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Understanding the Value of Your Borrower’s Commercial Collateral

Commercial Mortgage
Posted on 
June 9, 2016

If your borrower is seeking a small-balance mortgage for their commercial property, one of the most important factors in a lender’s decision will be the value of the collateral pledged. At the end of the day, an appraiser is going to be the one determining the worth of the property.

Here are some things that brokers and borrowers can do to help a lender understand the building’s value during the initial approval and underwriting process.

Provide the purchase price.

If your borrower is financing a commercial property, send your lender the property listing, as well as the executed agreement of sale. If your borrower is refinancing a property, provide your lender with the original purchase price and the date your borrower purchased it.

Take photos.

A picture is worth a thousand words, especially in the small-balance commercial mortgage industry. Send your lender exterior and interior photos of the property so that they can get a sense of what the property looks like, where it’s located and what kind of condition it’s in. Including neighboring properties and street scenes is a plus.

Send older appraisals to your lender.

If an appraisal of the property was done in the last six months, that document could be a tremendous resource for your lender. It will give them an idea of the property’s value, as well as a basis for comparison once a new appraisal is ordered.

Don’t order a new appraisal.

Most commercial mortgage lenders have business partnerships with appraisers they know and trust. They’ll want to order appraisals through these companies, so if you order an appraisal, it could complicate the process as well as cost your borrower.

Prepare your client for the cost of a new appraisal report.

A commercial appraisal will cost in the average range of $1,250 to $3,000. Don’t let sticker shock delay the forward progress of the application.

Providing your lender with documentation that allows them to gain an understanding of a property’s value is a great way to streamline underwriting and help your borrower get the financing they need. Be sure to discuss the above with your lender to find out exactly what you should submit to make the commercial mortgage lending process as seamless as possible. This will allow for faster closings and additional income for you.


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