What is an Appraisal…and Why is it Important?

What is an appraisal? How is it used?

An appraisal is an unbiased estimate of the true value of what a property – whether land, distressed building, or recently constructed multifamily building – is worth. It’s used as an “objective way to assess market value and ensure that the amount of money requested by the borrower is appropriate” (source).

Who appraises the property?

Appraisers and their employers (often appraisal management companies) are heavily regulated. Appraisals are conducted by highly-trained professionals who are licensed and/or certified to determine the value of a home fairly, objectively and without bias in the state where the property is located.

What are appraisers really looking for?

Remember this: appraisers focus on permanent parts or extensions of a property (i.e.: no decorative elements). These include physical characteristics of subject property like: age, square footage, the number of bedrooms and baths, lot size, location and view (source). If funding is being requested on a new construction project or one with significant renovations, the appraiser must include (1) an estimate for current market value (i.e.: acquisitions of existing buildings) and (2) an estimate for “the after-construction or after-repair market value” (source).

How does Colonial Capital integrate appraisals into our loan commitment?

Appraisals are, for obvious reasons, essential in providing objective analyses of a subject property for all parties involved (equity/banks, private lenders, borrower, etc.). That said, Colonial definitely considers appraisals into our final loan amount and funding / points structure, so it’s important borrowers itemize construction, intended improvements/ repairs, surrounding properties, relevant sector-growth, etc.

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Colonial Capital has lent millions of dollars. We take pride in both the strong relationships we’ve built with our borrowers, and healthy performance metrics we use to evaluate each loan. We look forward to servicing your Real Estate Financing needs!

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