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What Is Underwriting in Real Estate?

Are you wasting time with your commercial property sale? Knowing the property value is key in commercial real estate (CRE) sales. Accurate valuations give competitive pricing and attract qualified buyers.

Successful CRE transactions often lie in the underwriting process. Traditionally, a real estate underwriter evaluates financial details, including cash flows, debt to income ratio, and scrutinizes bank statements and employment history. This examination confirms the financial stability of the potential deal. However, this can take months and when you’re eager to sell, waiting on this process means missed opportunities.

With advancements in technology, methods like iBuyer have started influencing the CRE landscape by streamlining some traditional steps. However, real estate underwriting still has a place in the transaction process if you have enough time. Point Acquisitions is ready to show you what underwriting is and how it works.

Quick Read

  • Underwriting is a thorough evaluation of the financial and risk factors associated with a property.
  • The results of these evaluations offer accurate appraisal values that are useful to the buyer when negotiating.
  • The time taken to evaluate and formulate accurate findings can lead to missed opportunities for the buyer and seller.
  • Technologically driven alternatives like the iBuyer approach are fast becoming popular with those looking to close deals quickly and efficiently.
  • Underwriting is a well-respected real estate market tool but can it survive in an industry which is speeding up by the year?
what is underwriting in real estate

What Is Traditional Underwriting in Commercial Real Estate?

Traditional underwriting in commercial real estate is a process used to determine the risk and value of a property before a sale or loan approval. This approach scrutinizes all financial aspects of the property and its market before proceeding with a transaction.

Key Components of Traditional Underwriting

  1. Property Valuation: Property value is made by considering its current condition, location, and potential for income. For example, an office building in a central business district might be valued higher due to its lucrative rental prospects.
  2. Market Analysis: Underwriters analyze market trends, including job growth, market rents, and development projects in the area. This helps predict the property’s future performance and stability.
  3. Risk Assessment: This step includes evaluating risk factors related to the borrower and the property. Underwriters assess the borrower’s creditworthiness, credit history, and debt to income ratio. For the property, they consider factors like location vulnerabilities or economic downturns that could affect its value.

The Detailed Process

The traditional underwriting process typically includes:

  • Inspection: A physical inspection to assess the condition and necessary tenant improvements.
  • Financial Review: Analysis of the borrower’s financial information, including cash flow projections, credit reports, and bank statements.
  • Market Comparison: Comparing the property against similar properties in the market for an accurate appraisal.

Through these steps, underwriting real estate gives lenders and sellers a clear picture of the financial and market-related information in commercial real estate deals.

Who Conducts the Underwriting Process in Commercial Real Estate?

Real estate underwriters conduct the underwriting process in commercial real estate. These professionals have specific qualifications and skills allowing them to evaluate the financial and risk factors associated with real estate transactions.

Qualifications and Standing of Real Estate Underwriters

  1. Educational Background: Typically, real estate underwriters hold a degree in finance, real estate, or a related field. 
  2. Certifications: Many underwriters pursue additional certifications to build their crediblity. For example, the Certified Commercial Investment Member (CCIM) designation is recognized as a high level of competency.
  3. Experience: Practical experience is as important in underwriting as any other field. Experienced underwriters have a deep understanding of evaluating commercial real estate, including complexities such as lease analysis, cash flow analysis, and risk evaluation.

Finding Real Estate Underwriters

Real estate underwriters often work for:

  • Banks and mortgage lenders: These typically have in-house underwriters who specialize in evaluating real estate loans and the mortgage lending process.
  • Commercial real estate firms: Larger real estate firms may employ their underwriters to assess all aspects of their real estate investments and acquisitions.
  • Independent underwriting firms: These firms provide underwriting services to various clients in the real estate sector and are often consulted for their unbiased financial and risk assessment capabilities.

When selecting an underwriter, consider: 

  • their professional background
  • the complexity of your commercial real estate deals
  • their familiarity with local market conditions and regulations

What Are the Benefits of Hiring a Competent Underwriter in Commercial Real Estate

Hiring a skilled real estate underwriter to evaluate the financial and risk components of a commercial property transaction offers several benefits:

Improved Risk Management

A competent underwriter excels in risk assessment and identifies potential financial pitfalls. This level of scrutiny makes investors and lenders aware of any issues that could affect the property’s value or the borrower’s ability to repay loans.

