People like to know what to expect.
This is true in all relationships — both in and out of the business world. Of particular importance to commercial lenders is applying this truth to the appraisal process. Borrowers who know what to expect are better prepared for what lies ahead. Not only that, being upfront with them about the process is an excellent way to build rapport with your clients.
Because of this, it is essential for bankers to prepare borrowers for the process of a real estate appraisal early on in the loan process. This involves telling the borrower what will happen during an appraisal, how much it will cost, and how long the process will take.
Even if your borrower has experience in commercial real estate transactions, many have no idea what to expect from the process today. Although the regulations are the same, every bank has at least slight differences in the way they order and review appraisals. Because of this, it is important to take the time needed to inform them of what the process will look like with your bank.
When borrowers have time to prepare for the appraisal process, it improves the entire loan process for both you and the borrower. While it may not be possible to predict how the entire appraisal experience will go, it is helpful if you can give your borrower some foundational information. At a bare minimum, brief your borrower on the following details:
What to Expect
In addition to helping borrowers prepare for an appraisal, telling them what to expect is also an effective way to build trust and transparency into the lending relationship. For example, if the borrower is new to commercial loans, offer the borrower information on where, exactly, the appraiser will look, whether or not it will be an invasive process, and what tools the appraiser is likely to use.
After you tell your client what to expect from the physical appraisal, let them know what will be required of them during the rest of the appraisal process, such as information or documents related to the property the appraiser will need them to provide.
How Long It Will Take
One of the most critical pieces of information for all borrowers is how long the appraisal will take. While many lenders are tempted to under-exaggerate predicted timeframes, this can result in a breach of trust between the lender and borrower if the timeframe is not met.
Instead, be honest and as realistic as possible. This helps the borrower put his or her financial or logistical houses in order without being forced to readjust because of inaccurate estimates.
How Much It Will Cost
To help your borrowers plan for the appraisal, tell them beforehand an expected range of how much the appraisal will cost. Let them know you will provide an exact amount once you receive bids from appraisers. Giving them at least a range up front, then an exact cost once you receive it ensures there will be no sticker shock.
In addition to assisting a borrower in preparing adequately, accurate financial estimates also position you as a trustworthy lender to whom borrowers will want to return.
What You Don’t Know
Borrowers need (and deserve) to know what to expect. Sometimes that means telling them what you don’t know. For example, if a project is particularly complex, you may not be able to give an exact time or cost estimate. What you can do is tell the borrower that. Let them know, however, that you will keep them informed along the way and that part of the success of the process is dependant on their cooperation as well.
By being transparent and helping borrowers to prepare for a real estate appraisal, you will build closer, longer-lasting relationships. And that is good for business – yours and your clients’.