Why Land Appraisal Is Necessary To A Lender

Land appraisal is needed whenever a lender is asked to loan money based on land. Loans based on land a typically capped at 60 to 80 percent of the appraised value of the land. This will depend to a large extent on the income and credit history of the potential borrower. The lender will have more security with a land loan than with most types of loan, and that will make them more amenable to lend to people who would not otherwise be considered for credit.

Having said that, lenders do not ever want the job of taking back land and having to sell it to cover bad loans. They would much sooner make money from the business of lending it to people who are able to, and will, pay back the loan as scheduled. Because of this, there are limits as to how far the lenders will go even though the collateral on offer is as secure as you can get.

Once this percentage of the land value has been decided by the lender, the lender then has the task of getting an accurate appraisal of value. Appraisals are carried out by certified appraisers who have a license awarded to them by the state they operate in. These appraisers will also be trained to appraise real estate, as a lot of land will have buildings on it. These buildings can vary anywhere between luxury houses, and derelict old buildings which will need to be demolished, and which will add absolutely nothing to the value of the land itself.

Land appraisal is not an exact science, which is why it is always worth getting a second opinion if you feel the valuation is far removed from your own estimate. You can do this simply by going to another lender, or you can have the land valued independently by a professional with no vested interest in serving a particular lender.

Getting an independent valuation is recommended if the land is of any sizeable value, and especially if it is land which you are not familiar with. A good example of this would be land you have acquired as part of an inheritance. You may not be familiar with the area, and may not even have time to research local values before you need to put the land up for sale. In this case, you would be most unwise to rely on the valuation of an appraiser who may not only have a vested interest with the lender, but who may even be aware that your own knowledge is limited.

There are cases where land appraisal becomes far more complex, in that more than one appraisal is required. This can happen where a down payment is required on a plot of land, and it is not available in cash form. In this case, a potential buyer may need to have an appraisal carried out on another piece of land in order to secure a loan with the second piece of land used as collateral.

This loan is then put down as the down payment on the first piece of land. This scenario could involve different lenders, and therefore different appraisers giving valuations. It can lead to many complications, with deals needing to be tied up simultaneously, and it is important to get an accurate land appraisal.

Appraisers, Real Estate

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