Accurate Property Valuation

Analyzing market trends, property taxes, and operating expenses helps to determine a fair and realistic value of the property. All parties involved will have a much better idea of the real value.

Improved Investment Decisions

Investors gain deeper insights into the cash flows and profitability of a property with a financial review. This analysis includes evaluating the debt service coverage ratio and loan to value ratio.

Streamlined Lending Process

A commercial real estate underwriter assists in a smoother lending process. By thoroughly checking the borrower’s financial stability and credit history, underwriters speed up the real estate loan approval process.

Protection Against Financial Losses

By conducting due diligence, underwriters help protect all parties from unexpected financial losses. This includes assessing the borrower’s credit reports and employment history.

What Are the Limitations of Traditional Underwriting in CRE?

While traditional underwriting is key to commercial real estate transactions, it also comes with certain limitations that stakeholders need to consider.

Time Consumption

The process involves a detailed examination of financial details, market conditions, and property appraisals. These assessments are thorough and can significantly extend the timeline from the initial loan application to the final loan approval. For parties requiring quick turnarounds, like in a 1031 exchange, this delay is a big drawback.


The complexity of traditional underwriting is a challenge. The process requires gathering large amounts of data, including credit reports, bank statements, cash flow projections, and more.

Each element must be meticulously analyzed to assess the borrower’s financial standing and the property’s viability. This complexity makes the process lengthier and increases the potential for delays if discrepancies or unexpected issues arise during the evaluation.

These limitations highlight the need for efficiency and possibly integrating more modern technological tools to streamline certain aspects of the traditional underwriting process.

While the thoroughness of traditional methods provides deep insights and risk management, the evolving market demands faster, yet equally effective, evaluation techniques to keep pace with the needs of modern real estate transactions. So what are they?

What Is the iBuyer Approach?

iBuyers in commercial real estate (CRE) are companies that use technology to offer instant purchasing options to property sellers. This model relies on automated valuation models (AVMs) and algorithms to quickly assess property value and make immediate cash offers. 

Unlike traditional real estate underwriting, which involves human analysis and is time-consuming, iBuyers streamline the valuation process by using data and machine learning.

Advantages of the iBuyer Process

  1. Speed and Efficiency in Making Offers:
    • iBuyers generate offers within days of a request. This is much faster compared to the weeks or months it often takes in traditional underwriting. For example, a commercial property listed with an iBuyer can receive a purchase offer almost immediately after submitting details and automated valuation.
  2. Simplified Selling Process with Fewer Transactional Delays:
    • The iBuyer process cuts down the steps involved in selling a property. By eliminating much of the back-and-forth negotiation and waiting periods for loan approval and risk assessment, transactions proceed much smoother and quicker.
  3. Ideal for Sellers Aiming for Quick Turnovers:
    • Sellers who are part of a 1031 exchange, benefit immensely from the iBuyer model. The speed of the iBuyer process helps meet tight deadlines required for such exchanges, making it a practical option for these investors.

How Are iBuyers Changing the Game?

The iBuyer model is beginning to edge out the real estate underwriting process in certain parts of the CRE market because it matches the current needs for speed and efficiency. 

Traditional methods, while thorough, cannot match the rapid processing time that technology-driven iBuyers offer. This makes iBuyers appealing in a fast-paced market where opportunities come and go quickly. Sellers are increasingly attracted to options that streamline and expedite the sale process.

By working with iBuyers, sellers benefit from quicker transactions and a more predictable selling process with set prices and less dependency on fluctuating market conditions. 

This predictability is a huge advantage, reducing the uncertainty and stress often associated with traditional real estate transactions.

How much does underwriting cost?

