Posted on Jan,31 2020
by Brenda Sigurdson in Blog
Nearly all lending involves some sort of collateral that the borrower allows the lender to place a “lien” on. A lien is a legal instrument of record, which ties up the collateral so that it may not be sold, refinanced or transferred without the debt first being paid. Depending on the type of loan you are looking for, some lenders will be more specific about what collateral they need, while others may just request a certain dollar amount, and accept it in any form of asset that you have available.
Essentially, collateral gives the lender recourse if you don’t pay. In hard-money lending, the collateral is real estate of some sort, whether it be land, residential, retail, etc.
Where Asset Valuation Comes into Play
When a non-cash asset is being used for a loan or line of credit, it has to be of a certain value. Offering someone the title on a $50,000 property in exchange for a $450,000 loan, for example, will not cut it. To get approval for the collateral that is put forth, it must be valued appropriately. Asset valuation is a simple process where the lender will determine the exact value of whatever asset you put forth by either their own underwriting or performing a full appraisal of the property.
Types of Asset Valuation
There are three main types of valuation methods used today. They include:
Asset valuation sounds like a complex term, but it’s a relatively simple process. Understanding the basics will make all of your collateral-related finances easier to manage. For specific information about collateral asset valuation as it pertains to your commercial real estate investments, H&O Capital will be happy to answer any questions for you.
H&O Capital Funding has helped countless real estate buyers, sellers, lessees and lessors achieve their goals. Our legacy is unwavering commitment to the communities we serve. Houlihan & O’Malley Commercial Real Estate Services specializes in four distinct, yet overlapping, areas of business: Commercial Brokerage services, Private Mortgage services, Appraisal Services and Advisory services.
For more information on loans that we offer, visit our website.