MORTGAGE-EQUITY TECHNIQUE


Mortgage-Equity Technique is a valuation method used to estimate the value of income-producing property.

The technique is based on the sum of the mortgage principal added to the discounted present value of the forecasted cash flow and the reversion to equity.

The Mortgage-Equity Technique is founded on the premise that the overall rate should reflect the importance of separate yields attributable to the equity position and to the debt position. The technique is not as commonly used as capitalization or discounted cash flow in everyday real estate practice.

The Mortgage-Equity Technique allows appraisers to either synthesize an overall rate or analyze components of property value (e.g., financial, physical, legal) through residual techniques. The method also provides a mechanism for dealing with property risk quantification.

In summary, Mortgage-Equity Technique is a valuation method used to estimate the value of income-producing property. The technique is based on the sum of the mortgage principal added to the discounted present value of the forecasted cash flow and the reversion to equity. The Mortgage-Equity Technique allows appraisers to either synthesize an overall rate or analyze components of property value through residual techniques.


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