This article is aimed at helping answer the ultimate question posed by most homeowners after receiving their inspection report. The question “Is this a good home to purchase” and “Is there anything major with the home” can often be answered unemotionally by comparing a few simple figures such as a) purchase price, b) value of estimated repairs and c) appraisal value.
Although there are many different considerations which can and should be taken into account when deciding on a house, there is however simple equation for if the house would make good business sense. This equation is represented as the following:
Appraisal Value – Estimated Repairs ≥ Purchase Price
The above equation assumes all repairs, if given an appropriate value, can be remedied to the buyer’s satisfaction and the sum of all repairs should be reflected in the market value. For example, if the home appraises for $200,000 and the inspection report uncovers $50,000 in repairs, any purchase price below $150,000 can be considered to be fair price and thus likely the buyer will be satisfied with the home and its current condition. However, if the purchase price is above $150,000 the buyer should be cautious in due to the risk of paying too much for the home.