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CABARRUS COUNTY 2012 APPRAISAL MANUAL ELLWOOD MORTGAGE EQUITY Where applicable, this technique is the superior method as it most accurately simulates investor behavior. It is applicable when sufficient qualified data is available concerning the present, the future and behavior of typical investors in the market. In addition to discounted cash flows, reversion and required yields by investors which can be accounted for in residual techniques, the Ellwood techniques takes into account leverage, appreciation or depreciation of the property (based on the expectations of the investor) and the investment holding periods based on the behavior of typical investors in the local market. The whole analysis focuses on the development of an overall rate as a weighted average of the several claims against Net Operating Income that must be met in order to make the investment competitively attractive. Either Market Value or Investment Value can be estimated through the Ellwood formula, depending upon the data used in the analysis. In deriving an overall capitalization rate using the Ellwood Mortgage Equity Technique there are several variables which must be supplied by the appraiser. They are as follows: Investment Holding Period Mortgage Loan Term Mortgage Loan Rate Loan to value Percentage Equity Yield Rate Plus or Minus Appreciation or Depreciation at the end of the holding period Given these, the method utilizes the necessary calculations to determine the overall rate which is divided into the Net Operating Income. The result is the present worth estimate of value based on knowledgeable investment criteria. For a more thorough discussion and mathematical explanation of the technique the appraiser should consult one of the more detailed texts such as Dr. Wm N. Kinnard's INCOME PROPERTY VALUATION. GROSS INCOME MULTIPLIER Because of the time and expense required to determine the correct net income for use in the capitalization of income technique, the gross income multiplier has been developed into an effective mass appraisal income tool. Since sales data is required to develop a gross income multiplier, care must be taken to use only qualified sales of COMPARABLE property types. The key to good values using gross income multiplier is the same as any other appraisal technique, good data. Time spent qualifying the sales and determining the details of a commercial transaction is time well spent as the transaction may produce not only a useful income multiplier but also a useful sales comparable and data to derive a useful capitalization rate. To apply a gross income multiplier, assemble the recent qualified, comparable sales and income data to determine the price at which properties comparable to the property being appraised sell and the typical sales price by the typical income, to obtain the gross income multiplier. This multiplier can then be applied to the rent being received or reasonably expected from the subject property to produce an estimate of the property value. Cabarrus County — 2012 Revaluation INCOME PROPERTY VALUATION 8- 11 05/24/01 Attachment number 11 G -3 Page 414