What does an appraisal take into account?

2 Replies

Hello BP!

So I have a property that I am close to contract on. The seller is getting it appraised now and should get it back within the next day or two.

I’m trying to figure out if the appraisal will cover big ticket items like plumbing, electrical system, roof/siding life, foundation, termite damage, mold, asbestos tile, etc.

I know that most of these items need to be replaced and am already at $60-$70k with those big expenses. The house is a complete gut so it will need much more than that.

I figure if his appraisal comes in at say $400k, I can negotiate down $60-70 for those large items that need replacing. I know that the appraiser is supposed to use similar condition properties, but are they really inspecting electrical, plumbing, mold, etc? And how would an appraiser know if the comparable they are using for the report have similar components?

Should I expect the appraised value to be the as-is value with all those items adjusted for? Or should I expect to use the appraised value as a baseline then negotiate the price down, showing with my inspection report and contractor bids the repairs necessary and actual prices for them? Obviously my goal here it to get the lowest price because I have my work cut our for me.

The appraisal won't go over items like that. Those would come out in an inspections. There are 3 ways to value - The Cost Approach (Basically the cost to rebuild) The Sales Comparison (Comps) and the Income Approach (Valuing based on the income) Hope this is helpful.

I had one seller get an appraisal before I bought. The appraisal "as is" came in at $170,000. I paid $91,500 for the house (based on my numbers). Another flipper wasn't trying to buy it for $80k. I'm not sure what your end game is, BRRRR, flip, wholesale etc. The appraiser doesn't account for closing, holding and profits, so his appraisal will always be higher than an investors offer.