Principles and Methods of Valuation
PMV611S
Question 3
a) Use the information provided to show how the sales comparison approach accounts for differences in
size between comparable properties.
• Subject property: 200 square metres (sq mt)
• Comparable 1: 150 sq mt, sold for N$600,000.
(2)
b) Briefly explain, using a worked example, how depreciation affects the valuation of a property under
the cost approach.
(4)
c) If a comparable property sold for N$320,000 but had an additional bedroom compared to the subject
property, an adjustment might be made to account for this difference. Assuming the adjustment is
N$10,000, calculate the adjusted value of the subject property?
(2)
d) A warehouse needs to be valued. The estimated cost to replace the building with current materials
and labour is N$800,000. However, the building is 15 years old, and the typical depreciation rate for
warehouses in the area is 3% per year.
(4)
e) An apartment building generates a Net Operating Income (NOi) of N$120,000 per year. The prevailing
capitalisation rate for similar properties in the area is 7%. Calculate the value of the building.
(2)
f) The gross rental income (GRI) for Polyheights is N$2,000,000 and operating expenses (OE) are
N$200,000; calculate the Net operating income (NOi) and using a capitalisation rate of 8%, calculate
the estimated value of Polyheights.
(4)
g) Use the following information to value the land using the Residual method. Subject property is a
vacant lot zoned for residential development.
Projected sales revenue or Gross Development Value (GOV): N$2,500,000
Construction costs: N$1,500,000
Expected profit margin: 20%
(4)
Second Opportunity Examination Paper
Page5 of 6
July 2024