Is this a scam?

Question

Hello my fellow BP members

I have been reaching out for a Hard Money Loan, i talked to several so called "lenders" and after speaking to so many its almost like i can predict the enitre conversation from the beginning to when i say "you must be crazy have a good day"...

Im not experienced in HMLs at all so im asking because maybe its me, but the conversations always starts great, they throw out a bunch of awesome sounding senerios, they do a keep evaluation of the property, they say they love the deal. They we talk rates, which also sound good to me. Then after 20 mins of that they all end with. "OK EVERYTHING LOOKS GOOD ONE NOW ALL YOU NEED TO DO IS PAY THE $500 TO ORDER THE APPRAISAL"..

It wont be refunded if the appraisal comes back less than 65%...HUH?

This has got to be a scam or is this normally how hard money works?

Feel free to scold me BP i need it...LOL

Rick H. · Answer

Jason Farmer - I've been a hard money lender since 1989. Your inflationary term, ''Is this a scam?" is over the top.

The appraisal is a real expense of getting a hard money loan. If you are balking at paying for the appraisal, to me as a lender, it says you are either too new and inexperienced or not sufficiently committed.

If you are trying to get a hard money loan, nowadays it must be for a business purpose, hence you intend to make a profit as the result of the venture after receiving the HML. You will have other expenses, too, of course.

Here's a shocker for you: even though you pay for the loan, it's for the exclusive use of the lender/broker designated on the appraisal!

Again, as a lender, my position is that I don't want to waste my valuable time and resources if you are quibbling over an appraisal fee. If you don't want to pay it, you are either not sufficiently committed or, if you really can't afford the appraisal I figure you can't afford loan payments and, if you are a property owner, you ought to be a seller, not a borrower.

I know the Norris Group and they will serve you fairly. The owner is a friend of mine as well as their appraiser!

No, I will not entertain making you a hard money loan as I work with probate attorneys and their clients, not investor loans. I will, however, be driving thru Corona this am on the way to San Diego to charge up the battery on my Bentley.

Aaron Mazzrillo · Answer

$375 appraisal fee for the HML I used to use. Who is supposed to pay for it, them? It's your deal and you want them to fund it. Are they suppose to take your word that the value is there?

Jason Farmer · Answer

Thanks everyone...appreciate the comments...

Ive done a few deals through conventional financing and a JV deal...The $500 dollars for inspetion isnt the issue, it was the "no refund if it dosent get appraised"... im 100% sure the value is there. Just figured they could tell em anything, just to take my money. .Just wanted to see if that was normal procedure.

and Rick H.

Aaron Mazzrillo · Answer

call Craig over at The Norris Group in Riverside. Very reputable. But you're still going to pay an appraisal fee.

Bill Gulley · Answer

What can be a scam is when the "appraiser" is an employee or has an interest in the lending arrangement. Over charging and netting out some administrative fee to the lender is also a scam if it is not disclosed and then a violation of law. Call around and see what appraisals for lending purposes cost, then discuss with your lender, if they want a higher price and can't account for the difference, then they are running a scam, find another lender.

PS. Lender's Services is a "broker" of sorts for appraisals, a national company that provides appraisals, they charge more and assign a local appraiser, this is a different arrangement and is legal as they are an appraisal provider and are on the hook as the appraiser/al. But, I doubt a small HML would be using such a company.

As others have stated, borrower pays for the appraisal generally after they have been basically qualified and paid at the time of application. :)

Andy Luick · Answer

It's pretty standard as is the no refund part - there are a bunch of HMLs  here on BP and most will expect that you've done enough research into your deal to know whether you are there in terms of value.  The problem with some HMLs is that they will roll the appraisal value backwards to make for a better worst case scenario.  Most are not in business to make money on appraisal fees and you can vet them here if you need to.  HML is an expensive route to go....how did your JV deal go...have you pitched the deal to them?  I prefer JV and mix it up with my own money in some deals and none at all in others.

I have several HMLs trying to figure out how to do business with me on my deals because the returns are so attractive but they can't get their arms around my model.  We turn single fams int multi units with high net rents....but the underlying market value is often about what we have in them!  If you have a good deal in Cali someone here on BP would love to partner with  you on it.  Happy Investing!

Dorian John · Answer

I agree w/ Aaron, Craig at the Norris Group is legit, and has two different type of programs, "flip", and "buy & hold" money

Stewart Beal · Answer

I have experience trying to borrow money from hard money lenders and have been defrauded 4 times.  The companies say they will do the loan, require that you pay up front fees, and then don't do the loan.  I did finally get a $750,000 hard money loan from the Land Group in California.  Try to stay away from hard money loans as much as possible.

Walt Payne · Answer

@Jason  Farmer I have not done hml, but if you do a bank loan you pay for the appraisal under the same conditions. You can't expect someone else to pay to prove the value of your property if you want them to lend to you.

Of course you want to check them out, but if you don't pay for an appraisal you won't get the loan.

Is this a scam?

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