Property Valuation and Appraisal Flashcards

What does the 'land to asset ratio' indicate in residential property valuation?

Answer: The proportion of the land value to the total property value

The land to asset ratio measures the proportion of a property's total value attributable to the land itself, which is significant because land typically appreciates while buildings depreciate.

Which method of property appraisal is most appropriate for valuing an investment property where rental income is the primary consideration?

Answer: Income capitalisation method

The income capitalisation method determines value based on the income the property generates, making it most appropriate for investment or income-producing properties.

What is 'gross rental yield' used to measure in property appraisal?

Answer: The annual rental income as a percentage of the property's purchase price

Gross rental yield is calculated by dividing the annual rental income by the property's purchase price and expressing it as a percentage, giving a quick measure of return.

How does depreciation affect the value of a residential property's building component over time?

Answer: It reduces the value of the built structure as it ages and wears

Depreciation reduces the value of a building structure over time due to wear, age, and obsolescence, which is why the land component is often the primary driver of long-term value growth.

What is meant by the 'highest and best use' principle in property valuation?

Answer: The most profitable legally permissible use of a property that is physically possible and financially feasible

'Highest and best use' is the most profitable use of a property that is legally permitted, physically possible, and financially viable, and is a foundational concept in property valuation.

Which of the following is an EXTERNAL factor that can affect residential property values in Australia?

Answer: Interest rate changes set by the Reserve Bank of Australia

Interest rate changes by the Reserve Bank of Australia directly affect borrowing costs and buyer purchasing power, making them a major external driver of property values.

What does it mean when a property has 'passed in' at auction in the context of property valuation?

Answer: The highest bid did not meet the vendor's reserve price and the property was not sold under the hammer

'Passed in' means the highest bid at auction did not reach the vendor's reserve price, so the property was not sold, and the price achieved gives a useful market indicator for appraisal purposes.