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What other expenses are involved in the closing? Well, as we have discussed earlier, you do
pay the appraiser and the inspector to come out and value the property. We will set that
up, but Rehab Financial Group has no financial interest in that. You pay those professionals
directly, so those expenses would have to be accrued and again those amounts will vary
depending the location of the property, whether it's a 1-family, whether it's a 4-family,
and the complexity of the work that needs to be done there. Also at closing, there are
other 3rd parties that are paid, such as the title company for closing the loan, for title
insurance, notary fees, transfer taxes, prorated property taxes - those are all things that
are not part of our RFG's fee structure and are really determined by the title company
and paid for by the borrower at the time of closing, in addition to RFG's fees. What's
the reason you order an appraisal and an inspection? Well the appraisal is really the foundation
on which we value the property to determine the loan and how much we can loan. While we
want to make every borrower as nice a loan package as possible and we want to be able
to fund 100% of the purchase and the rehab costs, we do have to be mindful of the fact
that property values do vary greatly and on occasion, the borrower may not have as a good
a sense of the real after repaired value of the property as we think there needs to be.
We just a confirmation of what that value is and that's why we hire a licensed professional
to evaluate the after repair value of the property. So they calculate the after repair,
so that's how you base the rehab loan? Yes, they look at the borrower's repair list to
see what the borrower intends to do with the property and then values the property from
there. We also then do ask them to give us an as-is value so we make sue that the price
being paid for the property in its as-is condition is appropriate and an income approach, so
we can really get a sense of the property's value if it were a rental property. And what
about the inspection report? What the inspection report does for us, it is, it has the borrower
provides their detailed inspection list, or their detailed repair list, I'm sorry, to
the inspector, and he will verify that that list is thorough and complete. We've had people
who've had forgotten to do front stairs or not included a kitchen their estimate, or
a bathroom in their estimate. And it's just a double-check to make sure that everything
that needs to be done in the property to bring it to code, make it rentable, make it salable,
make it financeable, is going to be done to the property and so that it will reach it's
fullest value potential. He also verifies that the cost being associated with each of
those repairs is appropriate for the repair, for what the repair will cost. We have a lot
of people that say, "well I'm a contractor and I'm going to do the work myself, so I'm
not going to inched a labor component. Is that okay?" And we explain to them that is
not okay because in the unlikely event that the loan defaults, and I, and RFG has to foreclose
on the property, it's unlikely that as the defaulting borrower you're going to finish
the work without charging labor. So we have to have a reserve there to be able to fund
finishing the property ourselves if that's what happens.