When it comes to purchasing a home, understanding the difference between a VA appraisal and a home inspection is crucial.
These processes play a significant role in ensuring that you get the best deal and the safest home for your family. The safety and well-being of veterans and their families are of utmost importance to the Veterans Affairs office, which is why they emphasize quality and secure housing at fair market values.
While both a VA appraisal and a home inspection evaluate the condition of a property, they serve distinct purposes. In this empowering blog, we will define a VA appraisal and a home inspection, shedding light on their key differences.
Now, let’s talk about the home inspection. While it is not a mandatory requirement like the appraisal, it is essential to highlight its significance. A home inspection is a product that you, as the buyer, invest in to ensure your future home’s safety and quality. Remember, you hold the power in this process. Take the time to read and understand the inspection report thoroughly. Not all inspectors are created equal, and some may even disclose their limitations in specific areas. That’s why it’s crucial for you to scrutinize the inspection report and ask questions to ensure a thorough assessment of the property.
As we embark on this journey to define a VA appraisal and a home inspection, keep in mind that these tools are invaluable when purchasing a primary home or a passive income property. They have the potential to save you thousands of dollars by providing essential information and highlighting potential areas of concern.
Empower yourself with knowledge and be prepared to make informed decisions throughout the home buying process. Together, let’s unlock the power of VA appraisals and home inspections to ensure that you find the perfect home that meets your needs, preferences, and most importantly, your safety standards.
Definition of a VA Appraisal
A VA appraisal is an assessment conducted by a licensed appraiser to determine the fair market value of a property that is being considered for a VA loan. It is a critical step in the home buying process for veterans and active-duty service members utilizing their VA loan benefit.
The primary objective of a VA appraisal is to protect the interests of the veteran and the Department of Veterans Affairs (VA) by ensuring that the property meets the VA’s Minimum Property Requirements (MPRs). These requirements are in place to ensure that the property is safe, habitable, and provides a suitable environment for the veteran and their family.
During the VA appraisal, a licensed appraiser approved by the VA conducts a thorough inspection of the property. They assess various factors, including the property’s condition, location, size, comparable sales in the area, and any required repairs or safety issues. The appraiser’s role is to provide an unbiased evaluation of the property’s value, considering its current condition and market trends.
The VA appraisal is an important aspect of the VA loan process as it helps determine the maximum loan amount that the VA will guarantee. The appraised value of the property ensures that the loan amount is in line with the property’s fair market value.
It’s essential to note that the VA appraisal is different from a home inspection. While a VA appraisal primarily focuses on determining the property’s value and verifying its compliance with the VA’s MPRs, a home inspection provides a more comprehensive examination of the property’s condition, identifying any potential issues or necessary repairs.
The VA appraisal is paid for on the buyer’s side. Many lenders will make a buyer pay for the appraisal upfront to ensure that the product is paid for even if the loan does not go all the way to closing.
Just a friendly reminder that when you as the buyer pay for the appraisal you have no obligation to share the information with the seller but in some cases the seller’s agent will ask for proof of the issue and when it is on an appraisal that is great leverage to get things done!
Definition of a Home Inspection
A home inspection is a comprehensive examination of a property’s condition conducted by a qualified home inspector. It is typically performed after an offer has been made, during the due diligence period negotiated on a contract that has been accepted on a property but before the finalization of the sale. The purpose of a home inspection is to provide the buyer with a detailed report on the property’s structural integrity, mechanical systems, and potential issues that may need attention.
During a home inspection, the inspector thoroughly assesses various components of the property, including the roof, foundation, walls, insulation, windows, doors, electrical wiring, plumbing, HVAC systems, and more. They look for signs of damage, wear and tear, safety concerns, and potential maintenance or repair needs.
The inspection report generated by the home inspector provides valuable information about the property’s condition. It highlights any deficiencies, safety hazards, or areas that may require immediate attention or future repairs. This report empowers the buyer to make informed decisions and helps them negotiate with the seller regarding potential repairs or adjustments to the sale price.
A home inspection is particularly helpful during negotiations because it allows the buyer to identify any issues that were not readily apparent during the initial walk-through or disclosure statements. The inspection report serves as a tool for negotiation, enabling the buyer to request repairs or adjustments to the sale price based on the findings. This can help the buyer ensure that they are getting a fair deal and that any necessary repairs or improvements are addressed before closing on the property.
In some cases, significant issues uncovered during the home inspection may even provide grounds for the buyer to renegotiate the terms of the purchase or withdraw from the deal altogether. It provides an opportunity for the buyer to protect their investment and ensure that they are fully aware of the property’s condition before finalizing the transaction.
As I mentioned before this is a product that the buyer purchases so make sure as the buyer you are talking to not only your realtor but also the inspector! Do not speed through this process. I recommend that if you decide to get a home inspection that you have a conversation with the inspector. Realtors will tell you what they have seen before and can give you advice on how to use the findings but in many cases they cannot explain in great detail what the actual issue is stated on the inspection.
