A strata corporation in Victoria has a Contingency Reserve Fund (CRF) of $500,000 versus another building of similar age with a CRF of $50,000. How should an appraiser consider this when valuing individual units?
Correct Answer
A) A well-funded CRF lowers special levy risk and may support higher unit values, while a low CRF signals future costs
A healthy Contingency Reserve Fund indicates prudent financial management and reduces the likelihood of special levies for major repairs. Buyers and lenders consider the CRF balance (relative to the depreciation report's projected expenses) when evaluating risk. A low CRF may signal future special levies, which can depress unit values and complicate mortgage approvals.
Why This Is the Correct Answer
Option A is correct because a well-funded CRF indicates prudent financial management, reduces the probability of special levies for major repairs, and is a positive factor supporting higher unit values. Conversely, a low CRF signals potential future special levies, deferred maintenance risk, and financial instability, which can depress unit values and complicate mortgage approvals. Appraisers and buyers consider the CRF balance relative to the depreciation report's projected expenses.
Why the Other Options Are Wrong
Deep Analysis of This Property Valuation Question
Background Knowledge for Property Valuation
Memory Technique
Exam Tip for Property Valuation
Real World Application in Property Valuation
Common Mistakes to Avoid on Property Valuation Questions
Key Terms
More Property Valuation Questions
When preparing a market analysis for a BC strata unit, which item best shows the major repair and replacement costs the building is likely to face?
A buyer relocating from Toronto is budgeting for closing costs on an Alberta home and asks about land transfer tax. Which statement is correct for an Alberta purchase?
An appraiser is valuing a 15-unit apartment building. The building generates $180,000 in annual rental income with operating expenses of $60,000. If the capitalization rate for similar properties is 8%, what is the estimated value using the income approach?
An appraiser is using the cost approach to value a custom-built heritage home. The reproduction cost new is estimated at $850,000, the land value is $300,000, and total depreciation is calculated at $180,000. What is the property's estimated value using this approach?
In Ontario, what is the key difference between an appraisal and a Comparative Market Analysis (CMA)?
- → What is the primary purpose of a Comparative Market Analysis (CMA) in Ontario real estate?
- → A qualifying first-time buyer purchases an $800,000 home in Toronto, so both the provincial Land Transfer Tax and the Toronto Municipal Land Transfer Tax apply. After the maximum first-time buyer rebates, what does the buyer owe?
- → When conducting a CMA, which properties should be given the MOST weight as comparables?
- → An income-producing property generates $120,000 in annual rental income and has operating expenses of $45,000. If investors in this market expect a 7% capitalization rate, what is the indicated value using the income approach?
- → In Ontario, how does the Land Transfer Tax affect property valuation considerations?
- → Which factor would have the LEAST direct impact on a residential property's market value?
- → What is the primary purpose of the comparison approach in property valuation?
- → Which appraisal method is most appropriate when valuing a unique heritage property with no comparable recent sales?
- → In conducting a Comparative Market Analysis (CMA), which property characteristic typically has the greatest impact on value adjustments?
- → When using the income approach to value a rental property, what does the capitalization rate represent?
People Also Study
Real Property Law
60 questions
Contracts & Agreements
60 questions
Agency & Professional Ethics
60 questions
Mortgage & Real Estate Finance
60 questions
Related Study Resources
Helpful Resources
Previous Question
A property owner successfully appeals their BC Assessment value from $1,500,000 to $1,350,000. What is the practical effect of this reduction?
Next Question
An Alberta homeowner's complaint about the property assessment of a detached house is heard and dismissed by the local assessment review board. Under the Municipal Government Act, what further step is available?