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» Determining Current Resale Value for Hard Money Re
When calculating the amount you will be able to borrow in a REFINANCE based on the value of your real estate property, use the following as a rule of thumb.
Improved commercial real estate (properties with buildings on them, not properties with road and utilities but no buildings) are generally funded at 65% LTV (loan to value). The term 'value' is defined as today's purchase price. This value is generally lower than the MAI appraised value of the property. MAI appraisals allow for varying amounts of time, depending on the type of property, for the property to be on the market before it is sold.
Hard money lenders use 'today's selling price' as the value because, in the event the borrower is unable to make the loan payments, the property must be sold as collateral within a short period of time. Private (hard money) lenders are smaller organizations than major banks or mortgage companies. They don't maintain entire departments whose job it is to manage and sell properties. Therefore, collateral property values must be the price which one can reasonably expect to receive if the property had to be sold in one to four months.
Ask local realtors to assess what you could get for the property if you had to sell it that quickly. Get lists of properties that have sold quickly in your area. Compare the initial asking price and the selling price. Make reasonable judgements about the amount by which you need to reduce the MAI appraisal figure to arrive at the quick sale value. This will help your working numbers to yield better projections for your planning purposes.
