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How Does a Lender Value Your Real Estate?

Valuing real estate has been a conundrum since the onset of the financial crisis in 2008. Depending on the type of real estate, where it is located, and a myriad of other factors, trying to value real estate in the current market is quite a task.
For both banks and private and hard money lenders, valuing real estate for the purpose of making loans has been a daunting task. Since 2008, hard money and private money lenders in particular have shied away from using traditional methods of real estate valuation, e.g. BPOs and appraisals.  Post 2008. Many non-bank lenders were relying on their own comparative market analysis versus any formal valuations from 3rd parties. However, with the market seemingly stabilizing, private money lenders are using appraisals again more and more often to prove value.
If you are a banker or a non-bank lender, what method are you currently utilizing for determining the value of real estate? 
  • August 10 2012 - US
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Answers (3)

The company I work for is a Mortgage Banker.  We use an Appraisal Management Company or AMC to order our appraisals.  Due to HVCC requirements the loan officer is not allowed to speak to the appraiser to eliminate the risk of the value being affected by the loan officer.  An AMC randomly selects an appraiser in the area from their appraiser roster to order the report from.  Most Banks, Brokers and Bankers use AMC's.  
  • August 10 2012
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Profile picture for Janna Piper
Lenders order appraisals- this is a report by a licensed Appraiser, based on sold comparable properties within a 1 mile radius of your home. Pending and Active listings, location, and condition, are all taken into considering when an Appraiser is determining a value. The Appraiser turns the report in to the lender- the lender views it, and typically accepts the Appraiser's report as the actual value of the property. In all reality, the actual value is determined by what a buyer is willing to pay for your home. Have a great day!
  • August 10 2012
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Appraisals typically are always a preferred method. Its not fool-proof but better than anything else.

Its really what the lender does with the value I think you are speaking to....

When I first started appraising, I worked for a hard-money lender in Los Angeles. We did our appraisals in pencil. I would return the appraisal to the mortgage person there - in essence the underwriter - he would look at it and erase what he didnt like, and of course change the value based on the specifics of the borrower.

Its not as obvious now, but the lender (de facto) has the ability to do the same, and why not - its their money....

  • August 10 2012
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