Inspections vs. Appraisals vs. AVMs


Inspections, appraisals, and automated valuation models, while related, all have different functions but can be easily confused. Let’s take a closer look.

Before You Buy, Inspect!
Buying a home is one of the most important purchases you will make in your lifetime, so you should be sure that the home you want to buy is in good condition. A home inspection is an evaluation of a home’s condition by a trained expert. During a home inspection, a qualified inspector takes an in-depth and impartial look at the property you plan to buy. The inspector will review the readily accessible exposed portions of the structure of the home for potential problems. 

Inspections: A property inspection is ordered by the buyer and is meant to be an unbiased look at the condition of the property. While not necessarily required by a lender, an inspection protects the buyer from purchasing a home that requires expensive repairs or otherwise doesn’t live up to its list price. A property inspector will examine the condition of the property inside and out, running through a checklist of areas including, but not limited to, the roof, electrical panels, wiring, plumbing, appliances, doors and windows. If any issues pop up, the inspector makes note and provides the buyer with a report.

Many reported issues will need some attention but won’t affect financing. If major repairs are needed however, the lender might want to have those issues addressed before they provide any funding.

When you make a written offer on a home, you should insist that the contract state that the offer is contingent on a home inspection conducted by a qualified inspector. You will have to pay for the inspection yourself, but it could keep you from buying a house that will cost you far more in repairs down the road. If you are satisfied with the results of the inspection, then your offer can proceed.


During the Home Inspection
While not necessary, it is recommended that the buyer be present for the inspection. This allows the buyer to observe the inspector, ask questions directly, and obtain a better understanding of the condition of the home, how its systems work, and how to maintain it. The written report may be easier to understand if the buyer was present during the inspection. It is important that safe access and sufficient lighting is provided so that the inspector can inspect the property.


Appraisals: Once the inspection has been completed and reviewed, the lender can order an appraisal. The appraisal will consider comparable homes in the area as well as other factors such as lot size, nearby schools and crime rates. The goal of the appraisal is to determine the true value of the property for the sake of the lender.

The key difference between an inspection and an appraisal is that an inspection aims to assess the physical condition of a home itself, while an appraisal solely determines the market value of the real estate.

AVMs: An automated valuation model is a digital evaluation of the value of a home. An AVM will quickly research the database of similar homes in the area and compare them with the value of the subject property. AVMs are often used to assess the value of a property portfolio, and have the advantage of saving time and money since no one physically visits the property. However, AVMs can’t take into account the true condition of a property, are only as good as the data the model selects for valuation, and often aren’t enough to secure a conventional loan for a home buyer. AVM’s are notorious for misinforming the public so be sure to follow up with a Realtor to affirm the information you are receiving from an AVM.