home inspection & Appraisal

Home Inspection & Appraisal 

Peyton is purchasing her first home, a single-family home with 3 bedrooms and 2 bathrooms and an attached 2-car garage built in 2015 in Tampa, Florida. She is told by her real estate agent that she is recommending a home inspection. Her Real Estate Agent explains that she has 10 days to complete the inspection and communicate to the seller, one of three likely scenarios. First, the property is acceptable with no significant problems found. Second, the property has some issues which she needs addressed prior to closing. Third, the property is unacceptable, and she wants to be released from the contract and take her escrow deposit. 

Peyton’s loan officer, Paul at a local mortgage company, also tells her she needs to pay for an appraisal fee upfront of $575.00. Paul also tells Peyton of the likely outcome of an appraisal. First the property appraises at or more than the purchase price of the home. Second, the property appraises for less than purchase price of the home. 

Let’s take a detailed look at the home inspection and appraisal process and what should Peyton expect. 

Home Inspection

Home inspection is usually performed by a licensed inspector. The main purpose of the inspection is to identify existing and potential problems which could arise in the future. The home inspector will look at the roof, plumbing, electrical structural, flooring, cabinets and the general condition of the property. 

The home inspection revealed all the components of the home, including the roof is original which means 9 years old with no evidence of leaks and an expected remaining life of 11 years. 

The water heater shows evidence of rust and could likely rupture at any time. Four electrical outlets showed reverse polarity. Two ceiling fans are unstable, and the electric stove does not have the anti-tip device. The primary bedroom carpet is slightly discolored. 

Peyton’s real estate agent requests the items be replaced and repaired prior to closing. The real estate agent also mentions discolored carpet but doesn’t ask for it to be replaced. Peyton’s mom offered to replace the carpet in the primary bedroom with wood floors. The seller was hesitant to replace the water heater. However, after explaining that Peyton could have a problem with obtaining homeowners insurance, the seller consequently agreed with the request. This is a great outcome for Peyton but is not always that simple. 

Appraisal 

A home appraisal’s main purpose is to determine the value of a property. The lender lends money based on the lower of the purchase price and the appraised value. 

The lender and the buyer want to know the value of the property and the purchase price at least equal. If the property appraises for more than the sales price, then everyone is happy, the buyer, the seller, the lender and all parties to the transaction. 

If the purchase price is $250,000.00 and the borrower puts a down payment of 5 percent. Then the loan from the bank is $237,500.00 or 95 percent of the purchase price. 

If the property appraises for $245,000.00 and the borrower puts a down payment of the same 5 percent, the loan from the bank will now be $232,750.00 or 95 percent of the appraised value. 

The question now is who pays for the extra $5000.00 which is the difference between the purchase price and the appraised value? 

What happens if the property is appraised for less than the purchase price? Peyton can elect to pay the difference between the purchase price and the value. The seller can also reduce the purchase price to match the appraised value. The seller partially reduces the purchase price, and Peyton pays remaining the difference. 

Finally, Peyton can also opt to be released from the sales contract if no agreement is reached. Peyton’s property appraised for $255,000.00 and everyone is happy. 

Leighton Grant 

Mortgage Loan Originator

Innovative Mortgage

NMLS 2040998 

Managing Director 

Homeview Real Estate