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Real Estate Appraisal Formulas

This document provides an overview of common real estate appraisal formulas used to determine property value. It defines key terms like gross income multiplier, capitalization rate, mortgage constant, and debt coverage ratio. Formulas are presented for calculating market value based on income, the time value of money, equity dividend rates, depreciation, interest, discounts, and deriving the capitalization rate. The goal is to concisely summarize the essential information and relationships between terms in the real estate appraisal process using concise multi-sentence summaries.

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EKANG
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74 views4 pages

Real Estate Appraisal Formulas

This document provides an overview of common real estate appraisal formulas used to determine property value. It defines key terms like gross income multiplier, capitalization rate, mortgage constant, and debt coverage ratio. Formulas are presented for calculating market value based on income, the time value of money, equity dividend rates, depreciation, interest, discounts, and deriving the capitalization rate. The goal is to concisely summarize the essential information and relationships between terms in the real estate appraisal process using concise multi-sentence summaries.

Uploaded by

EKANG
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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
GIM
V
under
EGI
Re
NIM
NOI

- Potential Gross Income


- Gross Income Multiplier
- Market Value ( the use of Fair Market Value is not encouraged
the IVS/PVS)
- Effective Gross Income
- Rental Rate
- Net Income Multiplier
- Net Operating Income

1.1GIM =

V
EGI

Where: EGI = PGI Vacancy, or Losses

1.2 NIM =

V
NOI

Where : NOI = EGI Opex

1.3 GIM =

2. CAPITALIZATION FORMULAS
CR
I
V

- Capitalization Rate
- Income ( or Net Operating Income, NOI)
- Market Value

2.1V =

I
CR

3. TIME VALUE OF MONEY FORMULA


FV
PV
n
I
PMT

Future Value
Present Value
Duration; period (may be in years, months, days)
Interest rate; discount rate
Payment; Annuities xxx

3.1 FV =PV (1+i)n

(1+i)
[ n1]
PMT
i
3.2 FV =

3.3 Where : Sinking fund factor =

(1+i)
[ n1]
i

PMT [ 1( 1+i )n ]
3.4 PV =
i

4. CAPITALIZATION RATE DERIVATION


SP
- Selling Price
Opex - Operating Expense

4.1

CR=

NOI
V ( SP )

EGI Opex
V ( SP)

4.2
CR = Over-all Rate = Recapture rate +
Return of
Capital (or
Interest rate)
5. Mortgage Constant
MC
ADS
M

- Mortgage Constant
= Annual Debt Service ( or annuity in some situations)
= Mortgage; Mortgage Equity

5.1

1(1+i )
[n]
ADS i
MC=
=

6. Equity Dividend Rate


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

- Equity; Equity Investment

6.1 EDR=

ED
E

Where : ED = NOI ADS


7. Debt Coverage Ratio
DCR

- Debt Coverage Ratio

7.1 DCR=

NOI
ADS

8. Band of Investment
CR
M
MP
EP

Capitalization Rate
Mortgage Constant
Mortgage Position = LTV Ratio = Loan / Value
Equity Position = 1 LTV Ratio

8.1 CR=( MC x MP ) +(EDR x EP)

9. Depreciation (Straight Line Method)


For machineries:

9.1 Composite Life = Total Depreciated Value /


Annual
Depreciation
9.2 Recapture = 1 / n
10.
I
P
r
t
F

Simple Interest
-

Interest Rate
Principal
Rate of Interest
Time
Final Amount

10.1
10.2

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

Bankers Rate :

10.3 Io =
10.3 Ie =

Pr (number of days)
360
Pr (number of days)
365

= Ordinary Interest
= 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)
Less: Vacancy and
Losses
Effective Gross Income
Less: Operating
Expenses
Net Operating Expense

PGI
(V/L)
EGI
(Ope
x)
NOI

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