Real Estate Finance, Valuation, and Appraisal
Financing basics
The promissory note is the borrower's promise to pay; the mortgage or deed of trust is the security instrument. Key math: loan-to-value = loan ÷ value; a point is 1% of the loan; PITI includes principal, interest, taxes, and insurance; impounds/escrow collect those items monthly. Disclosures include the Loan Estimate and Closing Disclosure. Loan programs include conventional, FHA, VA, USDA, and Kentucky Housing Corporation assistance; each has different down payment, mortgage insurance, and underwriting rules.
Valuation
Market value assumes a willing buyer and seller, both informed, with no undue pressure. Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive. The sales comparison approach adjusts comparables; the cost approach uses replacement cost less depreciation plus land; the income approach uses capitalization or gross rent multipliers. A CMA or BPO is not an appraisal; appraisals follow USPAP and require a licensed or certified appraiser.
Traps
Using gross income instead of net operating income in a cap rate; forgetting that higher cap rates mean lower values; double-counting adjustments; treating tax-assessed value as market value.
Worked example: NOI is $24,000 and the market cap rate is 8%. Value = NOI ÷ cap rate = $24,000 ÷ 0.08 = $300,000. Using a GRM: monthly rent $1,500 × GRM 100 = $150,000.