Differences Between the Two Processes
Here are the key differences between a VA appraisal and a home inspection:
VA Appraisal:
- Determines the fair market value of a property for a VA loan.
- Conducted by a licensed appraiser approved by the Department of Veterans Affairs.
- Focuses on the property’s value and its compliance with the VA’s Minimum Property Requirements (MPRs).
- Assess factors such as the property’s condition, location, size, comparable sales, and necessary repairs or safety issues.
- Primarily protects the interests of the veteran and the VA.
- Cost is typically paid by the buyer and included in the closing costs.
- Required for a VA loan to determine the maximum loan amount.
Home Inspection:
- Comprehensive examination of a property’s condition conducted by a qualified home inspector.
- Performed by a licensed and certified professional hired by the buyer.
- Evaluates the property’s structural integrity, mechanical systems, safety features, and potential issues.
- Provides a detailed report on the property’s condition, including deficiencies, safety concerns, and necessary repairs.
- Empowers the buyer to make informed decisions about the property’s overall condition.
- Cost is typically paid by the buyer separately from the VA appraisal.
- Not mandatory for a VA loan, but highly recommended.
In summary, a VA appraisal focuses on determining the property’s value and ensuring its compliance with the VA’s MPRs, while a home inspection provides a comprehensive assessment of the property’s condition, safety, and potential maintenance needs.
VA Appraisal
Who Conducts the VA Appraisal?
The qualifications of a VA appraiser include:
- Licensing: VA appraisers must be state-licensed or certified appraisers in good standing. They must meet the state’s licensing or certification requirements.
- VA Approval: Appraisers must also be approved by the Department of Veterans Affairs (VA). The VA maintains a roster of approved appraisers who are eligible to conduct VA appraisals.
- Knowledge and Experience: VA appraisers are expected to possess the necessary knowledge and experience to perform accurate property valuations. They should have a thorough understanding of appraisal principles, real estate markets, and the VA’s appraisal requirements.
- Continuing Education: Appraisers must complete continuing education courses to stay updated on industry standards, changes in regulations, and best practices.
How does an appraiser get assigned?
- As for the assignment of a VA appraiser, the lender does not have direct control over the appraiser selection. The VA has implemented a system known as the Appraisal Management System (AMS) to assign appraisers for VA loan transactions.
- When a lender needs an appraisal for a VA loan, they submit a request through the AMS. The system then randomly selects an appraiser from the VA’s approved roster in the area where the property is located. The selection process is intended to ensure impartiality and avoid any potential conflicts of interest.
- By using the AMS, the VA aims to maintain an objective and fair process for assigning appraisers to VA loan transactions, ultimately protecting the interests of both the veteran borrower and the lender.
It’s important to note that while the lender does not directly choose the appraiser, they play a critical role in initiating the appraisal process by submitting the request and providing necessary documentation to support the loan application.
What Does the Appraisal Include?
The actual appraisal report provides valuable information that a buyer can review right along with their realtor.
Here are some key components typically included in an appraisal report and you can use this as a mini checklist to ensure you are getting what you pay for:
- Subject Property Details: The report begins with information about the subject property, including its address, legal description, and other identifying details.
- Comparative Market Analysis: The appraiser conducts a comparative market analysis by identifying and analyzing recent sales of similar properties in the area. These comparable properties, also known as “comps,” help determine the fair market value of the subject property.
- Property Evaluation: The appraiser evaluates various aspects of the subject property, such as its size, condition, layout, features, and overall livability. They may also assess any improvements or upgrades made to the property.
- Market Conditions: The report includes an analysis of the local real estate market conditions, such as supply and demand, trends, and any factors that may influence property values.
- Appraisal Methodology: The appraiser describes the methodology used to determine the property’s value, whether it is the sales comparison approach, income approach, or cost approach. They explain the reasoning behind their valuation.
- Value Determination: The appraisal report states the appraiser’s conclusion regarding the fair market value of the subject property based on their analysis and assessment. This value is an important consideration for the buyer and the lender in determining the loan amount.
- Property Condition and Observations: The appraiser notes any significant issues or observations related to the property’s condition, safety, and compliance with the VA’s Minimum Property Requirements (MPRs). They may highlight necessary repairs or potential concerns.
- Certification and Signatures: The appraisal report concludes with a certification statement from the appraiser, affirming that the report is accurate, complete, and prepared in compliance with industry standards and guidelines. The appraiser’s signature and license information are also included.
Buyers should review the appraisal report carefully to understand the appraiser’s assessment of the property’s value, condition, and any relevant observations. This information helps buyers make informed decisions about the property, negotiate repairs or adjustments, and ensures they are paying a fair price for the home.
