Which method calculates a weighted average of the mortgage and equity capitalization rates to determine the overall capitalization rate?

The Band of Investment method is designed to calculate a weighted average of the mortgage and equity capitalization rates, which in turn helps determine the overall capitalization rate for a property. This method involves assessing the proportion of financing that comes from debt (mortgage) compared to owners' equity. By factoring in these different sources of capital and their respective costs, it allows appraisers to create a composite rate that reflects both the risk and the expected returns on the investment.

This approach is particularly valuable in real estate appraisal because it acknowledges that properties are often financed through a mix of mortgage and equity financing. The weighted average gives a clearer picture of the expected returns and risks involved, as it incorporates the costs associated with different types of funding.

In contrast, the other methods mentioned do not specifically calculate a weighted average of capitalization rates. The Summation method generally involves adding individual components to arrive at a total value but lacks the nuance of weighting by risk or proportion. The Cost approach focuses on estimating the replacement cost of a property rather than capitalizing income flows. The Income approach is concerned with analyzing the income generated by the property to establish value, but it does not specifically address the capitalization rates of both mortgage and equity in a weighted fashion. Therefore, the Band of Investment method