March 21, 2022

Third-party reports: What they are and why they're important to the financing process

Third-party reports: What they are and why they're important to the financing process

When it comes to financing your multifamily investment, conducting proper due diligence is critical for all parties involved – and third-party reports are an unavoidable part of the equation. These reports are essential to the financing process, as they provide an objective opinion related to the value and condition of a property that isn’t influenced by the end goal for either the lender or the client. This protects both parties from making a poor investment decision.

So now you are probably wondering which third-party reports you actually need to finance your property or how to get them. We’ll break it down for you:

The four most common third-party reports you should know

1) MAI appraisal

This detailed report assesses the market value of a property using several different valuation methods to arrive at a concluded value. This provides the lender and client with the support they need to make a successful investment. 

2) Property condition assessment (PCA)

Also commonly referred to as a "property needs assessment (PNA", this report involves the close examination of the property to determine its condition. The report will lay out any immediate needs that are to be completed within a set period of time after the loan closes. This report also provides an ongoing schedule of repairs and replacements that are needed to keep the property in good condition during the term of the loan. This provides the lender and client comfort that the property will be in acceptable condition at the end of the loan term, making it viable for sale or refinance.

3) Environmental site assessment (ESA)

This report does a deep dive into the environmental history of the property to identify any concerns that either need further exploration or remediation to mitigate risk from potential or existing environmental contamination liabilities. 

4) Streamlined zoning report

This report outlines whether the property conforms to or is in compliance with the local zoning code.

Sounds great, so now what? 

Securing third-party reports for your small balance loan

Once you submit your loan application, your lender will start the process of obtaining the third-party reports on your behalf. Once your loan is closed, the lender will provide you with copies for your records. 

Interested in learning more about a specific report or the overall financing process? Talk to one of our multifamily experts or request a quote.

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