5

5-4-3-2-1 Prepayment penalty

Another formula used by commercial lenders. This agreement calls for a prepayment fee of 5% of the principal balance paid in the first year of the loan, 4% fee of the principal balance paid in the second year, etc. This penalty is cheaper than the Standard Prepayment penalty.

A

Actual Rents

The contract rents of the property.

B

Business Property

The FF&E plus the business inventory and the business goodwill which will be segregated from the real property at the time of a sale and valuation.

C

Cap Rate

This is the rate of return an investor wants if he was to pay cash for a commercial income property.

Cost Approach

Method of arriving at the appraisal value of a property in which the accrued depreciation is deducted from the property's replacement cost at current prices. See also income approach and market approach.

See also: Market Approach, Income Approach, Cost Approach to Valuation