Whether you’re a homebuyer or seller, it’s easy to confuse a home appraisal and a home inspection. After all, both involve a professional visiting your home, and they’re technically both a type of examination of the premises.

However, there are a few key differences between an appraisal and inspection, including what happens when the appraiser or inspector visits, and the purpose of the visit itself. In short, while an appraisal helps you understand a home’s value, inspections help you understand a home’s condition.

What is an appraisal?

An appraisal is a process an institution (usually, a mortgage lender) or individual uses to determine the value of a home. Usually, if the homebuyer is seeking financing for the purchase, the bank or mortgage lender requires the property be appraised. That’s because the house serves as collateral for the mortgage: If it’s worth less than the loan, the lender could face issues down the road. To mitigate this risk, they send an appraiser to evaluate the property and determine its value, vis-à-vis its price tag.

During a home appraisal, an appraiser will conduct a walkthrough of the home you’re looking to buy to assess the features of the property (such as number of bedrooms and bathrooms) and any improvements that could have affected its value.

The appraiser may also look at comparable properties, or comps, which are usually similar homes in the area that have sold within the last 90 days.

Using this information, the appraiser will then complete an appraisal report with their estimate of the home’s current market value. The lender then uses this sum to determine the amount of the loan they’ll approve. Generally, you won’t get a mortgage for more than 80 percent of the property’s appraised value.

The buyer usually pays the appraisal fee, which is often folded into closing costs.

When is an appraisal required?

Lenders generally require a home appraisal in order to approve financing for a mortgage. This is to ensure that they’re not originating a loan that’s too risky — in other words, that the home isn’t worth less than its sale price.

Some lenders also require an appraisal for a refinance.

What is a home inspection?

A home inspection entails a professional — often someone licensed or certified by the state — visiting the house and thoroughly evaluating its condition. The inspector will examine the home for any damage, hazards or other issues, usually taking time to look at the HVAC and other major home systems. Sometimes, the inspector will access the attic or crawl spaces and look at the foundation.

While the buyer doesn’t technically need to be present for the home inspection, it’s highly encouraged. The inspector can address each area of the home with you and explain the severity of any issues that crop up. This is also an opportunity to ask the inspector questions about anything they, or you, uncover.

In most cases, the buyer or the buyer’s real estate agent will be the one to hire the inspector and schedule a time for the inspection to take place.

This process can take a few hours to complete or more, depending on the scope of the project. The inspector then produces a written report, offering their opinion of the property and noting any damage. The buyer generally pays for the inspection.

When is a home inspection required?

Home inspections aren’t usually required by lenders, but they’re strongly recommended so that the homebuyer fully understands the home’s current condition, and knows the likelihood of any future issues before closing.

A home inspection contingency is typically included in the purchase agreement, hammering out details about the home inspection’s timing and findings. If it uncovers major structural issues, for example, the buyer will then have the right to back out of the purchase. Or they might request a reduction in the home price or repairs by the seller.

How are home inspections and appraisals alike?

In a real estate transaction, both home appraisals and inspections benefit the homebuyer, home seller and the mortgage lender as far as ensuring the home is worth its price and that it’s safe to live in. Both services can uncover potential issues that may affect the home sale, in turn helping the buyer decide to either move forward with or walk away from the purchase. Or to negotiate further with the seller.

The cost of an appraisal versus an inspection is also generally within the same range: from $300 to $450 or more, depending on the home’s size and any special circumstances.

Appraisal vs. home inspection: What’s the difference?

While they both involve examining the home, appraisals and home inspections have different aims.

The purpose of an appraisal is to determine the value of a home, which can be impacted by the condition it’s in, but also hinges on factors like the local real estate market and comparable properties nearby. Whereas a home inspection focuses just on a particular property and its major components. It evaluates the home’s condition to see if it can be safely occupied and is in sound shape.

A home appraisal is typically done without the presence of the buyer or seller, with the appraiser revealing their findings to both parties and the lender once their report is complete. In contrast, the buyer is often encouraged to walk through the home during an inspection so that they can ask questions and have the inspector explain any issues.

Appraisals are mainly between a buyer and the buyer’s lender — though the results can impact sellers too — whereas home inspections are between the buyer and the seller.

While appraisals and home inspections may seem to primarily impact the buyer, they can be important for sellers too, as they can impact the final price (and your profit) on the home. As a seller, you want the appraisal to dovetail with the offer, so the buyer can get a big enough loan; if it comes in well under, the resulting appraisal gap may lead to you having to lower your sales prices. And a home inspection that uncovers serious issues may also lead to the buyer negotiating a lower price, or demanding you pay for costly repairs.

How to prepare as a seller for appraisals and inspections

If you’re selling your home, you can take a few proactive steps to ensure a smooth home appraisal and inspection. Both are important if you want to close relatively quickly and easily.

You want the home inspection to reveal minimal issues that could cause problems on your way to the closing table. To prepare, ensure that the inspector has easy access to areas and features like a crawl space and your HVAC system. It’s a good idea to clean up your attic or basement and any large appliances, too, and keep your utilities on.

You might also consider completing minor repairs to avoid any bad or misleading impressions, and leaving any relevant paperwork out for the inspector to reference during their visit.

As for the appraisal: You need it to show that your home is worth at least close to what the buyer’s agreed to pay. If it doesn’t and the buyer’s financing falls through or comes up short, it could delay your deal or cancel it completely.

While you can’t control the comps an appraiser researches, you can make sure your home presents well. Have ready any paperwork or permits showing upgrades done to your home. It can also pay off to clean both your home’s interior and exterior.