The cost of underwriting in real estate varies but generally falls into a few categories:

  • Loan Origination Fees: Typically, underwriting fees are included in the loan origination fees, ranging from 0.5% to 1% of the loan amount.
  • Flat Fees: Independent underwriters may charge a flat fee, ranging from a few hundred to several thousand dollars, based on the complexity of the deal.
  • Percentage of Loan Amount: Occasionally, especially in complex commercial deals, underwriting might cost a percentage of the total loan amount.
  • Additional Costs: Other fees, such as for credit reports and the property appraisal, may apply depending on the specifics of the underwriting needed.

iBuyer Cost Considerations

In contrast, the iBuyer process simplifies cost considerations. The valuation and offer generation processes are part of the iBuyer’s initial service, meaning there are no separate underwriting fees for sellers.

The offer from an iBuyer typically includes all associated costs, providing the seller with a clear, immediate understanding of the financial aspects without additional underwriting expenses. 

This approach is an attractive option for those seeking a quick and straightforward sale.

Ready for a Swift and Fair Sale of Your Commercial Property?

At Point Acquisitions, we understand that time is of the essence, whether you’re gearing up for your next investment or planning that long-awaited luxury holiday. Why wait months for a traditional sale when you can receive a no-obligation offer within 72 hours?

Contact Point Acquisitions, your trusted iBuyer acquisition company, and take the fast track to selling your commercial property. Get your offer, secure your profit, and start planning your future endeavors without delay.

Get Your Offer Now – because your time and your plans can’t wait.


Underwriting remains a fundamental and reliable method for appraising property value. It offers a thorough assessment that guarantees the financial aspects of a transaction are sound and sustainable. This process is invaluable, particularly for buyers seeking to secure financing and lenders needing to mitigate risks.

However, the time investment required for traditional underwriting poses challenges for sellers. The slow pace of the process may lead to missed opportunities in a fast-moving real estate market. Sellers waiting for potential buyers to secure financing doesn’t seem fair. This delay can prevent sellers from quickly capitalizing on other investment opportunities or from realizing personal aspirations, such as funding a dream vacation or making a major lifestyle change.

For those looking for a quicker and more agile approach, the iBuyer model presents a compelling alternative. This dynamic option caters to savvy investors and sellers eager to engage with the current opportunities in the commercial real estate (CRE) market.

While commercial real estate underwriting still has its place, particularly for more complex or higher-risk investments, the iBuyer process offers a faster, streamlined alternative that suits the needs of modern investors and sellers in the CRE market. This approach enables stakeholders to adapt more quickly to market changes, ensuring they are always ready to take advantage of the next opportunity that comes their way.

How does a property’s net operating income influence the underwriting process?

The property’s net operating income (NOI) is important in underwriting as it helps determine the property’s ability to generate profit. Underwriters use the NOI to assess whether the cash flow from the property can adequately cover the mortgage payments and other associated costs, influencing the decision on loan approval.

What happens if an iBuyer’s assessment differs from a traditional underwriting evaluation?

Differences occur due to the distinct methods used in assessing property values. If an iBuyer’s offer based on automated assessments is lower than traditional underwriting, sellers have the option to seek a second opinion. The ibuyer process usually includes a no obligation offer.

What is underwriting in real estate?

Buyers, lenders and financial institutions evaluate the financial risks involved in a real estate transaction. The process includes assessing the borrower’s financial stability, the property value, and other risk factors to determine whether to approve a loan and under what terms.

About The Author

Jesse Shemesh

With a wealth of experience in nurturing diverse commercial real estate investment portfolios across multiple markets, I actively engage in the development and execution of deals spanning all asset classes. My expertise lies in collaborating with strategic partners, including corporate real estate professionals, fund managers, developers, and investors, to source, identify, and entitle opportunities. At Point Acquisitions, we take pride in our unique, proprietary platform that specializes in property acquisitions, generating a steady stream of organic deal flow that sets us apart from the competition. As a seasoned professional in the real estate industry, I am dedicated to creating lasting partnerships and delivering exceptional results for all stakeholders.


Please note that Point Acquisitions is not a tax expert or tax advisor. The information on our blogs and pages is for general informational purposes only and should not be relied upon as legal, tax, or accounting advice. Any information provided does not constitute professional advice or create an attorney-client or any other professional relationship. We recommend that you consult with your tax advisor or seek professional advice before making any decisions based on the information provided on our blogs and pages. Point Acquisitions is not responsible for any actions taken based on the information provided on our blogs and pages.

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