Look at recent properties that have sold and that are very similar in size, design and appeal to your subject property that you are considering funding a loan on.
You can consider for sale asking prices only to confirm the market is stable or improving since the most recent closed sales. Many properties are listed over market value so be careful and don’t rely on asking prices alone.
Look at the property’s history and at prior sales prices. Does everything make sense? If there are any large increases or several flips, ask questions. Was the property damaged and paid off by and insurance company?
In Florida we have sinkholes and soil settlement you want to verify you are not lending on not yet repaired property that is being presented as in good condition.
Consider the county tax appraiser’s market and taxable value. You want to use a conservative estimate of value and not necessarily what the property owner or purchaser thinks or wishes their property is worth.
Make sure you physically inspect or have someone you trust that is not involved on in or benefiting from the transaction look at the subject property carefully.
Always look at the property before closing a loan.
Condition is very important and makes a huge difference. A property in poor condition may only be worth half as much as the comparable in average to good condition.
Appraisal values and when discussing values in general, unless clearly noted and accurate repair estimates are included, always assume the fixed up value. Even if the property has not been repaired.
A BPO (Broker Price Opinion) from a trustworthy real estate broker unrelated to your transaction along with your own due diligence in many cases will work out better than an appraisal.
You may want to avoid rehab or poor condition properties unless you have experience in fixing and accurately determining what it really takes to get a property completely repaired or rehabbed. Low balling repairs is one of the most common and un-noticed ways values are inflated or fudged.
An appraisal is a good idea to confirm the above but don’t rely only on an appraisal without doing your own research first. Many private lenders have been burned on inflated on shoddy appraisal reports.
If you are lending on commercial or income property make sure to consider the gross and net income. Verify the expenses on all properties, never take anyone’s word for it. Independently check taxes, insurance, HOA fees, condo fees and look for past and upcoming special assessments.
The most important advice I can give is to lend only on properties you cold live with owning as an investment or that you could sell quickly for more than you lend plus 6 months interest, foreclosure cost, selling transaction fees, and a good margin for error and profit for your time, just in case you end up with it.
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