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Real Estate Appraisal Formulas

The document discusses various real estate appraisal formulas used to determine the value of real property. It covers topics such as gross income multipliers, capitalization formulas, time value of money, capitalization rate derivation, mortgage constants, equity dividend rates, debt coverage ratios, band of investment, depreciation, interest, discount, and income ladders. The key formulas presented are used to calculate a property's potential gross income, effective gross income, net operating income, market value, capitalization rate, mortgage constant, equity dividend rate, and debt coverage ratio.

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MichelleOgatis
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5K views4 pages

Real Estate Appraisal Formulas

The document discusses various real estate appraisal formulas used to determine the value of real property. It covers topics such as gross income multipliers, capitalization formulas, time value of money, capitalization rate derivation, mortgage constants, equity dividend rates, debt coverage ratios, band of investment, depreciation, interest, discount, and income ladders. The key formulas presented are used to calculate a property's potential gross income, effective gross income, net operating income, market value, capitalization rate, mortgage constant, equity dividend rate, and debt coverage ratio.

Uploaded by

MichelleOgatis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CHAPTER 1

REAL ESTATE APPRAISAL FORMULAS


1. GROSS INCOME MULTIPLIERS

The multipliers are often used in determining the value of a real property

PGI - Potential Gross Income
GIM - Gross Income Multiplier
V - Market Value ( the use of Fair Market Value is not encouraged under the IVS/PVS)
EGI - Effective Gross Income
Re - Rental Rate
NIM - Net Income Multiplier
NOI - Net Operating Income



Where: EGI = PGI Vacancy, or Losses


Where : NOI = EGI Opex


2. CAPITALIZATION FORMULAS
CR - Capitalization Rate
I - Income ( or Net Operating Income, NOI)
V - Market Value



3. TIME VALUE OF MONEY FORMULA

FV - Future Value
PV - Present Value
n - Duration; period (may be in years, months, days)
I - Interest rate; discount rate
PMT - Payment; Annuities xxx



3.3 Where : Sinking fund factor =


4. CAPITALIZATION RATE DERIVATION
SP - Selling Price
Opex - Operating Expense

4.1


=



4.2 CR = Over-all Rate = Recapture rate + Return of
Capital (or Interest rate)
5. Mortgage Constant
MC - Mortgage Constant
ADS = Annual Debt Service ( or annuity in some situations)
M = Mortgage; Mortgage Equity

5.1



6. Equity Dividend Rate

ED - Equity Dividend
EDR - Equity Dividend Rate; Cash on Cash; Equity Yield Rate; Equity Capitalization Rate
E - Equity; Equity Investment



Where : ED = NOI ADS

7. Debt Coverage Ratio

DCR - Debt Coverage Ratio



8. Band of Investment

CR - Capitalization Rate
M - Mortgage Constant
MP - Mortgage Position = LTV Ratio = Loan / Value
EP - Equity Position = 1 LTV Ratio



9. Depreciation (Straight Line Method)

For machineries:

9.1 Composite Life = Total Depreciated Value / Annual
Depreciation

9.2 Recapture = 1 / n

10. Simple Interest

I - Interest Rate
P - Principal
r - Rate of Interest
t - Time
F - Final Amount

10.1 I = Prt
10.2 F = P + I = P (1+rt)

Bankers Rate :

10.3 Io =

= Ordinary Interest

10.3 Ie =

= Exact Interest

11. Simple Discount

11.1 D = Fdt
Where: D - Simple Discount
d - discount rate

11.2 D = F Pt = D / Fd

Present Value or Proceeds:

11.3 P = F D = F (1 dt)



12. INCOME LADDER


Potential Gross Income
( or Gross Scheduled Income)
PGI
Less: Vacancy and Losses (V/L)
Effective Gross Income EGI
Less: Operating Expenses (Opex)
Net Operating Expense NOI

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