Loans To Complete Construction: Dan J. Harkey

Summary

Why “As Is” and “As Completed” Appraisals Are the Backbone of Smart Underwriting

Why “As‑Is” and “As‑Completed” Appraisals Are the Backbone of Smart Underwriting

Private money construction-to-completion loans occupy a vital lane in today’s real estate capital stack—especially when a property is midstream, distressed, partially improved, or simply too “messy” for traditional bank credit boxes. For real estate brokers, these loans can be the difference between a dead listing and a closed transaction, between a stalled build and a profitable exit.

But there’s a truth that separates smooth closings from chronic delays: completion lending is driven by valuation discipline. Specifically, it hinges on two appraisals that shape nearly every underwriting decision—the “as‑is” appraisal and the “as‑completed” appraisal.

When you understand how these two valuation benchmarks work—and how to package a file so the appraiser and lender can rely on it—you become more than a deal finder. You become the professional who can guide a Borrower through the process with confidence, speed, and credibility.

The Two Appraisals That “Frame the Deal”

1) The “As‑Is” Appraisal: What Is It Worth Today?

An as-is appraisal measures the property’s current market value in its present condition, with no assumptions about future repairs, upgrades, or completion. For a completion lender, the as-is value answers a blunt question:

If this project stops today, what is the collateral worth?

That baseline matters because completion projects are, by definition, unfinished. The as-is appraisal helps the lender quantify downside risk, set an initial exposure limit, and evaluate whether there’s enough equity to withstand delays, cost overruns, or market shifts.

2) The “As‑Completed” Appraisal: What Will It Be Worth When Finished?

A completed appraisal estimates market value after completion, based on a clearly defined scope of work—plans, specifications, budget, and the intended finished condition. For brokers, this is the value borrowers talk about most—the “what it will sell for” number. For lenders, it supports the key underwriting question:

Does the completed collateral value justify the loan size and completion risk?

The ‘as-completed’ appraisal relies on a well-defined scope supported by market comparables. Avoid vague scope descriptions or unsupported assumptions, as these can lead to conservative or delayed valuations and Impact loan terms.

Why brokers should care: Appraisals influence not only approval but also key loan terms, including maximum loan amount, LTV ratios, and disbursement schedules. Clearly explaining how the appraisal shapes their loan structure helps borrowers feel informed and supported, encouraging cooperation throughout the process.

In construction completion lending, appraisals don’t simply “check a box.”

They drive:

Maximum loan amount and how proceeds are allocated
Loan-to-value / loan-to-cost parameters (and equity requirements)
Draw the schedule design and the amount of funds held back
Interest reserve sizing and contingency expectations
Exit strategy feasibility (resale vs. refinance)
Risk controls (fund control, inspections, lien releases)

In other words, the appraisal is the underwriting map. Your role as a broker is to ensure the map is accurate.

The Broker’s Competitive Advantage: A File That Reads Like a Book

Completion loans move faster when the lender and appraiser can verify progress, costs, and remaining scope without guesswork. The single best way to accelerate a decision is to provide organized documentation that answers the lender’s questions before they ask them.

A. What’s Been Completed—and Paid For

Provide a schedule listing:

Line item description (trade + scope)
Amount paid
Date paid
Vendor/contractor name
Photos of completed work
Invoices
Lien releases (conditional/unconditional as appropriate)

Why this matters: It proves progress is real, quantifies what’s already “in the ground,” and reduces the risk of hidden liens.

B. What’s Been Completed—but Not Paid For

Provide:

Unpaid completed work with amounts owed
Supporting invoices
Proposed payoff plan at or immediately after closing
Whether payoffs will come from loan proceeds, and how disbursement will occur

Why this matters: Unpaid work is the most common source of mechanics lien surprises—and surprises kill timelines.

C. What Remains to Be Done (Scope + Budget + Timeline)

Include:

Plans and specs (current set)
Permits and entitlement status
Contractor agreement (or detailed bid package)
Construction timeline with milestones
Budget with line items

Why this matters: The completed appraisal depends on a reliable definition of “completed.”

Don’t Let Borrowers Understate the True Cost of Completion

Many borrowers focus solely on hard costs. Underwriters don’t. A credible completion budget usually includes:

Hard costs (labor + materials)
Contractor overhead and profit
Soft costs (plans, engineering, permits, reports)
Financing costs (interest carry/interest reserve)
Insurance (builder’s risk / course-of-construction)
Contingency (often necessary, especially in rehab)

Broker tip: If the Borrower’s “$300 per square foot” estimate doesn’t include overhead, profit, permits, carrying costs, insurance, and contingency, it’s not a budget—it’s a hope.

