The "Lingo" Of The Real Estate Appraiser

A real estate appraisal is a service performed, by an appraiser, that develops an opinion of value based upon the highest and best use of real property. The highest and best use is that use which produces the highest possible value for the property. This use must be profitable and probable. Also of importance is the definition of the type of value being developed and this must be included in the appraisal, ie fair market value, condemnation value, quick sale value, etc.

Types of value

There are several types and definitions of value sought by a real estate appraisal. Some of the most common are listed:

Market Value

- The price at which an asset would trade in a competitive Walrasian auction setting. Market value is usually interchangeable with fair market value or fair value. The legal definition of market value is usually given by some variant of the following: "The most probable price at which a property would trade in an arms-length transaction in a competitive and open market, in which the buyer and seller each act prudently and knowledgeably and in which the price is not affected by any special relationship between them".

Value-in-use

- The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, which may be above or below the fair market value of a property.

Investment value

- is the value to one particular investor, which may be above or below the fair market value of a property.

Insurable value

- is the value of real property covered by an insurance policy. Generally it does not include the site value. It is important to distinguish between market value and price. A price obtained for a specific property under a specific transaction may or may not represent that property's market value: special considerations may have been present, such as a family relationship between the buyer and seller, or else the transaction may have been part of a larger set of transactions in which the parties had engaged. It is the task of the real estate appraiser/property valuer to judge whether a certain price obtained under a certain transaction is indicative of market value.

Three approaches to value

There are three usual approaches to determining the fair market value of a property, cost approach, sales comparison approach, and income approach. The appraiser will determine which of the approaches is applicable and develop an appraisal based upon information from each individual market area. Costs, income, and sales vary widely from area to area and particular importance is given to the specific location of the property. Consideration is also given to the market for the property appraised. Properties that are typically purchased by investors (ie. skyscrapers) will give greater weighting to the Income Approach, while small retail or office properties (purchased by owner-users) will give greater weighting to the Sales Comparison Approach. Single Family Residences are most commonly valued with greatest weighting to the Sales Comparison Approach.

Cost approach

The Cost approach is sometimes called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. It is the land value, plus the cost to reconstruct any improvements, less the depreciation on those improvements.

Sales comparison approach

The sales comparison approach looks at the price or price per unit area of similar properties being sold in the marketplace. Simply put, the sales of properties similar to the subject are analyzed and the sale prices adjusted to account for differences in the comparables to the subject to determine the fair market value of the subject. This approach is generally considered the most reliable, IF good comparable sales exist.

Income capitalization approach

Income Capitalization Approach

Often simply called the income approach, is used to value commercial and investment properties.

Automated valuation models

Automated valuation models (AVMs) are growing in acceptance. These rely on statistical models such as multiple regression analysis and geographic information systems (GIS). While AVMs can be quite accurate, particularly when used in a very homogeneous area, there is also evidence that AVMs are not accurate in other instances such as when they are used in rural areas, or when the appraised property does not conform well to the neighborhood. Because of the limitations, AVMs have begun to fall out of favor with many lenders but are widely used in other appraisal problems such as mass appraisals for ad valorem real estate tax purposes.

Michelle Hiller

Seasoned Loan Expert

[http://www.quoteinwrititng.com]

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What Does a Lis Pendens Mean in the Foreclosure Legal Process?

One of the legal terms that homeowners in foreclosure often come across is lis pendens. They may initially find out about the term when attempting to refinance their house and the mortgage broker turns them down because of this type of document filed against the property. If a lis pendens has been filed, it will show up with the county recorder as a document affecting the title.

A lis pendens does not stop or prevent foreclosure at all, as it is merely a document serving notice upon any other party that is researching the particular property affected by the document. In most cases of a homeowner behind on the mortgage payments, the lender's attorneys will file the initial foreclosure lawsuit with the court and a lis pendens will be sent to the county clerk or recorder's office to indicate that a particular property is in the process of a pending litigation.

The term lis pendens is Latin for "lawsuit pending," and the lawsuit that it is referring to is the legal process of foreclosure. If the lender was not suing for the property to be sold for payment of the defaulted mortgage loan, this document would never be filed in the first place, as no lawsuit would be pending.

In fact, a lis pendens specifically indicates that the property is facing foreclosure, and the document will show anyone, such as a title company or prospective foreclosure refinance lender, researching the real estate that it is involved in a lawsuit. So the lis pendens is meant to signify the foreclosure; it does nothing to prevent the foreclosure, but it does not itself affect the homeowners' ability to save their home.

The most commonly used legal mechanism that would stop foreclosure is filing bankruptcy with the court, and even this only puts the process on hold while the creditor and debtor are coming to an agreement to negotiate a settlement of the debt.

Homeowners may also wish to consider getting rid of the lis pendens affecting their home by mounting a defense against the lawsuit that has led to the foreclosure process. This is a direct defense of the litigation, though, not an extra legal process like bankruptcy that may be used to put the suit on hold.

