Tighten Up Your Comps

Tighten Up Your Comps

A common topic in our publications and conversations with brokers is the quality of comparable property info. One thing that separates Fairfield from some other hard money lenders is that we allow our brokers and borrowers to supply us with their own comps. This is less expensive than ordering an appraisal, but it takes some work.

The main thing that is most often missing from a set of comps is the explanation of value. We’re looking for more than a group of comps pulled from the MLS. Determining a reasonable value for the property is a critical aspect of the underwriting process, and we want as much input as possible. We want to know how the neighborhoods and quality of construction compare, how long it took for the comps to sell, the saturation level of the local market, and any other factor that could impact the value of the property. A good explanation of value will help ensure that there are no surprises during our property inspection, and ultimately help to ensure the success of the loan.

The explanation of value can also add credibility to the borrower. We are an equity lender, but the borrower plays an important role in our decision to fund a loan. If there are unrealistic expectations of value, we would be concerned that the borrower is not making informed decisions and potentially getting in over their head. However, when we are presented with a good set of comps with a well explained realistic conservative valuation, we can feel comfortable that we’re dealing with an experienced borrower with a well thought out plan.

Our website is full of great resources, and more information on the quest for a good set of comps can be seen at http://www.privatemoneysource.com/articles/comps.php