An appraiser is looking for comparable sales and finds a house that recently sold for OMR 100,000 . He finds that the buyer was able to assume the seller's mortgage which had an 8% interest rate. The balance of the loan at the time of the sale was OMR 70,000 with a remaining term of 15 years (monthly payments) . The appraiser determines that if a OMR 70,000 loan was obtained on the same property, the market rate for a 15-year loan would have been 9% with no 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 loan? What is the maximum price the house should sell for?
b. How would your answer to part a change if you assumed that the buyer only expected to benefit from interest savings for 5 years because he would probably sell or refinance after 5 years?