Tag Archives: appraise

Purchase Sale Agreements (PSA) Done Right

When you purchase a land and its business, you must create a purchase sale agreement (PSA).

What does this PSA need to contain to satisfy lenders, appraisers and attorneys?

Purchase Sale Agreements must have:

  • The correct name of the buyer and the seller. This may seem obvious, but often individuals make offers on purchases. However, their business will ultimately be buying the property and taking out the loan. So the buyer should be the business and not the individual. But don’t worry. This occurs so often that the parties typically amend the PSA later (see below).
  • The purchase price. The appraiser and the lenders (and the SBA if this is an SBA guaranteed loan) need to know how much you have agreed to pay for the property and/or business. This number will affect the amount of the loan. In addition, if an appraisal shows the value of the property to be less than the PSA, everybody will have to go back to the drawing board to renegotiate.
  • The date the purchase sale agreement expires. As a buyer, give yourself enough time to secure financing and to close the deal. Simple undeveloped real estate can close more quickly than buildings and businesses that require more complex appraisals and due diligence.

When you need to make changes…

A PSA is the first start of the purchase and getting financing. They are rarely perfect. It’s fairly straightforward to make changes to satisfy all of the parties. Here’s a few that occur often.

Typical Amendments:

• Assigning the Loan: If the original PSA shows the buyer (a person, not a business), then you will need to amend the PSA. This amendment is called an “assignment” and assigns the loan and the buying of the property from the individual to the business or the borrowing entity.

• Price Breakdown: Many times, lenders and attorneys want the purchase price to be broken down. How much is the land worth? What is the value of furniture, fixtures and equipment? What about inventory? Lenders often have preferences about price breakdowns or allocations, so this is another area that is often amended later in the underwriting process.

• Extending the PSA: Certain components during underwriting can delay the loan and the closing. These include lack of a survey, difficulties obtaining documents from buyers and sellers and even discoveries of issues during the environmental site assessment. When these bumps in the road occur, the buyer and seller need to agree to extend the PSA just a bit.

If you would like to discuss financing your future business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary. We have a network of lenders for acquisitions, refinances and construction projects.

How to Prepare for an Appraisal

Whether you are buying, selling, refinancing or building, your lender will typically require an appraisal. What do you need to do to prepare for the appraisal? What is changing in the world of appraisals?

We’ve got your answers!

When a lender agrees to begin the underwriting process on a new loan, they will order the appraisal. The lender chooses the appraising company, often in a blind bid process. This means that they let several companies submit their fees and their turnaround time. The lenders then choose which company they want, based upon their budget and timeline.

We have noticed that there are certain areas of the country that do not have enough appraisers. Therefore, appraisal timelines have increased. Make sure you can account for the time it takes an appraisal as you are making your business plans.

The Purpose of an Appraisal:

  • Determine value of the property: Essentially lenders have to determine the value of your property and its potential as a business or home base for a business. Lenders will not loan money greater than the value of the property.
  • Appraisals also consider the business plan going forward, evaluating the financials, management and even market conditions.
  • Consider all types of values:
    • The appraiser will determine the value of a property and business as-is (with no renovations or changes in business practices).
    • An appraisal also delineates an enhanced value (with completed renovations and even changes in operations, including marketing).
    • Finally, the appraiser will calculate how much a property and business would be worth if it had to be sold very quickly due to the borrower’s inability to make loan payments.

Prepping for the Appraisal:

• Instructions for Sellers: If you are the seller, you want your property to appraise well, because you want the buyer to to be fully funded. So make sure your property is clean and well-maintained. Be prepared to show off your property to your appraiser. They will want to see samples of all areas, including public areas and “back of the house” sections. Be helpful about turning in documents so the appraiser can write their report. These documents will include current financials, information about the building, and surveys, among other requests.

• What about Borrowers? Borrowers need to be prepared to meet with the appraiser to tell them their vision. Do you have new ideas do you have for enhancing revenue and controlling expenses? What renovation are you seeking funding for? What strengths do you personally have in ownership and/or management of similar businesses and properties?

• A Note on Property Condition Reports: Borrowers can arrange for a PCR (Property Condition Report) even during the bidding stage, before there is a Purchase Sale Agreement. A PCR does not examine the finances but gives honest and independent feedback to the borrowers on the property’s true condition and what maintenance and renovation needs to be done immediately, in the short term and the long term.

If you would like to discuss financing your future business plans, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary. We have a network of lenders for acquisitions, refinances and construction projects.