Final answer:
Appraisers use the sales comparison approach, evaluating terms such as cash equivalency and conditions of sale, to appraise property values. Financial institutions assess loan riskiness and interest rates compared to the market when buying loans on the secondary loan market. The value of bank assets like loans can also be gauged by potential sale prices in the secondary market.
Step-by-step explanation:
The conditions of sale, particularly in the context of real estate appraisal and financial transactions, refer to the terms under which property changes hands. For instance, in a sales comparison approach used by appraisers, the terms of financing, cash equivalency, conditions of sale, market conditions, location, and physical characteristics are all assessed to determine a property's value. When financial institutions consider purchasing loans on the secondary loan market, they assess the risk associated with the loan, which depends on characteristics such as the borrower's income level and the performance of the local economy.
Moreover, they compare the interest rate on the original loan to the current rates in the market to decide their willingness to pay. A low-interest rate on the original loan in a high current interest rate environment means the institution will likely pay less to acquire the loan. Conversely, if the loan's interest rate is high and current rates are low, they may pay more. An example is given with the Safe and Secure Bank, where the total value of loans they could sell on the secondary market is $5 million.
Finally, another way to assess the value of a bank's assets, such as loans, is by estimating what other parties in the market are willing to pay for it. Banks typically operate in the primary loan market to issue loans but may sell them on the secondary market where they are traded between financial institutions.