Abstract
Appraisal models have undergone continuing changes in response to changes in market behavior. Some industry spokespersons now contend that persistent inflation has impaired the ability of current models to measure the debt capacity of property, thus adversely affecting the estimate of the mortgage amount likely to be available. A model is proposed for use in an inflationary environment, which, like the Ellwood model, is a discounted cash flow model. However, unlike Ellwood, it does not assume that lenders will fund unlimited reversion proceeds and willingly accept unlimited risk without compensation. The proposed model substitutes a debt coverage ratio for the more traditional loan-to-value ratio. Furthermore, the model permits determination of an overall rate for both level and changing income streams. This not only simplifies the valuation process, but it also provides more information on the effects of mortgage and equity residuals.