Appraisals/ Inspections

What is the Difference between an Appraisal and an Inspection?

When you are getting ready to sell your home, dealing with inspections and appraisals is part of the process. Your home is now a product that is being sold and needs to be evaluated. Many people think that appraisals and inspections are essentially the same thing but there are some key differences. Each property is unique, and the appraiser relies on his general expertise and specific research to arrive at an opinion of value.

An appraisal provides valuable information for the buyer and the seller, but the appraiser’s primary mission is to protect the lender/ bank. Lenders don’t want to own overpriced property and that’s why the appraisal takes place before the lender grants final approval of the buyer’s loan.

The Appraisal Process

Appraisers use a variety of factors in their decision making. They weigh the location of the home, its proximity to desirable schools and other public facilities, the size of the lot, the size and condition of the home itself and recent sales prices of comparable properties, among other factors.

Appraisers are not interested in whether or not the house is clean but they do notice signs of neglect such as cracked walls, chipped paint, broken windows, damaged floors and inoperable appliances.

If the buyer is applying for a mortgage the appraiser must survey the physical condition of the home and disclose potential problems to the buyer. No such obligation exists for cash buyers.

If a home receives an appraisal lower than the purchase price there are some ways the purchase can still go through. The seller can reduce the purchase price or the buyer could make a bigger down payment.

How Is An Appraisal Different From An Inspection?

An appraisal isn’t a substitute for a professional home inspection in fact they have some key differences. The appraiser formulates an opinion of the property’s value for the lender, while the inspector educates the buyer about the condition of the home and its major components. The appraiser is primarily focused on the value of the home whereas the inspector keys in on the home’s condition with an eye toward both existing and potential future problems.

Today’s buyers are more cautious, and an inspection ordered by the buyer is a regular part of the real estate purchase process. Spending the fees for a home inspection can be well worth it both for peace of mind and the potential cost of trouble avoided.

You may also want to ask the inspector if you can come along during the inspection. This will allow you to be able to see the problems or potential issues that will later appear in the report.

Ask your Lender for a list of qualified home inspectors/ appraisers.

Wise investing

The prospect of buying inexpensive properties, making cosmetic improvements and flipping those homes back onto the market for a hefty profit causes many people to ponder becoming real estate investors.
And while a fraction of those who take this approach are successful, most of them have worked for other people to learn the business, have extensive experience in real estate and contracting and/or have the resources to support themselves — and cover some losses — so they can focus on flipping homes full time for a few years to get started.
For everyone else, the best way to make money in real estate is to focus on the long haul: Buy cash-flow positive properties, do due diligence before buying and keep tenants for a long time.

Learning as you go
Buying rental properties for long-term hold is likely to be a successful way to earn money in real estate. But it isn’t easy; in fact it’s a lot of hard work. Most rental property owners have horror stories of lessons learned from losing money and the hassles they’ve experienced on rental properties. But they learn as time goes on, and they start to earn consistent income. And once they do, they laugh about the past and most of them would swear they’d do the same thing over again.
Wise investing
If you make smart real estate purchase decisions and buy decent properties that are cash-flow positive, put money into improving those properties, select good tenants and work hard to keep those tenants, then you can earn a nice retirement “pension” plan.
Beware that buying decent properties is no easy task: The education is formidable, and you will feel some pain over time as mistakes you make come to light. But it can be a great long-term wealth building tool if you’re patient and stick with it.
For most people, building real estate wealth simply takes time.