A property inspection is ordered by the buyers. While not required by a lender, it’s certainly excellent advice and buyers should order an inspection very early in the process. A property inspector will physical examine the property from head to toe noting the functionality of various parts of the home. The inspector will flip light switches, turn on the oven and cycle the dishwasher among a host of others. If any issues pop up, the inspector makes note. 

Where do you find an inspector? Your real estate agent can provide you with a list of inspectors they have worked with before and recommend. You can choose from this list or find one on your own. However, it’s the agent that knows the quality of work of each inspector, making sure your property is properly inspected. 

Many of the items are those that need some attention but won’t affect financing. However, when major repairs are needed, the lender might want to have those issues addressed before any funding will take place. If the inspector details a bad roof, the property appraisal will also take note. Minor problems can be taken care of after the sale by the buyers, but some issues must be addressed upfront. A full appraisal calls these issues “deferred maintenance” items.

Once the inspection has been completed and reviewed, the lender can order an appraisal. The lender won’t want to order an appraisal at the outset but wait for the delivery of the inspection. If ordered right away and you have to pay for one upfront, it’s possible the condition of the home isn’t up to conventional standards and the lender can’t place a loan on the property.

An Automated Valuation Model, or AVM, 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. Many equity loans only need an AVM. When a loan is submitted for an automated approval, the approval will state if an AVM is the proper report required.

An appraisal is also a valuation tool for a subject property but in this instance a licensed appraiser will physically visit the property as well as research recent sales of similar homes in the area. The appraisal can be “exterior only” or a full appraisal. Again, the automated approval will state which is required. A complete appraisal contains information on both the exterior as well as the interior. Pictures are taken and included with the final report. Most often the appraisal is confused with an inspection because with an appraisal the property is indeed inspected by a licensed appraisal.