Chapter 10: Inspection and appraisal
Between your accepted offer and your closing day, the house takes two exams. They sound similar and they are nothing alike. The inspection is yours: you hire the examiner, you get the report, and it answers one question, which is what shape this house is actually in. The appraisal belongs to your lender: their examiner, their report, answering a different question, which is what this house is worth as collateral. A house can ace one exam and flunk the other. This chapter shows you how to read both, and what to do when either comes back ugly, traced in real dollars on Jamie's $410,000 contract.
The inspection: your $500 X-ray
A general home inspection costs roughly $400 to $600 and takes two to four hours. The inspector walks the roof, attic, foundation, electrical panel, plumbing, heating and cooling, windows, and grading, then hands you a report that often runs 40 to 60 pages with photos. You should attend if you can. An hour following the inspector around teaches you more about the house than a dozen tours.
A general inspection also has blind spots, and the add-ons that cover them are some of the best money in the whole purchase:
- Sewer scope ($150–$300): a camera down the main sewer line. Strongly consider it for any house older than 25 years or with big trees near the line. Replacement can run $8,000 to $25,000.
- Radon test ($150–$250): an odorless gas linked to lung cancer, common in basements in many regions. Mitigation runs $800 to $2,500.
- Mold and moisture ($300–$600): for any house with water stains, a musty basement, or past flooding.
- Chimney scope ($100–$350): liners crack invisibly; a rebuild can cost $10,000.
- Pool and septic (varies): each is its own expensive machine. Inspect it like one.
Pick add-ons by region and house age, not by habit. A 1962 house with mature oaks over the front yard practically begs for a sewer scope. A 2019 townhouse on city sewer probably does not need one.
Reading the report without panic
Every inspection report looks alarming, because inspectors list everything. A 50-item report on a perfectly good house is normal. The skill is sorting, and there are only two piles:
- Structure, systems, and safety: foundation movement, roof at end of life, aluminum branch wiring, an HVAC system on its last season, active leaks, the sewer line. These items cost four or five figures and they are why you inspected.
- Cosmetics and maintenance: a cracked outlet cover, worn weatherstripping, a slow drain, peeling paint. Budget a few hundred dollars, fix them over your first year, and do not spend negotiating capital on them.
A reader who asks the seller to fix 31 small items signals panic and burns goodwill. A reader who asks about the one $8,500 item signals competence.
The renegotiation: an $8,500 roof, four ways
Say the inspection finds a roof at end of life, and a licensed roofer quotes $8,500 to replace it. Your inspection contingency (Chapter 9) gives you four moves, and each one has a different dollar shape. Assume Jamie's deal: $410,000 price, 10% down.
- Seller repairs before closing. Sounds clean, but the seller has every incentive to hire the cheapest contractor in the county, and you inherit the workmanship. Use this for small, simple, permit-free items, rarely for roofs.
- Seller credit at closing: $8,500. The price stays $410,000, and $8,500 moves to your side of the closing table, cutting the cash you must bring. You hire your own roofer after closing, on your schedule, with your contractor. One caution: lenders cap seller credits (often at 3% of price for a 10% down conventional loan, which is $12,300 here), and credits usually must offset closing costs and prepaids, so confirm the cap with your lender first.
- Price cut: $410,000 becomes $401,500. At 10% down your loan drops by $7,650, which trims the monthly payment by about $49 at 6.55%. You also bring $850 less down. But the roof still leaks, and now you must find $8,500 of your own cash to fix it. A credit puts money in the fight today; a price cut dribbles it back over 30 years. That is why credits usually win.
- Walk away. If the seller refuses to deal on a major system, the inspection contingency returns your earnest money. Losing two weeks beats buying a $30,000 problem.
Negotiate structure, systems, and safety; ignore cosmetics. Ask for a credit rather than a repair on anything over about $1,000, get your own contractor quote before naming a number, and confirm your lender's credit cap before you ask.
Renee's 1958 duplex (the one she is buying with her sister, Chapter 5) passed its general inspection with the usual list of small stuff. The $185 sewer scope did not pass anything: the camera found a collapsed section of the original clay line under the front yard, with a $12,000 replacement quote from the first plumber and $11,400 from the second. Renee asked for a $12,000 credit, the sellers countered at $7,000, and they settled at $9,000 plus a two-week closing extension. Her out-of-pocket on the repair came to $2,400. The scope returned its cost about 48 times over, and the sisters still talk about the camera footage at dinner.
