Which appraisal technique derives the property's discount rate from mortgage and equity rates?

The appraisal technique that derives the property's discount rate from mortgage and equity rates is the Band-of-investment technique. This method is employed to determine the overall capitalization rate, which reflects the required return on investment.

The Band-of-investment technique combines the cost of debt and the cost of equity based on the proportions of each in the overall investment. By analyzing the prevailing mortgage rates (the cost of borrowing) and equity rates (the expected return by investors), appraisers can calculate a weighted average that represents the discount rate used for valuing income-producing properties. This rate is crucial for assessing the present value of an investment based on its future cash flows.

Understanding this technique is vital for appraisers as it aligns the property valuation process with current market conditions and investor expectations.