CRE Automated Underwriting vs Manual Underwriting-An Analysis

All commercial real estate deals have two sides, a borrower and a lender. Both sides analyze a potential commercial real estate deal by taking risk into account. For an investor, that risk is based more on the tenants and management of the property. Lenders determine risk based on the property, the property's performance, and the creditworthiness of the borrower.


These determinants are often called the three C's of underwriting: the capability to pay back the loan, collateral, and credit.


When a borrower applies for a commercial real estate loan, the loan goes through the lender's underwriting process. This process determines the risk an institution may be taking on by lending to the applicant.


There are two ways to perform the underwriting process, manual underwriting, and automated underwriting. Let's consider each process.


What is manual underwriting?


Manual underwriting has been around since the term was first coined back in the seventeenth century by an insurance broker, Lloyds of London. This process is the backbone of investing, insurance, and lending.


As the name suggests, manual underwriting takes a person or many people to look at the necessary documentation and copy information from one form to another for analysis. This process is costly in time, human resources, and due to human error, can have inaccuracies.


How long does it take for an application to go through manual underwriting?


Manual underwriting can take a couple of weeks to a few months to complete depending on the accuracy and timeliness of the information provided for the process. Some lending institutions have in-house teams who can process a loan a little faster than sending it to a larger underwriting department used by many banks. Underwriting can be held up simply due to a backlog in the number of loans waiting to be approved.


However, once the information is together, a lender can then make their risk assessment and approve or deny the loan based on the potential property performance and borrower creditworthiness.


What is automated underwriting and how is it different?


Automated underwriting goes through the same process as its manual counterpart but with a couple of significant differences.


First, there is little human involvement. With the data extraction system, the scanning program can take multi-format documents and extract the necessary information for each section of the analysis. The system also works with current financial modeling software used by commercial real estate brokers and investors for property analysis and rent forecasting. The document produced has all the necessary data in one place and is easy to read and understand.


Second, the process takes minutes instead of hours. Once the information has been extracted and uploaded, the computer runs its calculations, taking only a few minutes, and the results are available for review by the underwriter.


Third, automated underwriting eliminates human errors. The data is extracted straight from the source documents. There are no errors due to the input being in the wrong place, transposing numbers, or writing the wrong number completely.


Upon completion of the automated underwriting process, the underwriter can make a definitive decision quickly and with confidence.


How will commercial real estate underwriting change with automated underwriting?


Automated underwriting is new to the world of CRE financial technology. Companies like have been utilizing automated underwriting since 2017 and have underwritten $12 Billion in commercial real estate loans.


As the new disruptor in the Financial Technology (Fintech), automated underwriting can bring commercial real estate financing into the future with speed and accuracy, we haven't seen before. Due to the lower number of people necessary to underwrite a loan, a lender will be able to save money and time. All while confidently being able to close more deals with less risk.


Visit the Clik Servicing Hub to see how automated underwriting and improve your loan approval process and deal flow.