A commercial office building generates $500,000 annual net income. Using a capitalisation rate of 8%, what would be the property's value using the capitalisation approach?
Correct Answer
C) $6,250,000
Using the capitalisation approach formula (Value = Net Income ÷ Capitalisation Rate), the calculation is $500,000 ÷ 0.08 = $6,250,000. This method is commonly used for income-producing commercial properties where the value is based on the property's ability to generate rental income.
Why This Is the Correct Answer
Why the Other Options Are Wrong
Common Mistakes to Avoid on Valuation Questions
More Valuation Questions
What is the primary purpose of a Comparative Market Analysis (CMA) in property valuation?
Which of the following is NOT one of the three main approaches to property valuation recognised by the Australian Property Institute?
In the summation approach to valuation, what does the term 'depreciation' primarily refer to?
When using the capitalisation approach for an investment property generating $52,000 annual rental income, what would be the estimated value using a 6.5% capitalisation rate?
A property valuer is assessing a 15-year-old commercial building. The replacement cost new is $2,000,000, land value is $800,000, and total depreciation is estimated at 25%. What is the property value using the summation approach?
- → Which factor would have the LEAST direct impact on a residential property's market value in a CMA?
- → When conducting a CMA for a residential property, what is the preferred timeframe for comparable sales to ensure market relevance?
- → An investment property generates $75,000 gross annual rent with operating expenses of $15,000. If the market capitalisation rate is 7%, what is the property's estimated value?
- → A heritage-listed commercial property requires valuation for a forced sale. The property has significant functional obsolescence due to heritage restrictions limiting modifications. Which valuation approach would be LEAST appropriate as the primary method?
- → A valuer is assessing a unique architectural property with no recent comparable sales. The property generates $120,000 net annual income, but market capitalisation rates vary from 5.5% to 7.5% depending on risk assessment. What additional factor is MOST critical for determining the appropriate rate?
- → What does CMA stand for in property valuation?
- → What is the primary purpose of a Comparative Market Analysis (CMA) in property valuation?
- → Which valuation approach would be most appropriate for valuing a newly constructed office building with no rental history?
- → According to Australian Property Institute standards, what is the minimum professional indemnity insurance requirement for practising valuers?
- → A retail property generates annual net rental income of $120,000. Using a market capitalisation rate of 6%, what is the capitalised value of the property?
People Also Study
Property Law & Legislation
176 questions
Agency Practice & Law
176 questions
Contracts & Conveyancing
176 questions
Property Marketing & Sales
146 questions
Related Study Resources
Previous Question
A commercial office building generates $150,000 annual net rent. Using a capitalisation rate of 7.5%, what is the estimated value using the capitalisation approach?
Next Question
A commercial property generates $120,000 annual net income. Using a capitalisation rate of 8%, what is the estimated value using the capitalisation approach?