Crazy things lenders ask...

[Jerry Ingmire]

I just got a request to estimate fair market rent on a property that I did not appraise. I have not seen the property but did receive a copy of the URAR. What hypothectical conditions need to be noted and should I even do this. The property is a upper mid class home in a good neighborhood. Estimated value is $230,000, and the client states that market rent should be $895.00 which I believe to be extremely low.

 

[Farm Gal]

property is a upper mid class home in a good neighborhood. Estimated value is $230,000, and the client states that market rent should be $895.00 which I believe to be extremely low.

Sounds like a consulting assignment to me! Read your USPAP, and decide for yourself! I's put in a comprehensive description of my scope of work, and make darn sure that you do not develop any value conclusions in the process or as a result of estimating the rent!

Umm not knowing your market have to ask a few quick questions: Arether sufficient rentals to develop a market rent?

Do you trust the data provided as to the property value, even a little?

Is there any other source for data on the subject condition (which matters only a lot in what they should get in rental income,
and finally: WHY do they wanta FM Rent guesstimate?

 

[airphoto]

Jerry,

Also .. are they offering enough fee?

 

[Larry Lyke]

Jerry --

You say this request is about an appraisal:

Aren't you curious as to why they're asking you and not the appraiser?

Is there more to the story?

 

[Jerry Ingmire]

I told the lender that I would do a market rent survey for him for ___
(the cost of an appraisal and the survey) and then he decided that he really didn't want me to do it after all.
OH WELL, I guess that I am still to crazy to do things for free.

 

[Larry Lyke]

Jerry --

To use the modern post-modernist phrase 'striving for closure,' my question is did you ever figure out why you were being asked to perform a rent survey on somebody else's private home appraised by somebody else and perhaps at no charge?

That is the question.

 

[Jerry Ingmire]

The lender stated that the current tenants were in the home on a lease option type of deal. Supposedly the $1295 that they currently were paying for rent was partial rent and partial down payment ($400 per month for the last 3 years or $14400 has been accumulated in the kitty for the down payment). The terms of the agreement stated that financing would be obtained in 36 months after the begining of the option. The home was in a poor state of repair and therefore the low rent, as the tenants would do all the needed repairs, which they did. Now, supposedly there is not enough equity in the home for a purchase and they needed the fair market rent to determine something or other for the underwriter. This is as much as I know.

 

[airphoto]

Jerry, et al ..

Some thoughts, based on the posts above:

1. Looks like the lease/purchase agreement has created a $14,400 encumbrance on the property, ala "second mortgage."

2. Sounds like U/W trying to deal with total valuation, including "second mortgage" and finding that it doesn't all add up.

Thoughts?

 

[Larry Lyke]

Jerry --

Your explanation sounds plausible. The LO is trying to figure out how to get a loan out of this prospect. Leave no stone damp side up!

The problem appears to be the overall value of the subject. The present occupant has been paying rent and cash- and sweat-equity build-up for 36 months. Now it's time to perform or ...

The poor condition of the home once improved by the occupant would improve the occupant's sweat equity; at least that equity would accrue to either the occupant or the fee owner.

Depending on the area, the rent may have been considered low at $895 per month with the occupant paying all utilities and the owner paying taxes.

If there's not enough equity in the home today, that should have been anticpated through an appraisal at the inception to outline the parameters within which the parties were working (the prospective buyer, of course).

I know, I know. These types of transaction are usually done by the parties themselves without benefit of professional help of any kind. Even a question to an LO.

If the occupant's cash- and sweat-equity isn't enough for a down payment position and he cannot secure a loan to buy the property, it's most probable that all the equity will become phantom and disappear into the seller's pocket when the option agreement runs out.

Unless it's spelled out in the agreement, the occupants cash and work may both be subject to disappear when the agreement has run its course.

 

[Pamela Crowley (Florida)]

L,

That's what the seller/investor is counting on. There are lots of investor classes, books, programs, etc. out there teaching 'investors' how to do just what is described.