Real Estate Principles 3rd Edition by David Ling,Wayne Archer

Exercise 5

In appraising a single-family home, you find a comparable property very similar to the subject property. One important difference, however, concerns the financing. The comparable property sold one month ago for $120,000 and was financed with an 80 percent, 30-year mortgage at 5.0 percent interest. Current market financing terms are 80 percent, 30-year mortgages at 7 percent interest. The monthly payments on the market financing would be $638.69, while the monthly payments on the special 5.0 percent financing are approximately $515.35. Assume the borrower's opportunity cost rate is 7 percent. The approximate present value of the payment savings on the nonmarket financing is ________, and this amount should _______ to the transaction price of the comparable.
A) $22,976, added.
B) $22,976, subtracted.
C) $18,539, added.
D) $18,539, subtracted.