A commercial property generates $120,000 annual net income. Using a capitalisation rate of 8%, what is the estimated value using the capitalisation approach?
Correct Answer
C) $1,500,000
Using the capitalisation approach formula: Value = Net Income ÷ Capitalisation Rate. Therefore, $120,000 ÷ 0.08 = $1,500,000. This method is commonly used for income-producing properties to determine value based on their earning potential.
Why This Is the Correct Answer
Value equals net income divided by the capitalisation rate: $120,000 divided by 0.08 is $1,500,000.
Why the Other Options Are Wrong
Memory Technique
Exam Tip for Valuation
Common Mistakes to Avoid on Valuation Questions
More Valuation Questions
In applying the summation approach to value a heritage-listed property in Sydney, which additional factor must be specifically considered?
In Queensland, the statutory land valuation that councils use to levy rates is made by:
The comparable sales method of property valuation involves:
A Queensland property owner disagrees with the Valuer-General's valuation of their land. The owner may:
When valuing an income-producing property in Queensland using the capitalisation approach, a valuer primarily considers:
- → In Queensland, the 'highest and best use' principle in property valuation refers to:
- → A registered valuer in Queensland is valuing a specialised property such as a church with no comparable sales data available. The most appropriate primary valuation method would be:
- → A Comparative Market Analysis (CMA) prepared by a Queensland real estate agent differs from a formal valuation in that:
- → A developer in Queensland is considering purchasing a site for a residential subdivision. A valuer using the residual (hypothetical development) method would calculate the site's value by:
- → Which of the following factors would typically DECREASE the market value of a residential property in Queensland?
- → A Queensland seller asks an agent what her house is likely to sell for, and the agent decides to answer. What must he give her?
- → A Queensland agent recommends a reserve to a seller and must back it with a comparative market analysis. What should the CMA compare?
- → When conducting a property valuation in Queensland, what is the most critical consideration regarding comparable sales data?
- → What is the difference between 'site value' and 'capital value' as used by the Valuer-General in SA?
- → When valuing a rural property in SA, which of the following is a key factor that distinguishes it from suburban residential valuation?
People Also Study
Property Law & Legislation
110 questions
Agency Practice & Law
138 questions
Contracts & Conveyancing
106 questions
Property Marketing & Sales
129 questions
Related Study Resources
Previous Question
Under WA law, what is the legal basis for the Valuer General's authority to value properties?
Next Question
A commercial property generates annual rental income of $120,000 with operating expenses of $25,000. Using a capitalisation rate of 7.5%, what is the property's value using the capitalisation approach?