In appraising a single-family home, you find a comparable property very similar

Question

In appraising a single-family home, you find a comparable property very similar to the subject property. One important difference, however, concerns the financings. The comparable property sold one month ago for $120,000 and was financed with an 80 percent, 30-year mortgage at 5.0 percent interest. Current market financing terms are 80 percent, 30-year mortgage at 7 percent interest. The monthly payments on the market financing would be $638.69, while the monthly payments on the special 5.0 percent financing are $515.35. Assume the borrower's opportunity cost rate is 7 percent. The approximate present value of the present savings on the non-market financing is______, and this amount should be __added to/subtracted from?__ the transaction price of the comparable.

Explanation / Answer

The present value of the payment savings is $18,538.94.

N= 360

This $18,538.94 should be subtracted from the sale price of the comparable
property.
d. $18,539, subtracted.

I/YR = 7/12

PV = 0

PMT = 123.34

FV = 0

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