Appraisals for private money loan differ from regular assessments. Many investors have become accustomed to relying only on an appraiser to assess the loan value. Most bank transactions are like this because the loan officer or banker does not have the time or knowledge to analyze all collateral types.

Hard money and private loans are not the same. If you are investing in a private money loan, the best way to protect yourself is to determine the value. You don’t have to be a professional appraiser to determine value. However, you must know what tools to use and the proper method for determining value.

Different forms of collateral necessitate different evaluation methods; however, here are a few pointers to help hard money / private money investors perform due diligence on the collateral’s worth.

Valuation Pointers

Obtain several points of value rather than relying on a single valuation estimate. Below are some examples of the different types of estimates:


A professional appraiser’s valuation report provides information on properties that have been sold, are pending purchase, and comparable active properties. It also includes images of the property and similar properties and property data analysis supporting the valuation opinion. An appraisal may range from 5-to 70 pages in length based on the type of property and form type required.

Broker Price Opinion (BPO)

A Broker Price Opinion is the value estimate of a real estate broker. This type of value opinion is generally a significantly smaller report than an appraisal. Broker price opinion reports are usually only a couple of pages long. Be wary of BPOs because the valuation report is as good as the real estate broker you choose. Be diligent in the professionals you work with and ensure they are sources you can trust. Make sure that you directly choose the broker to inspect the property and that they photograph the property. Too often, brokers become very busy, and they may send an assistant or associate to view the potential property, which contradicts the point of having an opinion.




Appraisal Review

After you get an appraisal, you may get an additional appraiser review for the original appraisal. 

Drive-By Appraisals

A drive-by appraisal, also referred to as driving the comps, is usually performed once you’ve established a few different points of value. First, drive by some of the comparable properties that have been sold, are pending, or are currently on the market to help you evaluate the property’s value. You may also consider stopping to talk to other agents, property managers, homeowners, renters, neighbors, or adjoining property owners. Conversations with those familiar with the property or kind of property can sometimes yield the most relevant information.


drive by evaluation


Negative Factors Influencing Private Money Loan Valuations

Be wary of unfavorable characteristics that might have a significant impact on value. The unfavorable characteristics will vary depending on the type of collateral. Appraisers frequently deduct their best dollar value opinion to compensate for the negative. The negative characteristic may render your property unmarketable or substantially reduce the anticipated value.

To give you a sense of the impact of negative factors, consider the following:

Property Location

Most people will tell you that real estate is all about the location, and it’s true. For example, consider the price difference between a property in a beautiful urban neighborhood near retail and an identical home next to a mechanic shop. Although the properties may be in the same neighborhood or on the same street, the home next to the mechanic shop will likely draw significantly fewer purchasers. Less extreme location examples, such as a property on the corner of a high-traffic street, or a home backing up to an active sports field, may have a comparable impact.

Access to Property

If a commercial building is in or around a residential area, check with the local government agency that grants business licenses to see if they are giving a license to a company that requires regular big deliveries by semi-trucks. If so, this may narrow your prospective field of lessees.

Due to a lack of city or county road upkeep, properties on private streets may have access concerns. In areas with heavy snowfall, maintenance agreements should be in place with the property owners on the street or third-party agreements to handle street maintenance. 

Parking Availability

In the case of commercial loans, the availability of parking can have a significant effect on property value. If the property does not have adequate parking available, it’s likely that it will attract fewer customers.


parking availability



Be wary of partially finished construction projects that may need new or revised permits. In some instances, inspectors have required dismantling the entire structure because building materials had aged or building codes had changed.

Environmental Considerations

Be aware of properties that have not undergone the environmental studies required to determine the properties’ past use. For example, if the property is residential, it should be evaluated for the presence of meth, mold, or radon contamination.


Keep an eye out for land that is “locked” or lacks property easements. Ascertain that the land has access to sewage, utility hookups, and water or that you can establish a septic system if municipal hookups are unavailable. 

Floor Plan/Functionality

Regardless of the property type, the plan should be practical for the intended or optimal usage. For example, “chopped up” floor space in a commercial building (lots of small offices) requiring remodeling could be an issue. But on the other hand, the location would undoubtedly attract a retail business tenant if it weren’t for the incompatible floor plan.


Look for trends in the type of property you’re financing. For example, are values stable, rising, or falling? If this is the case, why?


Because most rental property values are calculated as a multiple of net operating income, it’s vital to ensure that the revenue projections are accurate. Talk to other renters to find out how much they pay and their lease conditions.

Send an estoppel certificate to the current tenant(s) to ensure rent is being paid.


property expenses


Factor of Vacancy

Examine similar properties to see if the vacancy rate utilized in the financial analysis is correct. What is the vacancy rate of comparable properties in the neighborhood? What is the vacancy trend?


Check that the property’s expenses are fair and expect a moderate future increase in those costs.

Capital Investments

Ascertain that enough capital expenditure reserves are in place for financial assumptions. These expenditures will differ depending on the kind of property. For example, residential rental properties might include carpet, appliances, and roofing, whereas office buildings may include HVAC and upgrades.

Future Zoning Modifications and Developments

Talk with your local zoning and planning office to learn about approved or proposed changes in the future. Potential zoning changes or future development projects in the area might impact value positively or negatively. Still, they are unlikely to be considered in a conventional evaluation because they are not part of the appraiser’s scope of work. For example, a large commerce / residential area up for review by the local zoning and planning committee may significantly impact the property’s value in the coming years.

It’s also advisable to contact the Department of Transportation to inquire whether there are any significant road upgrades on the books. For example, suppose you want to invest in a property for the long term, and one of its primary features is quick access to the interstate. It would be vital to know the plans for any road work changes and if there are plans for the relocation of interstate on/off ramps.


zoning development projects


Wrapping it Up

If you are a private lender, it is essential to research the property’s value before investing. The market value can change quickly, so it’s important to know the facts and have a thorough valuation of the property. It’s best to calculate multiple points of value so that you have data from various sources. Calculating multiple points will help you evaluate whether the property is worth what you believe it to be. You may never get the high-impact information you need to make an educated decision through standard valuation report methods. There is no replacement for independent research that discloses current or future events that may significantly impact your investment. We hope you found this article on Appraisals for Private Money Loans helpful, and if you are in need of the best lending software for your private money business, contact Liquid Logics.