An appraiser is looking for comparable sales and finds a property that recently sold for $400,000. The appraiser finds that the buyer was able to assume the sellers fully amortizing mortgage which had monthly payments based on a 4.8 percent interest rate. The balance of the loan at the time of sale was $275,000 with a remaining term of 20 years (monthly payments). The appraiser determines that if a $ 275,000 loan was obtained on the same property, monthly payments at the market rate for a fully-amortizing loan would have been 6.0 percent with zero points.

a. Assume that the buyer expected to benefit from the interest savings on the assumable loan for the entire loan term. What is the cash equivalent value of the property?

b. Recalculate your answer to part (a) assuming that the buyer only expects to benefit from the interest savings for 8 years because they will either sell or refinance after 8 years?