A major part of determining the size of a small-balance commercial mortgage is understanding the value of the property that your borrower plans to pledge as collateral. The best way to determine this value is through an appraisal report. Because they’re such crucial tools in the lending process, it’s important for brokers to understand a few things about these reports.
Here’s what you should know:
A commercial appraisal is more expensive.
The average appraisal report for a commercial property generally costs about $1,500-$3,000. Depending on the collateral, the location and the availability of comparisons, it can cost more or less than this, but it’s definitely going to be more expensive than a residential appraisal. Brokers should be aware of the cost and should discuss it with their borrowers before submitting an application to a commercial mortgage lender.
The reports are more complex.
Part of the additional cost is the complexity of commercial appraisal reports. While a residential property generally requires a simple form appraisal, many lenders require more in-depth reports complete with sales and income approaches included in order to fund mortgage requests for commercial property owners. The complexity increases if your borrower owns a unique property or if the collateral is located in a rural area where comparisons are harder to find.
Lenders usually order the appraisals.
Because commercial appraisals are more involved, lenders generally have trusted approved appraisers from whom they order reports. It’s important to check in with your lender and make sure that you’re on the same page about who’s ordering the appraisal. Otherwise, your borrower could end up paying for two.
In order to make the lending process as seamless as possible, it’s important for brokers to understand the basics about appraisal reports and to prepare their borrowers for what to expect. These reports are more expensive and complex, and are incredibly important to the lender when determining the final LTV of a loan. Be sure to discuss the proper procedure with your lender when it comes to commercial appraisals, and be willing to work with them should any issues arise.