Appraisal vs. Home Inspection: What Is the Difference?

Value versus condition: two different questions

An appraisal is an independent, unbiased opinion of market value for a defined property, as of a specific effective date. In Canada it is prepared by an appraiser designated by the Appraisal Institute of Canada (AIC) — either AACI (Accredited Appraiser Canadian Institute) or CRA (Canadian Residential Appraiser) — working under the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP). Every report names its intended use and intended user: a lender, a court, an executor, a tax filing.

A home inspection is a visual, largely non-invasive examination of a building's physical condition — roof covering, foundation and structure, electrical, plumbing, heating and cooling, insulation and ventilation. The inspector reports what is worn, unsafe or nearing the end of its service life, and what a specialist should look at further. Licensing rules for home inspectors vary by province, so confirm an inspector's credentials before hiring.

An appraiser observes condition only insofar as it affects value, and does not test systems or open up finished areas. An appraisal is no substitute for an inspection — and an inspection will never tell you what a property is worth.

Who orders each one, and who pays

For a mortgage or refinance, the lender normally orders the appraisal, directly or through an appraisal management company, because it is the intended user and needs to understand the security behind the loan. The borrower frequently pays the fee, but paying for a report does not make you its client — the appraiser's duty runs to the party named in it. Some lenders waive the appraisal on straightforward, low-risk files and rely on an automated valuation instead.

In private and legal matters — separation, an estate, capital gains, a tax appeal, expropriation, relocation — you engage the appraiser directly, usually on a lawyer's or accountant's advice, and you are the client.

A home inspection is almost always arranged and paid for by the buyer, within the condition period of a purchase agreement, though some sellers commission a pre-listing inspection. For a standard house both services commonly fall in the low hundreds of dollars, with complex, rural or commercial properties considerably higher.

What each report actually contains

An appraisal report describes the property, its site and neighbourhood, zoning and permitted use, then applies recognized approaches to value — most often direct comparison for homes, supported by the cost or income approach where relevant. It sets out the comparable sales and adjustments relied on, the effective date of value, the scope of work, assumptions and limiting conditions, and a signed certification naming the appraiser and their designation.

An inspection report is organized by system and component, usually with photographs of deficiencies, notes on safety concerns, and recommendations to repair, monitor or investigate further. It contains no opinion of market value and no comparable sales, and no lender or court would accept it as a valuation.

A note of caution: "CRA" means two different things

In appraisal, CRA is the Canadian Residential Appraiser designation granted by the Appraisal Institute of Canada. CRA-designated members are qualified to value residential dwellings of up to four units and residential building sites. AACI is broader, covering commercial, industrial, agricultural and other complex property as well as residential.

Those same three letters are also the everyday abbreviation for the Canada Revenue Agency. An appraisal prepared for capital gains, a change in use, or a deemed disposition on death may be written by a CRA-designated appraiser and later filed in support of a return to the Canada Revenue Agency. When speaking with a lender, lawyer or accountant, spell out which CRA you mean.

When you need one, the other, or both

You need an appraisal whenever a third party has to rely on a value: mortgage financing or refinancing, private lending, dividing matrimonial property (often a retrospective value at the date of separation), settling an estate at the date of death, capital gains, a property tax assessment appeal, insurance replacement cost, expropriation, and relocation programs including BGRS, government and corporate moves.

You need a home inspection when you are about to take on the physical risk of a building — buying a resale home before waiving conditions, dealing with an older property, or planning a significant renovation.

In a typical resale purchase with financing you will end up with both, in that order: the inspection during the condition period, the appraisal for the lender before funding. Neither replaces the other, and a clean inspection report does not raise an appraised value.

Getting the right appraisal for your situation

Appraisal Canada provides appraisals, not home inspections. If your concern is the physical condition of a building, hire a qualified home inspector. If you need a defensible opinion of market value for a lender, a court, an executor, an accountant or a tax matter, we match you with an AIC-designated appraiser — AACI or CRA, depending on the property and the purpose — who works to CUSPAP standards and knows the local market.

Tell us the property type, where it is and why you need the report, and we will connect you with the appropriately designated appraiser and send you a free, no-obligation quote. Service is available in English, French and Spanish.