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[Commercial Grade] Lending 101


Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC [1] and he is, depending on what day of the week it is, one of the smartest guys I know. …Jonathan Miller

I think that I finally understand what the problem is.

We just need to go back to basics and make sure that the real estate lenders are being property educated. I recently came across a textbook written for lenders: The Complete Guide to Financing Real Estate Developments (Hardcover) by Ira Nachem ( 2007, McGraw-Hill, New York) [2], List price $79.96. Seemed like a respectable enough book, which is why my jaw dropped and I had to read the following section three times to make sure that I wasn’t imagining things

A section in Chapter 5 with the heading “Influencing the Appraisal”,

Since appraisers want to continue to receive assignments, they generally have a desire to satisfy you, their client. You sometimes can play on that desire and get the appraiser to produce a report with values a bit higher (or lower) than he otherwise would report.If you want to make sure that the appraiser is not undervaluing the property, you should tactfully indicate your concern up front

Do you believe this stuff?!

As I was reading this I kept on waiting for Alan Funt [3] to jump out and tell me that the whole thing was a joke. He didn’t. (I guess he couldn’t since he died in 1999.)

It gets better

A third reason to go against a conservative valuation involves market conditions and competition among lending institutions. When more lenders are in the market, competition for business increasesTo be more competitive, loan officers who receive higher appraised values can make larger loans

Over the years I’ve spoken to numerous loan officers that truly don’t have a clue as to how the appraisal function is supposed to fit into the underwriting process. Unfortunately books like this do little to educate them.

I look forward to reading future books in this series: “Shmearing the Building Inspector” and “Tax Evasion for Dummies”.