If you’ve recently had an offer accepted on a new home, congratulations! You’re that much closer to being a new homeowner. However, before you get the keys, you’ll likely still go through the appraisal process and — if you haven’t waived the inspection contingency — the home inspection.
Home inspections and appraisals can be daunting, especially for new buyers. There can be a lot riding on the outcomes of these two reports, and you may not always know what to expect. To help you be best prepared, I will outline a comprehensive guide for each of these steps in the homebuying journey.
What Is a Home Inspection?
Home inspections are unbiased professional evaluations of the condition of a property. A qualified inspector will assess things like the electrical system, the plumbing system, the heating and cooling systems, and safety issues, as well as any damage that may be the result of water, fire, insects, etc.
Generally, the home inspection can uncover issues the house may have before closing. While most states require the seller to provide a seller’s disclosure that would reveal any major renovations or issues with the home, it’s highly recommended that you (the homebuyer) get an impartial third party to inspect the home. Plus, the seller may not be aware of all issues!
A home inspection is beneficial to a potential homebuyer in that it helps to prevent any unforeseen, costly repairs. While many inspections do reveal some issues you will be able to determine how to move forward given the information. If the inspection reveals major conditions that are simply unacceptable to you, you can renegotiate with the seller and/or cancel the contract if necessary.
As the buyer, you’re responsible for arranging the home inspection and covering the cost, which typically ranges from $300 to $500. This means you’ll need to hire a qualified home inspector (more on that below).
Home Inspection Contingencies
Home inspections provide protection for homebuyers. Adding an inspection contingency clause in your contract solidifies that the purchase is contingent upon an acceptable home inspection. If the inspection uncovers major issues, the contingency clause allows the buyer to pull out of the sale or negotiate with the owner. Once your contract has been ratified, the inspection usually happens one to two weeks later.
However, with today’s competitive housing market, some homebuyers have started waiving their right to an inspection to make their offer appear more attractive to sellers. Please know that — no matter how much you might love the new place — waiving your home inspection contingency can be risky. An experienced real estate professional can help you determine whether or not it’s advisable to waive the inspection contingency on a given property. Either way, the responsibility of any repairs will fall on the homeowner (unless otherwise stipulated) once the final contract is signed.
What to Look For: The Home Inspection Checklist
Although you’ll likely hire a professional to complete the home inspection, homebuyers who are knowledgeable about what to look for have an advantage. Educating yourself can help you ask the right questions and make better decisions. You can reference the following questions:
Structure, Foundation, and Exterior
- Are there any cracks at the base, ceiling, or walls?
- Are all drains carrying water directed away from the house?
- Are there any puddles of water outside the home?
- Are there any septic tank leaks?
- Is there any evidence of termites, such as rotted wood?
- Is the exterior paint in good condition?
- How is the condition of the roof? Are there any patches or shingles missing?
- Do the gutters have proper drainage?
- Do you notice any funny smells inside the home or underneath the cabinets?
- Are all the electrical outlets functioning? Are there enough outlets in each room?
- Are all the windows and doors in good shape?
- Are the window frames all intact?
- Are there any leaky faucets?
- How is the water pressure?
- Do all the toilets flush?
- Does the home have good ventilation?
- Are all the smoke and carbon monoxide detectors functioning?
- Are the attic insulation, ventilation, and electric splices in good working order?
- Does the attic have any watermarks?
- What is the condition of the floors/carpets?
Plumbing and HVAC Systems
- Are there any rusty or damaged pipes?
- Are there any leaky pipes?
- Is the water heater in good shape?
- How is the water temperature? Does it exceed 125 degrees?
- Is there restricted water flow?
- Is the cooling unit in good shape? Does it reach every room?
- Do the air filters need replacing?
- Are there any gas smells?
- Is there a history of asbestos in any pipes or ducts?
- Are all the fuses in the service panel working correctly?
Although home inspections are extensive, keep in mind that the inspection may not include everything on the property. Sprinkler systems, sewer lines, landscaping, swimming pools, and lead paint may not be included in your inspection. To have these things inspected, you may need to pay an additional fee or even hire a separate, specialized inspection company.
