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• d f <br /> ADDENDUM <br /> Borrower. Earl Hemmerich File No.: Pequot5053Hemm <br /> Property Address: XXX County Road 112 Case No.: <br /> City: Pequot Lakes State: MN Zip: 56472 <br /> Lender Earl Hemmerich <br /> comparable sales are of fee simple interests, so no adjustments were necessary. <br /> 2. Financing-A financing adjustment is actually a specific motivation adjustment and often is <br /> not capable of being accurately derived from a mathematical discounting process. The most <br /> reliable financing adjustment is from paired sales but such detailed data is generally not <br /> available from sales information. In practice,the parties in a transaction should be consulted <br /> concerning the effects of financing and this should be compared to a mathematically derived <br /> indication by discounting the payments specified by the transaction at the market rate of <br /> interest.The most commonly used market value definition requires appraising to "cash,with <br /> typical institutional financing or other stated terms". Furthermore,if the subject is assumed <br /> to have other than typical institutional terms,the terms and the effects of the financing on the <br /> appraised value should be set forth in the report. 3.Conditions of sale (motivation)- Similar <br /> to property rights conveyed,a motivation other than that assumed in the value definition may <br /> require discarding a sale from consideration. For example,if a sale were affected by undue <br /> duress,then no appropriate adjustment could probably be derived. However,an adjustment <br /> for plottage,purchasing additional land for expansion or parking,and other typically <br /> motivated sales may have an adjustment that may be inferred from the market by comparison <br /> or from information provided by the buyer or seller. <br /> 4. Market conditions(time)-A time adjustment is a market conditions adjustment because it is <br /> changes in the marketplace,and not the passage of time,that causes prices to change(the <br /> `-- principle of change). Time adjustments may be straight-line(noncompounded)or compound <br /> (curvilinear). Neither method is more appropriate than the other as long as market changes <br /> are accurately adjusted,and as long as the procedure used is consistent with the method used <br /> when a time adjustment was abstracted and with the manner in which it was applied.A 4.0% <br /> annual time adjustment will be applied to the sales to bring them to the appraisal date of May <br /> 6,2005. <br /> 5: Location-Tracts of similar highest and best use should be compared. Generally,it is <br /> Inappropriate to use sales of different highest and best use with an attempt to adjust the <br /> differences for location. For example,it would be better to obtain sales of the same highest <br /> and best use from a larger area and adjust for differences in location,than to obtain sales of <br /> properties that are closer to the subject but have a different highest and best use.Because this <br /> adjustment is considered to be additive,it is netted out with physical and other <br /> adjustments. All the comparable sales were considered to have light industrial purposes <br /> as their highest and best use. Adjustments were,however,made for location when <br /> appropriate. <br /> 6. Physical differences-The adjustment process is an attempt to account for significant <br /> adjustment factors between comparables and the subject property. The comparables are <br /> adjusted to the subject property to make them similar. Therefore,if the comparable has a <br /> feature that is better than that found in the subject property,a downward adjustment is <br /> applied.If the feature is worse than in the subject property,or nonexistent in the comparable, <br /> an upward adjustment is applied.The physical differences that exist between the <br /> comparables and the subject are adjusted to indicate a reasonable value conclusion for the <br /> property being appraised. One of the basic characteristics of real estate is that it is unique. <br /> Because real estate is unique and there are generally numerous differences between <br /> properties,only qualifiable or significant differences should be adjusted.The physical <br /> differences are best obtained(as are all adjustments)from a direct comparison of <br /> comparables. However,because properties are generally not alike,physical(and other) <br /> adjustments are not easily abstracted from sales. <br /> Conclusion <br /> The comparables have been adjusted for their comparison to the subject's characteristics.After all <br /> adjustments,the comparables indicate a range of value of from$18,599 to $87,148 per acre for land <br /> Addendum Page 3 of 4 <br />