The appraisal: the lender's exam
Once you are under contract, your lender orders an appraisal, a professional opinion of the home's market value, usually $500 to $700 and paid by you. The appraiser visits the house, then builds the value mostly from comps, recent sales of similar nearby homes, adjusting up or down for differences like square footage, condition, lot size, and a garage.
The lender cares because the house is the collateral. A lender will base your loan on the lower of the purchase price or the appraised value. When the appraisal matches or beats your price, nothing happens and nobody calls you. When it comes in low, the math of your whole deal shifts, so trace it carefully.
The low-appraisal playbook: $410,000 contract, $395,000 appraisal
Jamie goes under contract at $410,000 with 10% down: $41,000 down, a $369,000 loan. The appraisal comes back at $395,000, a $15,000 gap. The lender will now lend at most 90% of $395,000, which is $355,500. Four exits, each in dollars:
Exit 1: renegotiate the price. The appraisal is leverage, because the seller's next buyer will likely hit the same number. If the seller agrees to $395,000, Jamie puts down $39,500 and borrows $355,500. Compared with the original deal, that is $1,500 less cash at closing and about $86 less per month, since the loan shrank by $13,500. Sellers rarely drop the full gap on the first ask, so a split is common: at $402,500, the loan is still capped at $355,500, so Jamie brings $47,000 of cash, $6,000 more than planned, while the seller gives up $7,500. Both sides bleed a little; the deal survives.
Exit 2: bring cash to cover the gap. Jamie pays $410,000 anyway. The loan tops out at $355,500, so the cash required is $54,500, which is $13,500 more than the planned $41,000. Notice the gap is $15,000 but the extra cash is $13,500, because at 90% financing the lender was only covering 90 cents of each disputed dollar. This exit can be rational in a hot market for a house with something genuinely scarce. It also means paying $410,000 for a property a professional just valued at $395,000, and it should never come out of your emergency reserve (Personal Finance Guide, Chapter 6).
Exit 3: challenge the appraisal. Lenders have a formal process, often called a reconsideration of value, where your agent submits better comps the appraiser missed, or documents errors like wrong square footage. It costs nothing but days. It works occasionally, usually when there is a concrete factual mistake, and it should run in parallel with Exit 1, not instead of it.
Exit 4: leave through the appraisal contingency. If your contract kept the appraisal contingency (Chapter 9), you can exit and recover your earnest money, $8,200 on this deal at 2%. If you waived that contingency, the choice collapses to Exit 2 or forfeiting the $8,200. That is the dollar meaning of a waiver, and you should have priced it before you offered.
When the appraisal comes in low, open with a price renegotiation backed by the appraisal itself, file a reconsideration of value only if you have concrete comps or errors, and set your walk-away number before you respond. Covering a gap with cash is sometimes right; covering it with your emergency reserve never is.
New construction: inspect it anyway
Builders advertise warranties and city inspections, and buyers conclude an independent inspector is redundant. Municipal inspectors check code minimums in brief visits; they do not work for you. Independent inspectors finding missing insulation, cut trusses, and unconnected ducts in brand-new homes is routine, not rare. For new builds, consider phase inspections: one at pre-pour (foundation), one at pre-drywall (framing, wiring, plumbing while still visible), and one final. Expect roughly $200 to $400 per phase. A defect found at pre-drywall costs the builder a subcontractor visit; the same defect found after closing costs you a wall.
Key takeaways
- The inspection answers what shape the house is in and works for you; the appraisal answers what the collateral is worth and works for the lender.
- Buy the add-on inspections the house's age and region call for. Renee's $185 sewer scope surfaced a $12,000 problem and won a $9,000 credit.
- Sort findings into structure, systems, and safety versus cosmetics, and negotiate only the first pile. For items over about $1,000, a credit usually beats a seller repair or a price cut.
- A low appraisal has four exits: renegotiate, bring cash, challenge with better comps, or leave through the contingency. On a $410,000 contract appraising at $395,000 with 10% down, covering the gap takes $13,500 of extra cash.
- New construction still needs independent eyes, ideally at three phases while the bones are visible.
Sources: CFPB, Buying a House