Sometimes a buyer will face an issue getting the house to appraise but also believes it was evaluated and appraised lower than market value. If this is the case check out our blog info with our blog about how you can contest a VA appraisal.
How Much Does it Cost?
Depending on where the property is located the cost may vary. The average cost across the US is approximately $500-$750 at this time. The lender can typically tell you how much your area charges.
The lender will have a protocol on how this should be paid for. In some cases the lender will want payment upfront from the borrower and sometimes it can be wrapped up inside closing costs. This is definitely a discussion to have with the realtor and lender! Also, do not be in a hurry to spend this cash, wait until you have made it through all negotiations to ensure you are positioned correctly to purchase the property at the desired price and the seller has agreed to all terms and conditions when it comes to fixing issues you have requested.
Because this is important to understand, let me go a little further in my explanation.
If you agree to the appraisal and pay for it during your negotiation and you cannot get the seller to agree to the issues you want corrected you can back out of the contract but you will still be responsible for paying for appraisal.
What Are The Requirements?
The VA has specific requirements that must be met for a property to be eligible for a VA loan. These requirements include safe and habitable conditions, functioning utilities, a sufficient life expectancy for the property, and compliance with local building codes.
Comparison of VA Appraisal & Home Inspection
Again, when it comes to buying a home with a VA loan, understanding the difference between a VA appraisal and a home inspection is essential. Both processes serve distinct purposes in evaluating the property, and each has its advantages.
What Are The Home Inspection Requirements?
A home inspection is not a requirement for a VA loan, but it is highly recommended. While the VA appraisal focuses on determining the property’s value and meeting the Minimum Property Requirements (MPRs), a home inspection goes deeper into assessing the property’s overall condition, safety, and potential maintenance needs. It provides the buyer with a comprehensive report highlighting any deficiencies or areas that may require attention. Most important part of the home inspection is that it gives you as a buyer the leverage to negotiate fixes being completed on the seller’s dime, which will put money back in your pocket.
Here is an example of how your realtor can write up an inspection report’s finding:
- “By a licensed plumbing professional the leak under the kitchen sink (see attached home inspection) will be fixed, all water will properly flow through the sink and drain. The garbage disposal will be checked upon work being completed to ensure that it is 100% functional. All receipt of work will be documented and provided to the buyer 3 days prior to final walkthrough.”
This is an example where there is more behind a request than just a buyer being picky. Your inspector in many cases gives you the proof to negotiate a known issue and most give you photos and or videos that you can simply use to request the proper corrective issues.
Advantages of Both Processes
The VA appraisal offers several advantages. It determines the fair market value of the property, ensuring that you pay a reasonable price. Additionally, it guarantees that the property meets the VA’s Minimum Property Requirements, providing assurance that the home is safe and habitable.
On the other hand, a home inspection offers unique advantages as well. It provides a detailed assessment of the property’s condition, going beyond the scope of the VA appraisal. This thorough inspection helps uncover potential issues or necessary repairs that may not be apparent during the initial walk-through. This knowledge allows buyers to make informed decisions, negotiate repairs or adjustments, and plan for future maintenance needs.
Bottomline, take away this. You have an option to hire a home inspector or any professional to go over the property with an eagle eye during the inspection period. This will allow you to negotiate any items you want corrected prior to taking possession of the property. This is part of the process and if you spend money on the home inspection make sure you take time to read it, it’s only as valuable as you make it!
The appraisal is not something that you can skip. The lender will ensure that one is hired on your behalf and they will request payment based on their requirements. They typically will ensure that appraisal is read by their staff because after all they are taking a risk lending money for the property so it is in their best interest to make sure the structure is sound. Just remember don’t order the appraisal until after you are through the inspection period.
Happy house hunting and feel free to check out our related blog about loans to help you fix cosmetic issues if there are issues found in your dream home that the seller is not willing to fix.
ADPI Pro Tips
- Do Your Research: Educate yourself about the VA appraisal and home inspection processes. Understand their requirements, benefits, and potential costs. This knowledge will empower you to make informed decisions and ensure a smooth home buying experience.
- Hire Professionals: Choose licensed and certified professionals for both the VA appraisal and home inspection. Look for experienced individuals or companies that specialize in VA loans and have a track record of thorough inspections and accurate appraisals.
- Review Reports Carefully: Take the time to review the appraisal report and inspection report thoroughly. Understand the findings, ask questions if needed, and seek clarification on any concerns. This will help you make informed decisions about the property and negotiate repairs or adjustments when necessary.
- Utilize ADPI Resources: ADPI (Active Duty Passive Income) is a community that provides support, resources, and guidance for military members and veterans interested in real estate investing. Take advantage of their resources, including educational content, podcasts, and networking opportunities, to further enhance your knowledge and skills in real estate.
