Analytical Implications of Mortgage Lending Value and Bottom Value

Abstract

This study concerns the analytical formulation and relative implications of bottom value (BV) and mortgage lending value (MLV) regarding properties where the existing building provides an income during its useful life, leaving thereafter only the land value. The bottom value is equal to the overall property’s market value minus all incomes not collected by the end of the building’s economic life. Furthermore, it considers the income rates for land and buildings differently according to the investment type, while the mortgage lending value considers, instead, a unique rate. The mortgage lending value assessment is conducted under restrictive assumptions on long-term aspects, future marketability, and local market conditions. For the first time, mathematical and appraisal models have been applied to determine the mortgage lending value and the bottom value in particular cases, such as that mentioned above and considered in the present study (existing buildings providing income during their useful life). Some of the indexes introduced in the paper are completely original with respect to the current reference literature.

The Mortgage Lending Value (MLV): proposal for a new calculation procedure

“…The first step of the MLV procedure consists in the appraisal of the market value MV and the annual net market income MI N of the property. According to traditional real estate appraisal methods, the market value of a built property can ideally be decomposed into the sum of the land market value (without buildings) and the building market value (Simonotti, 2019;Salvo et al, 2021). Thus, in analytical terms, MV can be expressed as:…”

“…A more recent study by Tajani and Morano (2018) proposes and tests an innovative methodology for assessing MLV, trying to improve and rationalize the appraisal of the percentage reduction to be applied to the market value. Salvo et al (2022) propose an appraisal model to determine the mortgage lending value in particular cases, such as when the existing buildings provide income during their useful life. In this study some of the indexes introduced are completely original with respect to the current referenced literature.…”