#4 Low Appraisal

Number four on the list is the property does not appraise at the purchase price or better

Number Four is a Biggy. If the property or the business does not appraise for the purchase price or better that should tell you one thing and only one thing – You overpaid for the investment. Unlike residential property buying a commercial investment or a business opportunity the bottom line is that you want to make money. If you are overpaying for the opportunity you are automatically losing money because you paid too much.

Also unlike residential all buying decisions for a commercial property or a business opportunity needs to be totally unemotional. If emotions are involved then you will not make the right economic decision. Having an appraisal be returned that is not what you expected immediately should cause you to re-evaluate the purchase. But if you are emotional then you will not re-evaluate and you will most likely move forward on the investment.

BUT, then you try to finance the investment and the appraisal comes in lower – what do you do? You have to either re-negotiate your sales agreement, get seller concessions, or walk away.

With SBA Loans, all businesses greater than $250,000 are now required to have a business appraisal, or business evaluation. The larger the purchase price the more in-depth the business appraisal. The lenders must know that you are paying a fair price for an investment before they will lend you the money. If an appraisal comes in lower the lender will ask you to put in more money or re-negotiate the deal, they will not fund the difference. Or in some circumstances they will just flat refuse to offer any financing.

Lastly to reiterate one of the words of wisdom of a previous post – Do not order the appraisal yourself!

To get much more information on the entire appraisal process, and how the lenders evaluate the various reports that are furnished by the appraiser pick up our book GET Your Loan Closed!, now with free commercial loan training.