As a hard money lender, value is the most critical component of underwriting a loan. We don’t require appraisals so we are looking at thousands of loans a year. I wanted to share the tools I use to underwrite each time I look at a loan file and specific tools for residential and commercial. It is critical that anyone in real estate have the “right tools for the job” to ensure you and your clients are making the most informed decisions.
What tools do I use as a Hard Money Lender to accurately determine the value of a property?
- Bing Maps: When I am looking at a property, my first stop is bing maps, I like to put in the address and look at how the comparables line up to the subject. I think bing maps does this the best; it is very similar to the old “streets and trips” Microsoft used to sell via a cd
- Are the comparables in a similar location? For example, is one on a park and one backing to a highway or on a busier road vs a cul-de-sac?
- What is in the area?
- What is the access? (especially important on a commercial property)
- Google Maps/street view
- Before I commit on a property I like to see what it looks like with street view and also via satellite so you can get a good sense of the subject, area, etc…
- County Assessor
- For every property we lend on, I always go directly to the county assessor website where the property is located. You can see transaction history, current assessment, taxes, square footages, etc… to ensure you know the details on the collateral
Although the free tools are great, we also subscribe to various tools to simplify underwriting. You can get the clear majority of this information for free but using some of the paid services enables you to be more efficient if you are looking at a number of properties
Comparable tools I use
There are a number of services offering comparables, below are the three biggest
- Loopnet/Costar: Loopnet was purchase by costar. They offer a subscription service to see commercial comparables. You can also see current listings in the immediate area. The mapping function is great as you can narrow down comparables to the street level.
- Xceligent: This is a similar service to CoStar with good property detail
- Reis: Very good if looking at larger properties, they have “reis reports” which give market updates that are useful to understand the vacancy, absorption, average rents, etc..
There are a number of subscription tools that lenders/investors can subscribe to in order to quickly to radius searches, and complex searches for comparables on a subject property. Fannie Mae has started using some Automated Valuation Models from various vendors. I’m not recommending you utilize an AVM, but these same companies offer comp services that are very useful. Below is a link to the companies approved by Freddie Mac. We use one of these services, but not sure I would recommend one over the other
- Freddie Mac: Home Value explorer approved Vendors: http://www.freddiemac.com/hve/distributors.html
- I have used First American, Equifax, and others on the list
By using the tools above, you will have the knowledge to correctly determine the value, but all the tools in the world will not “give” you the correct answer. The only real way to value a property like a hard money lender is to have accurate data and physically look at the property and comparables. Real estate valuation is an art form, there are thousands of variables that can impact the value of the property. By having accurate date (utilizing the correct tools), physically looking at the property, and using a dose of common sense you can ensure you are making the best decision for yourself and your clients.
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).