A property valuer discovers that a comparable sale used in their analysis was between related parties at below-market value. According to API standards, what is the most appropriate action?
Correct Answer
B) Exclude the sale entirely from the analysis
Related party transactions that are not at arm's length should be excluded from comparable sales analysis as they do not represent true market value. API standards require valuers to use only arm's length transactions that reflect genuine market conditions.
Why This Is the Correct Answer
Related party transactions that are not at arm's length should be excluded from comparable sales analysis as they do not represent true market value. API standards require valuers to use only arm's length transactions that reflect genuine market conditions.
About Property Valuation & Appraisal
Valuation methods, comparative market analysis, factors affecting value, and appraisal standards.
Study Tips for Valuation
- • Review the key legislation and regulatory frameworks for your state/territory
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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 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?
- → When conducting a valuation using the comparison approach, which of the following factors would require the largest adjustment to a comparable sale?
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A property valuer discovers that a comparable sale involved vendor financing at below-market interest rates. How should this affect the valuation analysis?
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A property valuer is assessing a 10-year-old commercial building using the cost approach. The replacement cost is $2,000,000, and the land value is $500,000. If the building has an effective age of 8 years with a total economic life of 40 years, what is the estimated value using straight-line depreciation?