Home Inspections and Appraisals

It’s important for a seller to learn about two reports that can create major issues. When selling the buyer’s home inspection and the lender’s appraisal can be deal breakers. 

A difficult part of selling a home is finding a buyer, negotiating a price, and executing a contract. For this reason, learning more about the home inspection and the appraisal can help a seller have a smooth selling process

A seller needs to strategize how to maximize their profits when selling a home. Executing a purchase contract does guarantee the seller’s profits.

Sellers often lose a portion of their proceeds base on the results of home inspections and home appraisals. The best way to anticipate, predict, and prevent issues is to become educated. After all, “diligence is the mother of good luck.” – Ben Franklin 

Is a Home Inspection Required?

No. Lenders do not require home inspections, regardless of loan type. The “exception” is that VA home loans do require wood destroying insect (WDI) report – but not a home inspection. Wood destroying insect (WDI) reports are covered below in greater detail.
 
Many buyers get a home inspections to identify potential issues with the condition of the home. The results of the home inspection may dictate whether the buyer wants to continue with the purchase and/or use renegotiate the contract.

Like home inspections, the home appraisal report can be a deal killer if there’s an issue with value or conditions. While there are ways to contest a low appraised value, it’s a battle worth avoiding.

It’s prudent for a seller to conduct their due diligence and formulate a plan for these two reports before listing their home. 

Is a Home Inspection Required For a Conventional Loan?

No, lenders do not require a home inspection for conventional loans. In fact, lender do not require a home inspection for any type of loan program. 

Instead, lenders typically require home appraisals. The appraisal is the “eyes” of the lender. As a result, additional third-party inspections may be mandated by the lender for something revealed by the appraisal. Such examples are: foundation inspections, and roof inspections.

It’s worth noting that conventional loans do allow for appraisal waivers. This means that an Appraiser will not visit the home. While these appraisal waivers are not commonplace, they do exists and expedite the mortgage loan process

Home-Inspections-Best-Mortgage-Lender-in-Dallas-Texas

Home Inspections

Lenders typically do not require a home inspection, nor do they require a copy of the home inspection report. In fact, it’s recommended that a lender does NOT see the inspection report – it will may raise questions and concerns from the underwriter. 

A lender won’t mandate a home inspection – although we highly recommend buyers getting one. Check out our home inspection page for more information on home inspections from a buyer’s perspective and frequently asked questions about inspections.

Wood Destroying Insect (WDI) Inspections

A wood destroying insect (WDI) inspection is often called a “termite report.” The WDI report provides insight on existing and potential wood damage caused by termites and carpenter ants.

Most home inspections offer this service for an upcharge. The cost can vary but $150 seems to be a fair price.   

NOTE: VA home loans mandate a WDI report. VA is the only type of home loan program that mandates this inspection. VA will need a copy of the WDI report.

Should a Seller Get a Home Inspection Before Listing? 

Cons: Beware of the Seller Disclosure

There is a possible disadvantage for a seller to conduct a home inspection prior to listing their home. In most purchase transactions a seller will provide a Seller’s Disclosure checklist to a buyer.

The Seller’s Disclosure is a very detailed checklist that highlights known “concerns” about property (both past and present). Getting a home inspection before listing a home may put the seller at a disadvantage is new, previously unknown, issues are brought to light. 

The seller’s disclosure is intended to help the buyer make an informed decision about the home. All known issues should be listed. Sellers may be held liable if information is misrepresented. 

Because of this disclosure, a seller may not want to get a home inspection in advance of listing a home. Any concerns that originate from the home inspection report will then either need to be address (i.e. fixed) or disclosed to a buyer. 

On the other hand, getting a home inspection done before listing a home will allow a seller to address potential concerns before negotiating with a potential buyer. 

Ultimately, there’s not right answer on whether a seller should order an a home inspection before listing. Our advice, select an amazing Realtor and lean on them to assess your home and your situation. 

Pro: Benefits of a Seller’s Home Inspection 

A seller can get a home inspection for their own use and share it with potential buyers. Having an existing inspection may project confidence and openness about the seller and their home – both of which are desirable qualities.  

A seller that has conducted their own home inspection can also address issues before listing a home. This could add additional trust from future buyers to know that the seller has been proactive and eliminated potential barriers to closing.

Lastly, by conducting a home inspection prior to listing a home, the Seller may save the homebuyer the costs of their own home inspection (which can be between $600 and $750).

The buyer may ultimately elect to order their own home inspection, even if the seller already has a report. Regardless, a seller that has already done a home inspection can at least be confidence that the “deal breaker” issues have likely been addressed. 

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Home Appraisals

You only get one chance to make a first impression – so make it a good one. Because there is so much to know about this section, please visit how to prepare for an appraisal as a seller to prepare for a buyer’s appraisal.  

It’s important to realize that appraisals don’t necessarily determine a home’s “worth”. There can be a gap between what a buyer is willing to pay for a home and the appraised value. 

Think of the real estate market during COIVD. Buyers were willing to pay above the home sales price (and appraised values) because of the shortage of homes that were for sale. 

