What’s the Difference between an Appraisal, a Comparative Market Analysis and a Home Inspection? - January 28, 2021

What’s the Difference between an Appraisal, a Comparable Market Analysis and a Home Inspection?

If you’re planning to buy a home, an appraisal is an important step in the process. It’s a professional evaluation of the market value of the home you’d like to buy. In most cases, an appraisal is ordered by the lender to confirm or verify the value of the home prior to lending a buyer money for the purchase. It’s also a different step in the process from a comparative market analysis or a home inspection.


 

Home Appraisal

According to the Appraisal Institute of Canada an appraisal is a comprehensive review of a property that provides

“an independent and unbiased assessment of the value of a home prior to buying, renovating or refinancing.”

An appraisal is based on a variety of factors, such as age of the home, its size, the physical condition the home is in (i.e. is it in good shape or does it need a lot of work), the home’s features and amenities, the home’s previous sale price, the final sale prices for comparable homes that sold recently, and more.

It is important to remember that the appraised fair market for a home is usually different from its final sale price. However, a home appraisal is important because it can impact certain things such as your ability to get a mortgage, whether or not the deal goes through (if the home’s appraised fair market value is higher or lower than the previously agreed-upon sale price), and how much your homeowner’s insurance premiums will be.

When you apply for a mortgage, an unbiased appraisal (which is required by the lender) is the best way to confirm the value of the home based on the sale price. Regardless of what you’re willing to pay for a house, if you’ll be using a mortgage to fund your purchase, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.

This is especially critical in today’s sellers’ market where low inventory is driving an increase in bidding wars, which can push home prices upward. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more.

However, the lender will only allow the buyer to borrow based on the value of the home. This is what helps keep home prices in check. If there’s ever any confusion or discrepancy between the appraisal and the sale price, your trusted real estate professional will help you navigate any additional negotiations in the buying process.


 

Comparative Marketing Analysis

A Comparative Market Analysis (CMA) is a process which a real estate agent or broker uses to help sellers determine what they can realistically expect for potential buyers to be willing to pay for to purchase their home. This is often a free service provided to potential clients who might be interested in retaining their services to assist them in selling their home.

While a CMA is similar to a home appraisal in that it gives some context into how much a property might be worth, with a similar set of criteria determining its value, e.g. similar to the criteria which determine a home’s fair market value, a current market value is meant to help the seller gain an idea of how much they should list their house for.

Ultimately, a CMA is just a subjective estimate of your home’s value and what a buyer might be willing to pay for it, it is not legally or financially binding, therefore it should carry less weight than an appraisal.


 

Home Inspection

Here’s the key difference between an appraisal and an inspection. MSN explains:

“In simplest terms, a home appraisal determines the value of a home, while a home inspection determines the condition of a home.”

The home inspection is a way to determine the current state, safety, and condition of the home before you finalize the sale. If anything is questionable in the inspection process – like the age of the roof, the state of the HVAC system, or just about anything else – you as a buyer have the option to discuss and negotiate any potential issues or repairs with the seller before the transaction is final. Your real estate agent is a key expert to help you through this part of the
process.


 

Bottom Line

The appraisal, the comparative market analysis and the inspection are critical steps when buying a home, and you don’t need to manage them by yourself. Let’s connect today so you have the expert guidance you need to navigate through the entire homebuying process.

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