Adkins Residential Home
Valuation Analyzer
Overview of the Invention
Systems and methods generally disclosed in order to value real estate by constructing a comprehensive list of constant factor multiple ratios that express a relationship that should exist between household incomes and home prices, based on prevailing mortgage interest rates for a fixed rate loan, and the percentage of pre-tax household income that a real estate investor believes should be spent to cover the costs associated with a mortgage loan.
The Adkins Residential Home Valuation Analyzer (RHVA) is a financial methodology that simplifies the residential home valuation process. RHVA allows a real estate investor to determine: the largest amount of money that should be spent in order to purchase a home; the amount of household income that would need to be made on an annual basis in order to be able to afford a specific home; whether homes in a specific community are underpriced, fairly priced, or overpriced; and the magnitude of underpricing or overpricing of residential homes in a specific community.
The foundation of the RHVA Factor Multiple methodology is based on financial logic that simplifies the residential home valuation process. The RHVA methodology incorporates a host of variables into a systematic calculation — including home prices, mortgage loan interest rates, a 30-year amortization time horizon, the methodology associated with amortizing a fixed-rate fully amortized loan, and the real estate investor's assumption about the percentage of pre-tax household income that should be spent in order to cover the cost of the mortgage loan.
The RHVA Factor Multiple Formula
The RHVA Factor Multiple is derived through a systematic four-step process using the conventional fixed rate annuity payment formula. The result is a single constant ratio that expresses the relationship between household income and home prices across any interest rate environment.
The Factor Multiple is constant for any given interest rate and income percentage assumption — meaning it scales identically whether valuing a $100,000 home or a $10,000,000 home. The comprehensive RHVA Factor Multiple table provides factor multiples for interest rate scenarios ranging from 1% to 20%, at 5-basis-point intervals, and for pre-tax household income percentage scenarios ranging from 20% to 75%, at 1% intervals.
| Rate \ Income % | 20% | 30% | 40% | 45% | 50% | 55% | 60% | 70% | 75% |
|---|---|---|---|---|---|---|---|---|---|
| 1.0% | 5.2x | 7.8x | 10.4x | 11.7x | 13.0x | 14.3x | 15.6x | 18.1x | 19.4x |
| 5.0% | 3.1x | 4.7x | 6.2x | 7.0x | 7.8x | 8.5x | 9.3x | 10.9x | 11.6x |
| 10.0% | 1.9x | 2.9x | 3.8x | 4.3x | 4.7x | 5.2x | 5.7x | 6.7x | 7.1x |
| 15.0% | 1.3x | 2.0x | 2.6x | 3.0x | 3.3x | 3.6x | 4.0x | 4.6x | 4.9x |
| 20.0% | 1.0x | 1.5x | 2.0x | 2.2x | 2.5x | 2.7x | 3.0x | 3.5x | 3.7x |
Table above is a truncated version of the comprehensive RHVA Factor Multiple table. Full table available in the RHVA software.
| Variable | Name | Description |
|---|---|---|
| MLA | Mortgage Loan Amount | Home purchase price less down payment amount |
| i | Monthly Interest Rate | Annual rate expressed in monthly terms (e.g. 5.0% APR ÷ 12 = 0.004167) |
| t | Term | Time horizon expressed in monthly terms — 30 years = 360 months |
| % | Income Percentage | The percentage of pre-tax household income the investor believes should be spent to cover the cost of the mortgage loan |
| FM | Factor Multiple | The resulting constant ratio used to determine the proper relationship between household income and home price |
Four Core Use Cases
The patent describes four distinct applications of the RHVA Factor Multiple methodology, each addressing a different fundamental question in residential real estate valuation.
The ACM Housing Rating System
Based on the RHVA methodology, ACM has developed a four-tier housing rating system grounded in the 28% mortgage affordability threshold — the widely accepted maximum percentage of gross income that should be allocated to housing costs. The rating is determined by calculating the actual percentage of gross monthly household income consumed by a 30-year fixed mortgage at the current live rate.
