What Can a Banker do to Ensure the Highest Value on their Real Estate Collateral?

Every bank seeks to minimize the risk of extended credit and ensure the best value on real estate collateral so that it provides the appropriate security. There are two specific ways you can ensure the highest value, and, as a result, minimize risk to your business.

1-Know your Collateral

In our business, we see it often: A loan is inherited and the new lender is completely unaware of the secured collateral behind the loan. Although the lender fully expects that the valuation product is precise, often they know little about the property (such as where the property is located on a map). It may be unrealistic for lenders to know details about every piece of property in their portfolio; however, it may be advantageous to procure these necessary details from the customer, especially when dealing with commercial property where income streams, vacancy rates, and expenses fluctuate from year to year. It makes sound business sense to learn more about a property before getting it appraised. Not only will this ensure a more accurate result, this can save everyone a great deal of time and difficulty in the lending process.

2 – Communication is Key

There are so many resources online to find data about real estate properties, yet often, this data is out of date, incomplete, or even inaccurate. In the absence of additional information, however, valuation professionals can be forced to rely on any information available to them even if it is not validated. Examples of this include: the year a property was built, actual amount of square footage, or conditions of a certain transaction. If the borrower has completed any remodels, additions, or capital expenditures, it is critical to relay that information to the appropriate party; adverse information also needs to be shared. Although the valuation may seem straightforward a first glance, a majority of inaccurate property valuations happen because there was information about the real estate that wasn’t communicated. Be sure this information is shared with your valuation professional. The more accurate the valuation, the better the security.

It all comes down to ensuring accurate flow of information to the right people. Make certain the lines of communication in your discovery process are in place to ensure the most accurate, and as a result, most valuable collateral securities.

The CVC group is a team of real estate professionals providing valuation services and more for financial institutions. Learn more about how we can partner with you to expedite your lending process through a number of services and product offerings at www.thecvcgroup.com, or give us a call in the office: 479-966-4988. We’d love to chat with you!

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