The home’s “worth” is what someone is willing to pay for the home. The home’s “value” is determine by the appraisal based on other homes that have recently sold in the area.  

Below are helpful links about appraisals. A prudent seller (and a potential buyer) would do well to educate themselves on the topics before getting pre-approved with a lender

Should a Seller Order an Appraisal? 

There are a few reasons why it’s recommended that a seller NOT order their own appraisal. 

First, a lender will not accept an appraisal from a third-party. Appraisals for home loans must follow a certain procedure to be allowed for financing. 

Second, the appraisal value is not the “worth” of the home. There can be a gap between the market value – what someone is willing to pay for a home – and the appraised value – the home’s value that is determine by recent sales.

Instead of ordering an appraisal, select a great Realtor who knows the area, does a ton of business, and knows how the mortgage loan process work.

Likewise, work with a great lender (like the Mortgage Mark Team) who knows the process and works with reputable Appraisal Management Companies. 

Exceptions for a Seller’s Appraisal

Below are a few exceptions of when it may be prudent for a seller to order an appraisal before listing their home. 

FSBOs (For Sale By Owners)

A seller that wants to sell their home without a Realtor may benefit from order their own appraisal. Doing so will educate them on the nearby market has they determine a listing price for their home. 

Money-Dependent Sellers

Some sellers may not move forward with listing their home if they can’t net enough profit from the sale of their home. Order an appraisal in advance may provide another data point to help them make an informed decision. 

Seller should download our seller’s net sheet. It is a very detailed worksheet that provides the seller’s closing costs and helps estimate their net proceeds. 

Unique Properties or Rural Properties

Certain property types may warrant a seller obtaining a formal appraisal before listing their home. Unique properties and rural properties can encounter problems with appraisals. 

A “unique” property is what it sounds like, it’s a property that is unlike others. This makes it difficult for an Appraiser to find true sales comps for the home. 

Appraisers need to find three to six – ideally closer to six – homes that have recently sold (ideally in the last six months). If a log cabin is built in the middle of downtown, it may be difficult to find a comp that will satisfy a lender.

Similarly, rural properties often have comparable challenges. Rural areas have few homes and typically less transactions. This makes finding nearby and recent sales a challenge. 

Sellers may want to order an appraisal before listing when their home is either rural or unique. This will provide insight to potential challenges they may face with a buyer’s lender.  

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What is a Lender Inspection?

Technically lender’s don’t “do” inspections. Meaning, a lender won’t be the one visiting an inspecting the home. Instead, a lender may require a third-party expert to inspect a property for a specific concern. 

The aforementioned home inspection and appraisal are the two most common inspections conducted for a home loan; however, there are other inspections that may occur. 

An Appraiser may make comments about the condition of a home. Those comments (and pictures) from the report may prompt other inspections. For example, if an Appraiser notates cracks in bricks and doors “sticking”, a lender’s Underwriter may request the foundation be inspected by a Professional Engineer.

The three most common inspections “big ticket” items we see related to: foundation, roof, and HVAC. It’s recommended that a seller anticipate potential issues and take appropriate action. 

Please note that “appropriate action” does not necessarily mean to repair the issues. Every seller and transaction are unique. It’s important to strategize and select a amazing Realtor to maximize the profile from selling a home. 

Repairs: Complete them now or later? 

One of the major questions for sellers is: “should a seller do the the repairs before before listing the home?” The answer depends on the seller’s situation and the home. 

The reality is that a perfect, pretty, and perfect home will sell for more money than it would if it were dingy, dirty, and dilapidated. That’s normal and expect. 

Whether a seller should address repairs depends on their situation a goal. Often times, sellers don’t have the time, money, resources, or desire to fix the repairs. The result will be listing the home for a lower, discounted sales price. 

Another thought could be that the ROI (return on investment) may not valid the repairs. Spending $20k on painting the walls may be wasted money if the buyers don’t share the same taste as the seller. 

It’s recommended that the seller select a great Realtor that knows the market and can help access how to maximize the seller’s financial return.

It is of our opinion that you should do any necessary repairs before putting your home on the market. As stated previously, you only have one chance for a first impression.

Can Repairs Be Financed In A Mortgage?

Major repair costs to a home are not often directly financed by buyers when getting a home loan. The reason is because renovation and rehab loans have different parameters and processes.

Often times seller will offer seller concessions in lieu of doing repairs. This allows the homebuyer to retain more cash at closing to pay for the future repairs. 

Lenders may mandate that some repairs, like foundation, be address before closing. There are ways to do this so that the seller doesn’t have to pay for these repairs. 

Other instances may allow for an escrow holdback after closing. Roof issues often fall in this category. The typical limit is about $5,000 for an escrow holdback; however, some lenders (like us) can allow up to $10,000 to $15,000 depending on the scenario. 

It’s best to connect with a great lender (like us) if you have specific concerns and discuss the various scenarios. 

 
Mark

Mark Pfeiffer

Branch Manager
Loan Officer, NMLS # 729612
972.829.8639
MortgageMark@MortgageMark.com

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