Part 6: Part 6: Principles and Practice of Property Valuation
Estate Agency Qualifying Examination · Part 6: Part 6: Principles and Practice of Property Valuation
Further reading: Part 6: Principles and Practice of Property Valuation study notes →
Which of the following items does a standard valuation report generally contain? (i) The current mortgage interest rate (ii) The date of valuation (iii) The assessed value of the property (iv) The fee charged for preparing the report
Why: (i) Incorrect: the mortgage interest rate is not a usual content of a valuation report.(ii) Correct: the date of valuation is the basis of all assumptions, and the report should not attempt to establish the future value of the asset (EALP Part 6 p6).(iii) Correct: the report arrives at a valuation based on the purpose, definition, date and property particulars.(iv) Incorrect: the fee is a matter of engagement between valuer and client, not a usual content of the report.Therefore the answer is B.
Under which of the following circumstances is the comparison method of valuation most reliable? (i) Market prices have surged by over 50% in the past twelve months (ii) Monthly transaction volume for similar properties is large and stable (iii) Properties of the same type share many similar physical and environmental features
Why: (i) Incorrect: sharp price swings make recent transaction prices a poor guide to value at the valuation date, undermining the comparison method.(ii) Correct: where the market operates rationally with a large monthly transaction volume and freely available data, the comparison method is an effective valuation method (EALP Part 6 p4).(iii) Correct: the comparison method is particularly suited to high-density housing estates with many similar units.Therefore the answer is C.
Which of the following pairings of valuation method and property type are correct? (i) Urban private residential flat → residual method (ii) Owner-operated hotel → profits method (iii) Vacant site awaiting development → residual method (iv) Special-purpose government building with no comparables → replacement cost method
Why: (i) Incorrect: urban private flats have ample comparables and are valued by the comparison method; the residual method is for development sites, not completed flats (EALP Part 6 p4).(ii) Correct: the profits method applies mainly to operating commercial properties, especially hotels, whose value depends on the profits of the business run there (EALP Part 6 p5).(iii) Correct: the residual method starts from gross development value, deducts development costs and developer's profit, and the residue is the land value (EALP Part 6 p5).(iv) Correct: the replacement cost method is used only where comparables are lacking and transactions are rare, e.g. hospitals, civic buildings and schools (EALP Part 6 p5).Therefore the answer is D.
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