If a lis pendens is filed with the county recorder against a piece of property, this indicates that the house is already in some stage of the foreclosure process. The homeowners are no longer in the preforeclosure stage, or merely behind in payments. At this point, foreclosure can not prevented, as it is already being pursued by the lender and its attorneys -- it must be stopped, and homeowners need to begin putting together a realistic plan and researching various ways to stop foreclosure, such as a mortgage modification, repayment plan, selling the house, or a foreclosure bailout loan.

The ForeclosureFish.com website has been designed to assist homeowners in saving their homes from foreclosure on their own. Hundreds of pages of information, articles, and blog entries are available, describing various methods that homeowners may use to prevent foreclosure Visit the website today and begin learning how the foreclosure process works and what can be done to stop it before losing your home:http://www.foreclosurefish.com/

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Commercial Mortgage Lender Explains Credit Tenant Lease (CTL) Financing

Credit Tenant Lease (CTL) Financing is a unique commercial mortgage lending platform designed to finance the purchase, refinance and development of single tenant, triple net (NNN) leased, buildings. The buildings can be retail, office, industrial or warehouse; CTL loans can be written against any real estate as long as it's occupied by a "credit tenant".

For the purpose of CTL lending, a credit tenant is defined as a corporate entity that has earned an investment grade credit rating from the major rating agencies. Generally, any company rated lower than BBB- (triple B minus) by Standard & Poors or Baa3 by Moody's, is not be considered investment grade and would not qualify for CTL financing.

CTL loans are very different than traditional commercial mortgage loans. Lenders who originate CTL financing are primarily concerned with the structure of the lease and the strength of the tenant rather than the value of the real estate or the credit of the borrower. CTL lenders count the lease and the income it generates as the main collateral backing the loan. This is a distinct difference as-compared to standard commercial real estate lending and represents a unique perspective in real estate finance.

CTL lending is possible because of the popularity of NNN leases among strong corporate tenants. When a landlord executes a true or "absolute" NNN lease with a good tenant, he has almost no management or operational responsibilities. The tenant is responsible for everything from paying the utility bills to maintaining the building, even large real estate issues, such as repaving the parking lot or replacing the HVAC system are all the responsibility of the tenant, not the land owner. Consequently a lender with a lien against a NNN leased property likewise needn't worry much about the building; even if they have to repossess it in a foreclosure, they won't have to actually run it. For buildings with long term NNN leases and excellent tenants, it only makes sense that lenders focus mainly on the lease.

CTL loans are originated by commercial mortgage bankers or direct CTL lenders. Bankers will issue and sell a private placement mortgage bond in-order to fund the CTL loan. Direct lenders also collateralize the lease into a bond, but often hold the debt in their own portfolios rather than sell it on the secondary market.

Because of the straight-forward nature of CTL financing loans amounts are typically larger than other institutional loans. Many CTL lenders will make no restrictions on loan-to-value or loan-to-cost and will write the maximum possible loan. The only real condition on the size of the loan is that the rent collected must cover the mortgage payment. Most CTL lenders require a minuscule debt-service-coverage (DSCR) ratio of only 1.01%-1.05%.

Speed of execution is another benefit of CTL loans. It only takes 45-60 days, from start to finish, to complete a CTL transaction. Bank loans, on-the-other-hand, are notorious for being long, drawn out bureaucratic affairs.

Borrowers who take advantage of CTL financing tend to be sophisticated commercial real estate investors who understand the business of NNN investing. They are generally seeking dependable, long term income from their real estate holdings and want permanent, fixed financing. The terms of CTL loans are "co-terminus" with the term of the underlying lease and the rates are usually fixed for the life of the loan. CTL loans are nearly always self amortizing mortgages written for 15-25 years. Developers also use CTL financing for build-to-suit construction loans.

The ultimate credit tenant is the US Government. Uncle Sam still enjoys the highest possible credit rating and leases real estate all across the country. Federal court houses, Social Security Administration buildings, Department of Homeland Security field offices, and US Post Offices are all examples of buildings that have been purchased using a CTL mortgage loan.

Investment grade corporate tenants include the drug store chains, Walgreens and CVS, as-well-as, retail giants Walmart and Target. McDonald's is, of course, the most popular credit tenant in the food service industry. Virtually any company that can boast of a superior credit rating and leases real estate on a NNN basis, can qualify for streamlined CTL financing.

CTL is a very specialized lending platform designed to accommodate a very specific type of commercial real estate investing. It is a very fast and efficient method of funding the purchase, refinance or development of a building that is NNN leased to a high quality tenant. CTL loans are perfect for the individual investor who buys income property or the small-to-midsized developer who builds only one or two projects at a time.

In a time of continuing economic turmoil and difficult credit markets, it's nice to know that there are still dependable sources of commercial real estate lending. If you are buying, building or need to refinance a building that's leased to a credit tenant you can depend on CTL financing.

MasterPlan Capital LLC - Commercial Mortgage Lender - Credit Tenant Lease (CTL) Financing - Private and Institutionally Funded - Equity Financing - Asset Management - Simple, 1 Page Commercial Mortgage Application Online - Quick Answers - Close in 10 Days - The author, Vincent Remealto, is a commercial real estate valuation and underwriting analyst for MasterPlan Capital.

Article Source: http://EzineArticles.com/expert/Vincent_Remealto/149102