Tips on Financing Realty
Based on more than 35 years experience in the field, Robert H. Watzke offers nuts and bolts advice on how to evaluate property and negotiate with lending institutions.
If you are in the market for real estate, come to know all you can about property for sale in your area of interest. That means one or more of your group is going to have to invest time in searching and researching. Cruise the area where you want to live,looking for “For Sale” signs. Contact real estate brokers to learn what they have available. Go to the County Registrar of Deeds and review recent sale prices.
Comparable Sales Data before Appraisal for Loan
Once you find a desirable property, you need comparable sales to evaluate the proposed purchase prices. While a comparable sales study may cost as much or more than an appraisal of a specific property, “comparables” provide the necessary insight into yourlocal real estate market.
Bankers today work almost exclusively with their own approved appraisers. Go to the bank(s) that you think you’ll be using, and ask which appraisers they might recommend to appraise the type of property you are purchasing.
Later, a bank-financed appraisal will be required, but it is important for you to build your own market awareness — separate from the bank’s. The cost of comparables is modest compared to what you save when you’re well informed and can negotiate from a position of knowledge. You can gain maximum effectiveness from specific appraisals by knowing market values, getting your appraisals ahead of time, and paying the appraisers yourself. Review the appraisal to make sure the work is documented and includes the comparables that your research indicates are representative and supportive of what you are seeking to accomplish. If the work is not satisfactory, you may request the appraiser to redo the work or you may seek another appraiser.
When applying for a bank loan, it will be to your advantage if the bank sees the appraisal supporting your loan request and recognizes the signature at the bottom as that of one of their appraisers. Then the bank simply sends the appraisal out for updating or “recertification” by the appraiser. You will have to pay for the recertification, but the cost should be nominal. By the way, the bank will give you a copy of the updated appraisal if you ask for it.
Always protect your asset base. Provide a contingency fund for emergencies or unexpected opportunities. Estimate how much you will need; establish a purchase plan and a budget that provide enough money to both buy and operate — plus a contingency reserve for both the short term (15 years) and long term (625 years). The long term should be no less than the amortization period of your indebtedness on the property.
Before you meet with the banker, review the bank’s Profit and Loss Statement for last year and this year to date. Examine size and assets, learn who the operating officers are, and the directors. Ask one of the front office loan managers by phone whether the bank is making loans on the general type of realty you’re interested in buying. Ask their loan rates, and what their lending practices are. Then you will know in advance about the bank’s terms, policies, and procedures. When you visit the banker, dress the way he or she dresses even if you have to go out and buy, rent, or borrow the “costume.”
Your goal is to make a reasonable loan request and get a loan commitment on the least expensive terms available from the competing banks in the area. You may need to negotiate simultaneously with more than one potential lender.
Supporting Documents for Your Loan Requests
First, secure an appraisal for the property which is at least equal to — preferably greater than — your purchase price. The ratio of your loan request to appraisal value should be better than what the bank normally allows, adding to their margin of safety. This margin could make a substantial difference with the Board or Loan Committee that gives final approval to your request.
A copy of your net worth statement should also be included, and those of other cosigners and the community corporation. Get net worth statement forms from the various lenders in your area to see what they’re using. The forms are short and simple for individuals, more lengthy and complex for corporations. Keep your responses simple. Remember that whatever you tell your lender will be “public knowledge.” The bank may give your credit reports to credit agencies for confirmation, and your reports may be passed around among various agencies. Find out which credit agency the bank or the lenders in the area generally use. Purchase a copy of your credit records from each one of those credit agencies before making any loan applications. Be aware that each time a credit agency provides someone with a report on you, that inquiry is listed in your credit file. In that way, they all know from whom you have been seeking credit.
Provide the lender with credit reports on all cosigners and the community corporation, even though the lenders have to procure these reports on their own. That way, you know what credit information agencies are saying about you before your prospective lender knows. Credit agencies often dredge up incorrect data; so advance review of your credit report enables you to correct any discrepancies or outdated records before the credit report goes to your lender(s).
Real Estate Agents
Unless you have entered into a “Broker With Commission/Buyer Contract” with a real estate agent, remember that agents are paid by the sellers. The Broker/Buyer Contract specifies your payment of the agent for help in finding and purchasing realty. Without such a contract, an agent has an obligation to act in the seller’s best interests — which do not necessarily parallel your interests as a buyer.
Do you need one? Yup!
Get one who specializes in real estate. Ask your attorney to review everything you’re supposed to sign, before you sign it. Your attorney can do little for you once you’ve signed.
If you feel that you must enter into a contract before the attorney has seen it, then insert this clause: “This contract is subject to our attorney’s review and written approval within forty-eight (48) hours after acceptance or this contract shall become null and void, at the buyers option.”
These are some of the lessons I’ve learned from over 35 years of buying, selling, and financing realty for myself. Use this information to help your community secure the home you envision.
About the Author
Robert H. Watzke has been self-employed since 1958 in the real estate, insurance, and securities industry as an appraiser, broker, and dealer/developer/investor. He has been licensed in Wiscon-sin. He has served as an officer in professional associations and worked as a real estate consultant and fee appraiser for attorneys, lenders, and government agencies. Bob is a former board member of the Foundation for Intentional Community and the FIC’s Community Business Loan Fund.