an unbiased look
at the condition of the property. While not necessarily required by a
lender, an inspection protects the buyer from purchasing a home that
requires expensive repairs or otherwise doesn't live up to its list
price. A property inspector will examine the condition of the property
inside and out, running through a checklist of areas including, but not
limited to, the roof, electrical panels, wiring, plumbing, appliances,
doors and windows. If any issues pop up, the inspector makes note and
provides the buyer with a report.
Many reported issues will
need some attention but won't affect financing. If major repairs are
needed however, the lender might want to have those issues addressed
before they provide any funding.
Appraisals:
Once the inspection has been completed and reviewed, the lender can
order an appraisal. The appraisal will consider comparable homes in the
area as well as other factors such as lot size, nearby schools and crime
rates. The goal of the appraisal is to determine the true value of the
property for the sake of the lender.
The key difference between
an inspection and an appraisal is that an inspection aims to assess the
physical condition of a home itself, while an appraisal solely
determines the market value of the real estate.
AVMs:
An automated valuation model is a digital evaluation of the value of a
home. An AVM will quickly research the database of similar homes in the
area and compare them with the value of the subject property. AVMs are
often used to assess the value of a property portfolio, and have the
advantage of saving time and money since no one physically visits the
property. However, AVMs can't take into account the true condition of a
property and often aren't enough to secure a conventional loan for a
home buyer. |
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