Property Valuation: Residential

Property valuation is the conner stone of any Private Hard Money loan. For lenders making the correct valuation is the difference between making a profit or loosing significant amounts of capital. Hard Money lenders' loans will not be re-capitalized by any governement agencies if the valuation is not correct.

There is not one way to valuate properties because there are as many way to valuate properties as there are Hard Money lenders. However, there are general principals that you will find applied accross the board. The more these principals are understound the better it is for real estate professionals, borrowers and lenders. In addition, to correct valuation a loan will be approved more easily if the reasons for the loan is clear.

The value of a proeperty is established by its transaction value. It is really difficult to understand why in today's market appraisal are giving properties potential values. It is miss leading for borrowers and only make the process more complicated. Hard Money lenders are quite sofisticated in their property valuation and only rely partly on appraisal. For us if we don't order an appraisal, we do an appraisal review no exception.

In market where there are numerous REOs a property value is going to be established by its REO value. Why buy a property at full price when next door there are 10 of them at a 30% to 50% discount. Another way to look at this is what would be the value of the property if we had to put it on the market and sell it within 90 days. The 90 days rule is for me the best indicator of a property value. When you ask an appraiser to provide a valuation based on this principal you will have a more accurate valuation of your a property.

REO prices, 90 days rules are two good ways to get an idea of a property value another one would be the income it generate. If you buy a property and the income it generates can cover mortgage payments then you have a good price. This is especially true if the mortgage is a Hard Money loan. Taking into account these three approach should help all of us make better valuations and more accurate decisions.