Question:

3/ Suppose that you are trying to estimate the price of a house using information from the market prices of several houses that were recently sold in an open market. All houses are the same except for the lot size and Nearby Park Space. Nearby Park Space Lot size (in sq. ft.) Selling Price (in 5) 210.000 _EEE_ 290900 _ _ 280.000 Subject Property __ a) If the market is in equilibrium, use this information to estimate the market value of the subject property. b} Consider the following information on several apartment buildings that were recently sold. rrorerrrr rrorerrrr rrorerrrc _E-_ Rate Selling price 3,000,000 $7,000,000 10,000,000 Assume that the annual rent per unit is $10,000, operating cost are $4,000 per unit. Ignore the effects of risk and uncertainty. 1) Using the income approach to market value, estimate the market value of properties A- C. (Do not use information on the selling price.) ii) If many buildings like A, B and C are available and they differ only in the number of units, do you think that this market is in equilibrium? iii) A simple rule of thumb concerning cap rates is that they are equal to the borrowing interest rate plus a constant mark up. If interest rates were to rise by 1 percentage point over the next ve years, how much capital gain or loss would the owner of B experience