Differentiating between appraisal value and inspection strength is a difficult scenario in the real estate industry. Each will offer some distinction, as to the strength of the property, with the appraisal giving you an estimate of the property and the inspection give you its deficiencies. Where investors go wrong is in thinking that the appraised value is the absolute number you could buy or sell the property for. While the appraisal is usually a pretty good estimate, it is just that. It is a snapshot of where the property is at the time the appraisal is done. To get a better idea of what the property really is, you need to rely on the inspection report.
The inspection is done by a licensed inspector for your benefit. It is done under the idea that the inspector will give you an unbiased opinion of what is wrong with the property and what needs to be repaired, replaced and updated. Many investors will get involved with a property and refuse to hear what the inspector has to say. Nothing can get you in trouble quicker on a given property.
The inspector has no skin in the game and no reason to exaggerate the issues on a property. They are essentially working to protect the buyer (you) and will get paid whether there is mold in the basement or not. The appraisal process has gotten much more reliable, but is still far from perfect. Because the appraisal is a snapshot at any given time, what the value is today oftentimes will not be the same in 90 days. Plus, the number could be skewed in the favor of whoever is ordering the report. If the seller is selling for $200,000, the appraiser will start with comps in that price range and go from there.
Since no two houses are exactly alike, much of what the subject property is compared to is open for interpretation. Much like if you are trying to find lower comps for an REO or a foreclosed property. If you look hard enough and stretch your imagination you could find ones to fit what you are looking to do. The same could be said with any online valuation sites you may find. Those values should be used only as a starting point and never a final estimation of value. In many cases, the information they receive on a property may not tell the whole story of a previous sale.
The inspection process and report may be long and sometimes boring, but the information inside is invaluable. If the inspection comes back with mold or with a decaying roof, use that for your benefit. Never go into a property with a set opinion on the condition or any other aspect of the property. If you fall in love with a property, you are sure to ignore the warts that will end up costing you money.
When making a decision on a property, use all of the possible information available to you. This includes the inspection, the appraisal and anything else you can find. These items are in place to help you get the best deal possible. If you don’t utilize them, you may end up regretting your purchase.