But after receiving appraisals they feel are too high, some lenders have taken to performing desk reviews – appraisals done from a computer. While qualified real estate appraisers are able to perform accurate desk reviews if need be, lenders’ desk review values can be wildly inaccurate. Since there is no on-site inspection, they don’t reflect the condition of a house, they don’t add value for remodels, they’re often lacking information even on room additions, and so forth. Nevertheless, lenders are using desk reviews as justification to reduce appraised values, and sales continue to fall apart.

Fannie Mae has announced that effective September 1, 2010, lenders will no longer be allowed to reduce appraised valuations. Instead, they will be required to contact the appraiser to resolve discrepancies between the appraiser’s value and the desk review value. If the disagreement can’t be resolved on that level, the lender will be required to order a second appraisal.

By: Present Value

Additional reading:

Uniform Residential Appraisal Report

From a Lender’s Perspective

A key issue on the table is changes to rules of real estate appraisals. Ever since the advent of HVCC, virtually every type of player in the real estate game wants changes in the current rules for ordering appraisals; these rules were established after the collapse of the mortgage market. Real estate professionals say the rules have gone too far, and often inexperienced appraisers are assigned appraisals when they do not understand or are unfamiliar with the local real estate market.

We will know soon enough if lenders were successful in their bid to make adjustments to the new regulations, and how much it will affect the currently volatile real estate market.

By: Present Value

HVCC and Uncertainty

Pointing Fingers

HVCC: The Comp Check Killer

1. Character – Evaluation of the business’ financial performance, credit report, management, and payment trends; trustworthiness
2. Capital/Capitalization – Financial position of the business, including resources, fixed assets, net worth, and the owner’s equity
3. Capacity/Cash Flow – Funds available to repay the loan, which takes into account whether or not the borrower can continue to pay for all other business expenses, personal needs, etc.; debt ration
4. Collateral – Assets that can be used as security should the loan default (For this post, we are going to go into a little more detail about Collateral.)
5. Conditions – External market factors, like competition and market trends

The good thing to note is that even in today’s tight economic environment, lenders backed by the SBA are lending money; however, because of this environment, lenders are increasingly more cautious. This means they are conducting more careful due diligence, which includes their own certified appraisals of collateral to ensure that they will recoup their losses should a loan default.

Having all the Cs in a row – including having a defensible, impartial asset appraisal in hand – prior to seeking a loan can help increase the chances of being approved. Or, if there are some areas where a business may be weak in the eyes of lenders, a business owner can use this information to make changes and improve potential borrowing success. Understanding what lenders are looking for and how a certified appraisal fits into lending criteria can help business owners find the funds they need to grow.

By: Present Value

Other reading:

Five Myths of Business Valuations

Businesses Appraised by CMEAs

Lenders Turn to Present Value LLC for Pre-Loan Due Diligence

It’s no secret that manufacturing has been in decline for many years due cheaper resource alternatives in foreign markets. The Federal Reserve reported that for February industrial production overall increased by 0.1% following a gain of 0.9% in January. Manufacturing output decreased by 0.2%. While markets other than manufacturing showed increases, they were slight.

Competitive pressures from outside the U.S. will force manufacturers either to develop greater production and financial efficiencies or shut down operations. As a result of the continual declines in manufacturing, investment and lending in this area will likely remain weak. As manufacturing companies downsize or close their doors, lenders operating in this area will need to determine other ways to recoup some of their existing investments, including selling off machinery and equipment.

Whether you need to know the fair market value, orderly liquidation value, and/or forced liquidation value of your equipment, the professionals at Present Value LLC can provide you with a certified equipment appraisal report in a timely manner at a competitive cost.

By: Present Value

Additional Reading:

What’s It Worth?

Know the Value of Your Machinery and Equipment Before an Auction

Certified Machinery and Equipment Appraisal

While lenders and business owners have many choices when it comes to finding an appraisal company, at Present Value, we pride ourselves on being more than just a company that provides appraisals: we act as a trusted resource for lenders and business owners. We can act as consultants to help guide our clients as they make crucial business decisions, whether it be a lender, looking to conduct pre-loan due diligence or auction assets from a loan default, or a business owner, looking to obtain financing or make an acquisition.

In addition to providing appraisal services, Present Value has the expertise and experience to orchestrate other aspects of these deals. The strength of our services comes from the partnerships that we have developed all across the country. We have the capabilities to bring the right people to the table for whatever our clients’ needs may be, such as auctioneer services or brokerage services. We aim to be problem-solvers for each and every one of our clients, helping them make well-informed business decisions.

Present Value prides itself on its turnkey service offerings, and Present Value is happy to act as a resource for its clients as they cope with past mistakes and look toward improving their processes. Our network of professionals will always deliver the highest quality products, backed by a team of experts in their individual market segments.

By: Present Value

As part of the pre-loan process, lenders need to ensure that their investment is sound and that they can recoup their money should a client default on a loan. This is where a certified appraisal becomes important. “Hiring an appraiser can reduce a lender’s liability,” said Chris Spinelli, Present Value co-founder. “We’ve heard horror stories about lenders who did not do appropriate research, which resulted in liquidation and huge losses for the lender.”

An appraiser helps a lender make better, more informed lending decisions by evaluating the equipment a loan recipient wants to buy and providing the lender with an accurate appraisal. Of the many types of equipment values an appraiser can provide, the ones that are most important in a default situation, and currently the most requested, are the fair market, the forced liquidation, and the orderly liquidation values. With a certified appraisal in hand, the lender can make an educated loan decision based, in part, on these three values. 

Present Value prides itself on its turnkey service, and is happy to act as a resource for its clients as they cope with past mistakes and look toward improving their processes. “Lenders turn to us because we know their business,” said Kinzie. “Our experience and our understanding of their needs allow us to act as consultants. And we help them achieve great results.”

Read the full text of this press release here.

By: Present Value

Present Value had a client who owned a strip mall that included a movie theater. The movie theater began to lose business, the theater owner could no longer pay rent to the property owner, left the strip mall, and defaulted on his equipment loan. According to the terms of the lease, the property owner could take over everything in the property in 45 days.

Present Value was asked to appraise the equipment in the movie theater and came up with a value one-fifth the value of the loan. The reason for the huge discrepancy was that when the movie theater operator took out his equipment loan, he misrepresented the value and type of movie equipment he owned and planned to purchase. As a result, when the theater owner defaulted on the loan, the lender lost quite a bit of money.

This problem could have been prevented if the lender had requested an asset verification prior to approving the loan. If this had been done, the lender would have had assurance that the equipment it was supporting was equal to the value of its loan.

By: Present Value