Benji.

Do you have a HP12C calculator to figure this out???

If not go to

http://www.lehigh.edu/~sgb2/hp12c.html
and we can work this out for you. The big kicker and trick question..and I hate trick questions, but all appraisal exams have them, is the typical ownership period is 10 years. Since it is not in the mortgage note as a balloon payment, I personally would ignore it as nothing is there to force the buyer to pay off the second mortgage in 10 years, but let's see if anyone else posts and gives a good reason to use the 10 year holding period in the calculation. Also, there is no info on what the current interest rate is for second mortgages which could be 14%, so the problem is not really solvable as it is written..but if we assume that the interest rate for a second mortgage is also 11% we can proceed

The comp breaks down as follows:

$26,000 down payment

$60,000 loan at market rate of 11%

$44,000 seller held mortgage at 9%

Equals $130,000

Basically, you have to find out what the seller held mortgage is worth (present value) at 11%

So first you figure out the payments at 9% which would be $395.88

240 = n. 44,000=pv .0075=i (.09/12)

Now, take out the PV of $44,000, leave the payment in at $395.88 and insert the market interest rate of 11% (.11/12=.00916666) and solve for PV of the seller held mortgage which is $38,353.

Add it all back up:

$26,000 down

$60,000 first mortgage

$38,353 PV of below market second

$124,353

That's the cash equivalent price of the comp and that's what goes in the sale price box for the comp.

The value of the special financing is $5647.

Now trick question #2: is the exact figure used for the financing adjustment? Got me. If you use the FNMA definition that says mechanical calculations are not to be used but a market adjustment, then the answer is no. But if you look at any definition of market value, it states "payment is made in terms of cash..." then the answer is yes. Damned if you do and damned if you don't.

You will most probably get this one wrong on the state test. Get over it and forget about it......I don't think the interest rate scenarios of the 1980's are coming back.

Hope I helped a bit...probably confused you more than necessary right?

Ben