The Appraiser’s Role: The Third-Party Anchor

Brokers should position the appraiser not as an obstacle, but as the neutral party who protects fairness. A good appraiser will reconcile:

Current condition and market demand (as‑is)
Credibility of the scope, quality level, and market comps (as‑completed)
The likelihood that the finished product will match the assumptions used in valuation

When your file is well-packaged—clear scope, detailed documented costs, photos, permits, and supporting reports—you proactively address potential appraiser questions, reducing delays and ensuring a more accurate, faster valuation. Avoid omissions, such as incomplete scope or missing photos, to help the lender gain confidence quickly and provide a more precise term sheet.

Real-Life Example: When the Numbers “Pencil” … Until They Don’t

A client purchases an “old dog” property in a strong single-family neighborhood. Functionally, it’s a scrape-and-rebuild, but it’s framed as a rehab to streamline municipal processing.

Purchase price: $1,000,000
Down payment: $600,000
Existing loan request: $400,000 (first lien)

The Borrower believes they can build ~3,000 sq. ft. at $300/sq. Ft. Ft (about $900,000) and resell for $2,700,000. They request $1,500,000 total to pay off the $400,000 lien, fund construction, cover expenses, and carry interest via a reserve.

How the Lender Sees It

From a broker’s perspective, it’s a compelling story: strong neighborhood, new construction appeal, significant upside. From a completion lender’s perspective, the underwriting lens is more clinical:

· Skin in the game
Yes, the Borrower has meaningful equity at acquisition—but lenders re-check equity against total project capitalization and the realism of the all-in budget.

· Insurance and liability controls
The lender will want builder’s risk (course-of-construction), liability coverage, and clarity on workers’ comp exposures (especially if subcontractor coverage is inconsistent).

· Fund control and draw strategy
A lender must decide whether to fund in controlled draws and whether inspections and lien releases can be reliably obtained.

· Valuation discipline
The as-is appraisal defines downside today. The completed appraisal defines upside at completion. The spread between the two—combined with the budget—defines risk.

What kills deals like this? Not always the idea. Often, it’s underbudgeting, an unclear scope, missing lien releases, or an optimistic as-completed value that comps don’t support.

Funding During Construction: Why Fund Control Is a Best Practice

Many private lenders prefer a licensed construction fund control company to manage:

Draw requests and approvals
Job cost accounting
Progress inspections
Invoices and disbursements
Lien release collection and tracking

This protects the Borrower, the lender, and the broker’s reputation by reducing the chance that:

Funds are diverted from the project
Vendors go unpaid and lien the property
Progress is overstated
The budget quietly “drifts” midstream

Broker tip: To secure repeat business from private lenders, embrace fund control. It keeps everyone honest—and it keeps projects alive.

A Legal/Structural Point Brokers Should Know: Real Property vs. Personal Property Collateral

Here’s a nuance that matters in completion loans:

The Deed of Trust / Mortgage Covers Real Property

Recorded loan documents attach to the real property (land and improvements) and, in some cases, to fixtures. This is the primary collateral lien.

But Undisbursed Construction Proceeds Aren’t “Real Property”

Construction holdbacks and proceeds held in a controlled account are generally treated as personal property—cash and contract rights, not land.

That’s Why You May See UCC Filings

Lenders sometimes file a UCC-1 financing statement to perfect a security interest in specific categories of personal property collateral related to the project—commonly including funds held, materials not yet incorporated, or other project-related personal property interests (as defined by the loan documents). When the debt is satisfied, a UCC‑3 termination is filed.

Broker takeaway: This isn’t “extra paperwork for the sake of paperwork.” It’s how lenders protect collateral interests that live outside the recorded real-property lien.

Broker’s Checklist: How to Get Faster Terms (and Fewer Re-trades)

When you submit a completion loan request, aim to deliver a package that is appraiser-ready and underwriter-ready.

The “Fast Track” Submission

Executive summary: purchase basis, current stage, scope remaining, exit strategy
Borrower financial snapshot: liquidity, experience, credit narrative (brief)
Plans/specs + permit status (and timeline if permits are pending)
Detailed budget (hard + soft + contingency + carry costs)
Completed work schedule with photos + invoices + lien releases
Unpaid completed items with a payoff plan
Contractor agreement/bids and licensing/insurance details
Proposed draw schedule and inspection process
Insurance plan: builder’s risk + liability (and workers’ comp approach)
Appraisal expectations: clear definition of “as‑completed” condition

Common Broker Mistakes

Budget excludes overhead, profit, interest carry, and contingency
Missing lien releases on completed work
“As-completed” scope is vague or inconsistent with permits
Unrealistic resale value assumptions without comps support
No plan for fund control, inspections, and draw documentation

The Bottom Line

Construction completion lending is not just “money for a project.” It’s structured risk management—where the lender must understand what exists now and what will exist in the future. That’s why as-is and as-completed appraisals are foundational.

For brokers, the professional opportunity is clear: when you package the file with disciplined documentation and a credible scope-and-budget narrative, you shorten the lender’s decision time, improve the quality of the appraisal process, and protect your client from avoidable friction.

In a market where speed and certainty win, the broker who understands valuation and draw controls becomes indispensable.