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» Determing the Valeu of Real Estate

Posted on 4/29/2005
Hard money lenders such as Avatar Financial Group look at three basic questions when detemrining whether a loan is a good match for the company.
  1. Is the value of the property proposed as collateral worth what the borrower says it is worth?
  2. How will the borrower make the monthly payments - does the property / business / borrower bring in enough money to cover all expenses, including the Avatar loan and still have enough to put a few dollars in their pocket at the end of the month?
  3. What is the exit strategy? Is it clear and workable within the 1-3 yr term of the loan?
The first thing you will need to do is determine the value of the property. If you do not have a recent (within 3-6 months) appraisal on the property, ask a commercial real estate agent what the property would sell for in the event that you needed to sell it within 3 months. Ask two or three agents to get a general range.  In general, real estate agents will give you a slightly high figure. They want your business and they reasonably consider that if they put a rosy glow on the potential for the property if you list it with them, they will have a better shot at our business. So take about 5-10% off their estimate and you have a fairly good working number.

If a similar property has sold in your area, neighborhood, or city - depending on the type of property you are trying to estimate value for - use that to compare with the prices you are hearing from the real estate agents. With a little research, you will be able to determine the quick sale value of your property and plan / budget accordingly. In general, Avatar and other hard money lenders will be able to lend you about 65% of the current quick sale value of the property.
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