A commercial property valuer is using the capitalisation approach and must determine an appropriate capitalisation rate. Which combination of factors would typically result in a LOWER capitalisation rate?
Correct Answer
B) A blue-chip tenant, a long lease term and stable market conditions
Lower capitalisation rates reflect lower risk investments, which command higher prices (values). A blue-chip tenant with a long lease in stable market conditions presents minimal risk, justifying a lower cap rate and higher property value.
Why This Is the Correct Answer
Capitalisation rates fall as risk falls. A blue-chip tenant, a long lease and a stable market make the income secure, so investors accept a lower yield and pay a higher price.
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
A commercial property has passing rent of $180,000 per annum with annual reviews, but market rent is assessed at $220,000 per annum. The lease has 8 years remaining with a quality tenant. How should this rental situation affect the capitalisation approach valuation?
Next Question
A heritage-listed commercial building needs a valuation for insurance. It earns $80,000 net rent a year, comparable sales suggest a market value of $1.2 million, and a cost-based estimate puts the building's replacement cost at $1.6 million. Which figure should carry primary weight?