For Lenders to consider . . .

what happens if your collateral value diminishes unexpectedly?

• You may ask the borrower for additional collateral, which he may not have . . .

• You call in the loan, which he likely cannot pay . . .

• Borrower may walk away, so you foreclose . . .

Either way you loose and/ or have problems and more servicing costs.

How can the collateral value diminish?

very simple: Building Defects of all kinds like:

• electrical wiring causing fires

• faulty connections and missing detectors causing propane fires

• faulty plumbing causing flooding and other damages

• missing drainage causing floods and early deterioration

• use of substandard materials

• shortcuts in construction causing structural damage

• faulty design

Most of the underlying problems will not be detected by an appraiser!

Easy Protection:

Require A Professional Building Inspection!

and have 3 benefits:

1. Risk Reduction

2. You know IN DETAIL about the property

3. No Expense to you (most borrowers will gladly pay for that option)

and by the way, the borrower/owner has the same benefits
+ Peace of Mind

The Difference between Appraisal and Inspection

An appraisal does not take the place of a home inspection, just like an inspection does not take the place of an appraisal. Each one is designed for very specific purposes and one cannot replace the other..

Home Appraisal

A home appraisal reveals the value of a home. Appraisals are usually ordered by lenders to make sure that a home is actually worth the amount of money it is being purchased for. Lenders want to make sure that they are not lending more than the home is actually worth because this will result in a negative equity situation, which is not something that residential mortgage lenders generally do.
Buyers, here again . . . it is money well spent to have a Professional Appraiser assess the value of your projected purchase. He knows the area!

Example: the appraisal costs you say P 20,000. The Seller wants 6M for the property, but the appraisal comes in with only 5M. Based on the appraisal you re-negotiate and get the home for say 5.2 because you like it so much. You still saved P 800k minus the 20k for the appraisal. Not a bad deal!

An appraisal does not reveal problems with the home that need to be addressed or repaired.

Home Inspection

A home inspection is designed to reveal any potential problems with a home.  Smart Buyers request inspections in order to make sure that the home they intend to buy is without any major problems. If there are serious problems, the consequences can be personally and financially disastrous.

Example: A Home Inspection costs you say P 7,000. The inspector finds that the tile around the house has not been installed properly -common deficiency- and the electrical wiring shows significant flaws -common deficiency- . One is a cosmetic, the other a hazardous deficiency or defect. Say they cause a repair bill of P 90k plus a lot of INCONVENIENCE (fixing the tile problem)
and you can get the seller to fix these problems. You saved P 90k (bills that without inspection you would have gotten stuck with) minus the 7k for the inspection.
Main advantage: not the money savings but PEACE OF MIND that the property now is in good shape and SAFE!
 

In the US, Mortgage guarantors, such as The Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), require inspections on all homes purchased using a guarantee because these organizations have strict guidelines as to what is acceptable in a home for purchase. Homes that do not pass these inspections will not receive funding by the guarantor unless the problems are repaired. Most Banks require inspections as well.

Home inspections do not estimate the value of a home.