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* * * * * * *
Projecting the income from real estate in nominal
terms allows an analyst to consider whether or not the
income potential of the property and the resale price
will increase with inflation. The appraiser must be
consistent and not discount inflated dollars at real,
uninflated rates. When inflated nominal dollars are
projected, the discount rate must also be a nominal
discount rate that reflects the anticipated inflation.
[Emphasis added.]
We conclude that Maloy’s 8-percent discount rate is
understated as a result of his inappropriate use of a real
discount rate rather than a higher nominal discount rate.
iii. Adjustment of Discount Rate for Lack of
Marketability
It also appears that the differences between respondent’s
and petitioner’s experts are partly attributable to the fact that
they are valuing different things. Maloy’s report states that he
has determined the market value of petitioner’s leased fee
interest. Dilmore and Lipscomb, on the other hand, have each
valued an undivided one-half interest in the leased fee interest.
Lipscomb, like Maloy but unlike Dilmore, acknowledges that the
leased land is a “low-risk” investment, which would suggest a
relatively low discount rate. Lipscomb’s recommended discount
rate reflects an upward adjustment to reflect the limited
marketability of an undivided one-half interest.
As previously discussed, we have determined that
petitioner’s transfer of the leased land to the partnership
should be characterized as two separate undivided 25-percent
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