Why Bank Why?

[Bobjob]

My parents and I share ownership of our office warehouse. My parents want some liquidity and want me to purchase their share, and I want to purchase it. We have no idea the value of the property. You could say $180,000 or $480,000 we have no idea. I contact an appraiser and he says, "I can do it but it will not be official for a bank, they have to issue their own appraisal." I'm no dummy, I'll ask the bank to get their official appraisal and I'll have an idea the value of the property - two birds one stone. Only the bank says they cannot request for an appraisal unless I apply for a loan. You heard right. The bank wants me to put the cart before the horse. I have to ask for an amount of money - when I don't have any idea how much money I have to ask for. :mad: Or waste $1000 getting an appraisal that's only good for me. Plus there's nothing like getting a mortgage when you are self employed. They want a stack of information as thick as a bible. The business is cash heavy. I'm considering getting the non official appraisal and just giving myself a bonus to cover the cost of purchasing the property.

[Freelancier]

The bank isn't there to set the value of the asset, only to confirm it based on whatever their appraiser decides is the value of the asset. So you have to establish the baseline asset valuation and then get second-guessed by the bank, but it's always better to get two opinions anyway on that. So... get a business appraiser or a broker to come in and help you determine the value of their portion of the asset. Then use that to put together a package for the bank to evaluate when determining whether to give you a loan.

[Fulcrum]

What's even better is that you will get to pay for the pleasure of having both appraisals done.

You could go to the land records people (can't think of the proper name) and see what similar properties in your area have sold for in the last 2ish years.

Hopefully your values are better than what people around my area want (and they're getting it). Prime farmland for $35K/acre. A former abattoir on 3 acres for $600K that's only worth about $150K unless there is a government guarantee that the building will pass structural and workflow audits for at least 5 years and comes with a license to slaughter.

[Business Attorney]

All you really need is a ballpark range so that you can decide whether to move forward with a bank loan. One possible solution is to ask if the appraiser will give you an informal verbal estimate of a range of values without giving you a full blown written appraisal. That should take him less time.

Another idea would be to talk to local real estate brokers. Since they only make a commission on a sale, they may not want to waste their time but in my area most brokers engage in networking even where the is no obvious potential to make a commission in the near future. It's all about building relationships. An experienced commercial real estate broker could probably give you a rule of thumb range based on his personal knowledge without even having to review sales figures for comparable properties. It will be less exact than an appraisal but should give you enough information to move to the next step.

[tallen]

Consider that the bank appraiser's job is simply to confirm (or not) that there is sufficient value in the property for it to serve as collateral for the amount of the loan you are seeking...

Ultimately, independent of any appraisal or other estimate, it is you and your parents who must agree on what a reasonable value is to buy them out, from both your perspective and theirs.

[Bobjob]

Everyone, thank you for your ideas on how to find a value of the property. I'm waiting till after today to ask my accountant how good or bad an idea it would be to take money out of the company to avoid a mortgage. I have feeling they will tell it's a bad idea and that I should get a mortgage.

[Fulcrum]

I'm waiting till after today to ask my accountant how good or bad an idea it would be to take money out of the company to avoid a mortgage. I have feeling they will tell it's a bad idea and that I should get a mortgage.

That depends. If you have the cash to buy the property outright than I would go this route. Debt for the sake of debt is never a good thing. Sure you can show a great ROE (return on equity) but why pay interest when its not required.

On the other hand, if you need that cash to maintain a healthy reserve, than you start looking at mortgages and loans.