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future and then capitalizing the residual or reversionary value,
using appropriately derived discount and capitalization rates.
The values determined by Dvorak with respect to Charlotte and
Monroe were as follows:
Housing Cost Market Income
Project Approach Approach1 Approach
Charlotte $1,070,000 $1,137,500 $1,480,000
Monroe 1,240,000 1,337,500 1,370,000
1 The determinations under the market approach
represent the average of a range estimated by Dvorak.
The estimated range for Charlotte was from $1,050,000
to $1,225,000 and the estimated range for Monroe was
from $1,275,000 to $1,400,000.
Dvorak believed that the income approach was the correct method
for valuing the real estate in question and relied on the other
approaches only to confirm his income-based value. Thus, his
final appraised values for Charlotte and Monroe were $1,480,000
and $1,370,000, respectively.
Respondent’s Challenges
(a) Vacancy Rate
In calculating cash-flow, Dvorak reduced gross income of the
housing partnerships by 3 percent as a vacancy allowance.
Respondent challenges Dvorak’s use of a 3-percent vacancy
allowance, arguing that in light of the HUD guaranty to pay 80
percent of the contract rent for 2 months after a tenant vacates,
the 3-percent vacancy allowance is too high and that 1 percent is
appropriate. We agree. According to Dvorak’s appraisals, a
vacancy allowance represents a reduction in potential rental
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