Lender Third-Party Reports: Appraisal, Phase I and Property Condition
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On an apartment loan, the lender usually orders three outside reports: an appraisal of the building's value, a Phase I environmental site assessment and a property condition assessment (PCA). The borrower, meaning your deal company, normally pays for them and the lender controls the vendors. Each report can change the loan amount, the repairs required or the closing date, so order your timeline and budget with them in mind.
Rules and practices are as of October 2026, and requirements vary by lender and loan program.
What is an appraisal?
An independent appraiser estimates the building's value, often using income, comparable sales and cost approaches. The lender uses it to decide how much to lend. If it comes in below the purchase price, the lender may lend less, and you may need to renegotiate with the seller or add equity. This is why a sources and uses table should include room for surprises.
What is a Phase I environmental assessment?
A Phase I reviews records, site conditions and nearby uses to identify possible contamination or environmental risk. It does not test soil or water. If it finds concerns, the next step may be a Phase II with sampling. Ask the lender what they require and how findings are handled.
What is a property condition assessment?
The PCA reviews roofs, structure, mechanical systems, parking and other items, and estimates immediate repairs and future replacement needs. Lenders often require repairs to be completed or funded in an escrow account, and may set a replacement reserve. See sources and uses and due diligence inspections.
Who pays and when?
Usually the borrower pays for the reports, often before the loan is approved, and the cost may be due even if the deal falls through. Confirm in writing what is refundable. Include these costs in your syndication costs and in your offering budget.
How do these reports affect timing?
They can take weeks, and the lender cannot close without them. Share the reports' status in your investor updates and keep your purchase contract's dates in sync. The timeline from LOI to first wire shows where they fall, and the closing day funds flow shows how the costs are paid.
What if a report is bad news?
Share it honestly with your team and investors, update your numbers and decide: renegotiate the price, request seller repairs, add reserves or walk away. If you hold earnest money, check your contract's due diligence deadline; see earnest money. Do not hide results in your investor materials; see Rule 10b-5.
If the appraisal comes in below the price, the loan shrinks and the equity gap grows. See what to do when an apartment appraisal comes in low.
How DoorRaise fits in
DoorRaise does not order lender reports. It forms the LLC, prepares offering documents and runs escrow at Enterprise Bank & Trust with wire-only funding under Reg D. It is for apartment buildings with 5 or more units. Fees are $1,500 to set up (due when you submit the deal, non-refundable), then $5,000 a year from closing (only if the deal closes). See DoorRaise escrow.
FAQ
Can I use my own appraisal?
Lenders use their own appraiser. You can get your own opinion, but it will not replace theirs.
What if the appraisal is low?
You can renegotiate the price, bring more equity or end the deal if your contract allows.
Does the seller pay for these reports?
Normally not. Ask your lender and read your contract.
How long does a Phase I take?
It varies. Ask the lender and vendor for a date as soon as the loan is in process.
Sources
This article is general information, not legal advice. Talk to a securities attorney about your deal and about what you must disclose. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.