Property Valuation
A Florida commercial property appraiser uses the 'band of investment' technique to determine the overall capitalization rate. This technique:
AAverages the cap rates of similar sales
BDerives the overall rate by weighting the mortgage constant and equity dividend rate by their respective contributions to the total property value✓ Correct
CUses the government bond rate as the base cap rate
DMultiplies the equity yield rate by the debt coverage ratio
Explanation
The band of investment technique derives the overall cap rate by combining: (1) the mortgage component (mortgage constant × LTV ratio), and (2) the equity component (equity dividend rate × equity ratio). For example: 70% LTV at 8% mortgage constant contributes 5.6%, and 30% equity at 10% equity yield contributes 3%, resulting in an 8.6% overall rate. This reflects both debt and equity requirements.
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