Buying a Home: Reports and Inspections

By Julie Jalone

February 5, 2006

When you are buying a home it seems like there are so many reports and inspections needed.  You are advised to get the home appraised, inspected, checked for termites, surveyed and so on. Why are there so many different reports?

Each report will tell you something different although some clearly have overlaps.  But they all offer something that other report won't cover.

Lenders make loans on the sales price or the appraised value -- whichever is less. The appraisal is an estimate of value by an independent third party. This reduces the lender's risk by assuring that the property is worth what you are paying for it. As a general rule you do not often see a “sale” appraisal with a value higher than the agreed upon sales price but it is not uncommon to see appraised value less than the sales price.  This is your warning signal that you are overpaying.  There is also significant information in appraisals that confirm you are buying what has been advertised by the seller.

The home inspection is very important. It is not an appraisal. The appraisal helps confirm the home's value, the inspection looks at the home's condition. The professional inspector checks all systems of the house, from the foundation to the roof and most everything between.  Do the appliances work?  Does the plumbing leak?  How old is the roof and when will it need to be replaced? Is the electrical wiring up to code? The home inspection report will tell you what needs to be repaired and what amount the repairs could cost.

The termite or pest inspection is also important as your home is probably built of wood. Most lenders require a pest inspection but not all will require a home inspection. You should insist on both inspections to protect your best interests. You don't want to buy a home just to find out in a month that termites have destroyed the structural safety and it will cost you $25,000 to repair the home. The pest and the home inspections will help protect you.

The survey shows the boundaries of the property, where the improvements are located, the size of the property and other factors such as easements and encroachments.  This information is important. For example, if the current owners have built an addition that encroaches on the lot line, a neighbor could demand its removal. It is also a way to confirm the property size is what has been advertised or the side fence belongs completely to the neighbors.  The survey also shows any easements, or right of ways for others to use your property. For example, there is often a Public Utility Easement on property. This gives that utility the right to enter your property and install, maintain or repair their system.

In most cases, here in California, the only report you are likely to have much choice in obtaining is the Home Inspection.  All four reports are valuable, give you different information and help avoid surprises which generally are not a good thing in buying real estate.