Finding the Right Home Inspector
Finding a qualified home inspector can be make all the difference for you as a homebuyer. In addition to asking for recommendations from your friends, family or real estate agent, make sure any home inspector you’re considering is affiliated with an organization such as the American Society of Home Inspectors, the National Institute of Building Inspectors, and the International Society of Certified Home Inspectors. You can also check out their reviews online.
When researching/interviewing home inspectors, ask how much they will charge, what the inspection includes, how many hours they anticipate the inspection taking, and if you are allowed to attend. Keep your purchase agreement timeline in mind and ensure the inspection can be properly completed in time. Note that the inspector will also need time to draw up their report, which may take at least a few days.
Home Inspection Report
Once you receive your home inspection report, you should review it thoroughly. The report will start by listing any major concerns, followed by each section of the home. Things to may need your immediate attention include such problems as drainage issues, mold, cracks in the foundation of the house, and insufficient ventilation.
If something on the report is unclear, ask for clarification. Know the amount you’re willing to spend on home repairs beforehand and when significant repairs will be too much for you to handle.
If the report shows that the property needs significant repairs, you can talk to your real estate agent about negotiating with the seller. Perhaps you could ask for contingencies or to lower the sale price.
With your new knowledge and a quality, unbiased home inspector, the process should be smooth and straightforward.
What is a Home Appraisal?
A home appraisal differs from an inspection. Unlike home inspections, they’re not optional if you require financing to purchase the property. Lenders require appraisals to ensure the home’s value is at least equal to the mortgage loan, and they typically happen after the home inspection and closer to the closing date.
Essentially, an appraisal reveals the market value of a home based on a qualified appraiser’s professional, unbiased opinion. An appraiser takes roughly 30 minutes to an hour to inspect the home. They’ll assess the exterior and interior of the property, including each room and the yard. After the home inspection, the appraiser looks at the transaction records of homes recently sold around your neighborhood to assess the current value of the home.
In most cases, buyers pay the appraisal fee. You can typically choose to pay this fee upfront or have it included in your final closing costs. However, unlike with the inspection, you likely won’t choose the appraiser — the lender usually does this.
Preparing for an Appraisal
Both you and the seller will be eager for the appraisal to go well so that you can get the financing you need and the contract can go through. If the appraisal value is less than what you’ve offered, you have a couple of options.
First, you can offer cash to close the gap between the appraised value and the purchase price. Second, you might be able to negotiate with the seller to lower the purchase price. (If you’re close to closing, the seller may be more willing to negotiate.) Finally, you may be able to appeal the appraisal if you think the appraiser made an error. If none of these options work, you may have to back out of the contract. While this can be undeniably frustrating, know that a legitimate appraisal may have prevented you from getting into a home that ultimately isn’t worth as much as you would have paid for it.
The Appraiser’s Report
Problems that might lead to a low appraisal include maintenance issues, dated finishes, major necessary repairs, homes in the neighborhood that may have sold for less/been foreclosed on, and/or current market conditions. The appraiser will look at a number of factors to produce a report, including:
- The inside and outside of the property
- The total number of rooms inside the home
- The size of each room in the home
- The layout of the home
- Any improvements made to kitchens, bathrooms, heating, plumbing and electric systems, windows, and the roof
- The age of the home
- Decks, porches, garages, pools, and hot tubs
- Where the home is located
- Any unpleasant features that will bring down the value of the home
A home appraisal usually takes seven to ten days to process. The report will then be sent to your lender’s underwriting team, where they will review your application, the appraisal, and the proposed loan amount.
Your lender will then make a decision to approve or deny the loan. In some cases, the lender might offer conditional approval, meaning they will approve the loan after certain issues identified by the appraiser are taken care of.
Lafayette Federal Is Your Mortgage Headquarters
At Lafayette Federal Credit Union, we’re here to help guide you through your homebuying journey. We’ll help determine how much you can afford and assist you in reaching homeownership.
As a member of Lafayette Federal, you’ll enjoy our 30-day Close Guarantee with a $250 closing cost credit (up to $2,000) for each day it takes to close beyond 30 days. Also, you’ll get competitive rates, up to 100% financing options, nationwide financing, loans up to $3,000,000, and money-saving discounts.
Contact me today to get started!