Expert: Jessica Bryan - 1/21/2007

Question
Considering buying home built in '70's and presently outdated interior/exterior. Estimating 25-30 thousand dollars to upgrade. The realtor is telling a present value of home for its condition. Should I pay for an appraisal in its present condition? Then deduct estimated repair cost from appraisal, then make my bid offer. Any suggestions?

Answer
Dear Jim;
There are (among many other factors) two things that affect the price of the home in an appraisal; current market values based on comps and cosmetic condition.  An appraiser doesn't usually know what is not functioning in the home and therefore is not able to take this into account in the appraisal. A thorough appraisal will include the condition the home is in and will reflect the fact that it will cost a certain amount to rehab and bring it up to higher standards.  So, for example if a home that is about the same size but in excellent condition is $30,000 higher value it has already taken into account that the less maintained home will be $30,000 less.  That is the cost for the cosmetic repairs and rehab.  If the appraisal simply takes off for condition (cosmetics) and doesn't take into account that there is quite a bit of repair needed as well then, by all means deduct the repairs and make your offer based on the current value and cost to repair.  If the seller doesn't accept the offer and you still want to go through with the purchase you can go back and renegotiate once inspections have been completed and you know how much repair is needed beyond the cosmetic fixing up.  The seller will then have the option to repair, negotiate the price or refuse altogether and give you your earnest money back.

Good luck and best wishes,
Jessica Bryan