Avatar's Blog
» Street Value vs MAI Appraised Value
When purchasing commercial real estate, buyers generally obtain an MAI appraisal before making an offer to the seller. The actual sale price of the property is very often somewhat less that the MAI appraisal. When calculating the cash requried to close the deal, consider the following rule of thumb:
Borrower must put down 20% cash at closing. This can come from cash already on hand, a financial investor/partner, or additional real estate may be mortgaged to generate the capital needed to purchase the new property. If you plan to use property you already own to increase the loan size from Avatar, count on being able to take out up to 65% of the quikc-sale value of that property. If there are liens on the property (ie: existing mortgages), those will need to be paid off at closing, leaving you with the balance to use for the new purchase. In rare instances, some existing second or third lien lenders may subordinate to the new Avatar loan, in which case you may be able to mortage up to 80% of the existing property (65% from Avatar and up to 15% more still out with subordinated second or thirs lien lenders).
Avatar will lend up to 65% of the price you pay for the property - this is sometimes known as the 'street value' of the property and is generally up to 20% less than the MAI appraised value. It is the price for which the property will change hands between willing owners today.
If you are putting up 20%, and Avatar puts up 65%, Avatar permits a subordinate loan, such as a seller carry back loan for the balance of 15% to complete the purchase. The seller cannot put up 35% and leave the borrower/buyer without any cash equity in the project at all.
