Band of Investment vs Mortgage Equity Technique

[jimpruitt]

Hi all,

Our office is in the process of migrating from one commercial software package to another. Among the differences we noticed is that the old software package used the Mortgage Equity Technique as part of its templates, while the new package uses Band of Investment.

I understand the differences between the two, but before I rewrite templates and spreadsheets in the new software I thought I'd ask what everyone else uses and why. I've done a search here and couldn't find the info I needed. And before anyone says it, I know, if I had good extracted OARs to begin with I wouldn't need either method.

Jim

 

[Greenra]

Not sure I understand the difference as the Band of Investment uses mortgage and equity cap rates to calculate an overall rate. It has been my experience that its use is somewhat misleading to the untrained eye as it suggest relevance in support of the extracted rate from comparable sales. However, it is rarely supported appropriately especially the equity portion that is typically manipulated. Besides if you have data for this method you have data to extract a rate directly--- and this method provide no value--- except to non-appraisers. Good info is contained in the The Appraisal of Real Estate, Appraisal Institute--- new edition just released and should be included as part of every appraisers library. My thoughts anyway.
Also good links for appraisers as well as appraisal news at greenra.com.

 

[George Hatch]

Good post.

 

[Michael S]

Band of investment is usually about the third or fourth method used to provided support for a cap rate. Extracted sales is usually best then interviews with market participants and investor surveys (if relevant). I know a commercial mortgage broker who usually has a pretty good idea of loan terms. The equity portion can be extracted from sales if you get the loan terms for them. I just confirmed a sale of a CVS and the buyer's equity return was only 5.5%.

It's better than nothing, especially if it's a property type with relatively few sales. However, I wouldn't put much weight on it.

 

[Doug DeMars]

Greenra-
Your website is simply brilliant.

 

[ARRE]

Yes, AWESOME website! That is a LOT of work.

Thanks so much to make it available.

 

[NewJerichoMan]

Hi all,
I thought I'd ask what everyone else uses and why.

For bank work, our firm uses the Mortgage Equity technique. For court / certorari work, we use the Band of Investment technique. It's just much easier to explain to a judge that doesn't know if real estate is one word or two.