Mistakes are inevitable. We’re all human, and at some point, we’ve all experienced a misstep. The goal is to ensure these errors don’t have significant repercussions for your business. Below are three common ways firms inadvertently waste time or money through manual processes and calculations.
#1: The Frustration of Excel Errors
Excel has long been the backbone of the real estate industry. We rely on it heavily, building our models in Excel before transitioning them to software. However, the dreaded #REF! errors can be maddening.
While tools like Smartsheet and Zoho offer additional features and collaboration capabilities—and some even operate in the cloud—they share a fundamental limitation: they require manual updates. For instance, calculating a defeasance penalty with live interest rates and existing cash flows is virtually impossible without extensive manual intervention, increasing the likelihood of errors.
Speaking of defeasance penalties…
#2: Risks of Litigation from Defeasance and Yield Maintenance Errors
Many firms rely on online calculators or brokers to run prepayment calculations. While these tools are functional, the accuracy of their outputs depends entirely on the accuracy of their inputs. Two recent incidents illustrate the risks:
- Case 1: A firm ran a defeasance penalty calculation remotely using an online tool. Due to limited access to loan documentation, certain assumptions were made about the defeasance provisions. After the PSA was executed and due diligence began, the payoff request revealed an underestimation of $1.1 million.
- Case 2: A broker was asked to calculate the yield maintenance for a loan originated four years earlier. When using an online calculator, they mistakenly input an amortization period of 120 months instead of the correct 360 months. This error resulted in an underestimation of over $600,000.
While online calculators are convenient, their reliance on manual inputs and periodic updates creates ample opportunities for costly mistakes.
#3: Missed Lender Deadlines
Managing deadlines for extensions, repair schedules, and reporting requirements often lacks centralization in many firms. While ad hoc systems may work most of the time, they’re not immune to occasional oversights.
For example, failing to provide 30 days’ notice for a loan extension might not lead to outright refusal from the lender, but it could result in additional fees or penalties.
Leveraging Technology for Better Outcomes
Technology, such as debt management software, can significantly reduce time spent on manual calculations and minimize errors. While the time savings of automated tools like defeasance calculators are obvious, the less-considered benefits include avoiding costly miscalculations. Let technology work for you by streamlining processes and enhancing accuracy.
