Buyers in today’s market often have questions about the importance of getting a home appraisal and an inspection.
That’s because high buyer demand and low housing supply drive intense competition and lead some buyers to consider waiving those contingencies to stand out in the crowded market.
But is that the best move? Buying a home is one of the most important transactions in your lifetime, and it’s critical to keep your best interests in mind. Contingencies are one way to protect yourself. Here’s a breakdown of what to expect from the appraisal and the inspection. Also, here’s why each one can potentially save you a lot of time, money, and headaches down the road.
Home Appraisal Contingency
. . . lenders typically require an appraisal to ensure that your loan-to-value ratio falls within their underwriting guidelines. Mortgages are secured loans where the lender uses your home as collateral in case you default on the agreed-upon payments.”
Put simply: when you apply for a mortgage, an unbiased appraisal is the best way to verify the home’s value. The appraisal ensures the lender doesn’t loan you more than what the home is worth. If you’ve waived your appraisal contingency, you may be in trouble.
When buyers are competing like they are today, bidding wars and market conditions can push prices up. As a result, a buyer’s contract price may end up higher than the home’s value. The difference between the contract price and the appraised value is known as an appraisal gap. In today’s market, it’s common for the seller to ask the buyer to make up the difference when an appraisal gap occurs. That means, as a buyer, you should be prepared to bring extra money to the table if you want the home.
Home Inspection Contingency
Like the appraisal, the inspection is essential because it gives an impartial evaluation of the home. So, while the appraisal determines the house’s current value, the inspection determines the home’s current condition. So, what are the dangers of waiving your inspection contingency? As the American Society of Home Inspectors puts it:
Home inspections are the opportunity to discover major defects that were not apparent at a buyer’s showing. . . . Your home inspection is to help you make an informed decision about the house, including its condition.”
If any concerns arise during the inspection, you have the option to negotiate with the seller. Examples of problems that may occur are an aging roof or a malfunctioning HVAC system. As your Realtor, I will help you negotiate any needed repairs before waiving your contingency and finalizing the sale.
Home inspections are critical because they can shed light on challenges you may face as a new homeowner. Remember, without an inspection, serious, sometimes costly issues could come as a surprise later on.
Both the appraisal and the inspection are essential steps in the homebuying process. They protect your best interests as a buyer by providing unbiased information about the home’s value and condition. Let’s connect, so you have an expert guiding you throughout the entire process.