Home Inspection vs. Home Appraisal (vs. CMA)
As I am always too busy to read the entire article, so let me sum up this one for you. A home inspection will reveal potential flaws in your new home whereas an appraisal is an indication of the property value. Read on for more…
Several new Buyers can get side-tracked by this small detail. Those of us who have been in real estate for entirely too long tend to forget the confusion we all faced when we bought our first few homes.
A home inspection is not required by any party to the
transaction (though that may not be true for certain specialty loans). It is purely a voluntary process that the
Buyer will typically elect to hire out prior to finalizing the contract to purchase
a home. In our local area, you can
expect to pay from $300-450 for a certified home inspector’s services. Notice the term “certified” and not
“licensed.” In
To help sort the good from the others, there are several respectable organizations that certify home inspectors. When receiving recommendations, be sure to ask what certifications and memberships they hold. As always, it would be a good idea to ask how long they have been in business and if they have a roster of recommendations. But that is your $300 to spend as you see fit, not mine!
An appraisal is conducted by a state licensed professional in order to assist in determining value for the lender. It is no easy trick to become an appraiser as they spend many hours learning their trade. In any event, it is also your money (most likely) that is being spent so if you have any say in the process then perhaps shopping around wouldn’t be such a bad idea.
The bank will use this appraisal to help them determine suitability of the loan to the property. In very basic terms they are looking for a loan to value ratio (LTV). Take, for example, a home that is appraised for $500,000. The Buyer will make a $100,000 down payment and take a loan out for the remaining $400,000. Divide the loan amount by the appraised value and you are left with .80 or 80% LTV. This is a magical number in mortgage speak and it means the loan will most likely fit into conforming guidelines (along with some other very key stipulations).
As the title suggests, there is another term that can be easily confused with all of this; the comparative market analysis (CMA). This is an opinion of value generated by your loyal and loving (?) Realtor. We use a variety of sources to poll for this opinion. Once tallied, the sales figures reveal a value, or range of value, that you can expect to pay for (or sell) your home. While a CMA should trend very closely to an appraisal, they are completely different and one does not take the place of the other.
While still perched on top of my soapbox, let us quickly tackle the county’s tax value. It has NOTHING to do with the property’s value. It is strictly a measure of how well a county fiscally manages itself. In the years where the county needs more money to fill the coffers then one of two things will happen. Either the taxation formula will be rearranged or property values will go up. It is true that the tax appraisal tends to trend with actual value (or at least it should). However, there is no requirement that it be based in reality.
There dozens of other seemingly little issues that can grow into major issues if you don’t know where to find the answers to your real estate questions. Guess where they are? Contact Us.
