Market Value used in preparing loan docs

Market Value used in preparing loan docs

It seems that there might be some confusion as to how to fill out financial information when requesting a loan. How would you value your rental property real estate in the real estate schedule section? I know how I do it, but I curious how others do it.

It is very clear in the instructions that market value is to be used for the valuation. Does it make a difference if you recently bought a property that was perhaps below market? Does it make a difference if the property was bought 20 30 years ago.

You said that the instructions were clear that you to use market value. Being a real estate professional, I assume that you feel comfortable having an educated opinion on the market value of your holdings. If that the case, then that is what I would put.

I would not subtract here for closing costs and commissions because 1 that was not part of the instructions and 2 the lender may very well do that for you behind the scenes, so you don want to be double whammied.

I know when I was underwriting commercial loans, we would look at the adjusted net worth of the guarantor. This number, which was usually markedly different from the net worth on the personal financial statement, made adjustments such as:

Zeroing out all personal assets such as cars, boats, jewelry, artwork, etc., but leaving in any debt related thereto.

Adjusting the value of any closely held stock or business entities, which tend to be overstated.

Capitalization of any leases.

Adding in any contingent liabilities, especially if a share of the asset related thereto appears on the balance sheet.

It was common to see that someone whose personal financial statement indicated a $5 million net worth would be reduced down to $1 million or less. And that was OK, because frankly by the time we got done with it, anyone who had a net worth at all was doing better than 99% of the population.

In a more traditional mortgage loan underwriting, you looking only at the person, not a business, and you infinitely more concerned about that person income. Their net worth is sort of irrelevant because if they can pay from income and you can get made whole from the collateral, it unlikely that you seek their personal assets for the deficiency, assuming that even allowed in your state.

In commercial banking, we gladly go after your personal resources when seeking repayment under a guaranty.