I85PREP
⌘ K
CeRER study materials
CeRER study resources

CeRER practice questions

One question at a time. Build your CeRER understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Real Estate Principles and Property Ownership

Under a standard fee simple absolute estate, which set of ownership rights does the holder possess?

  1. The right to occupy the property only for the lifetime of the holder
  2. The right to possess, use, exclude others, and transfer the property indefinitely, subject to government powers Correct answer.
  3. The right to use the property only as a residence and never to lease it
  4. The right to possess the property only so long as a stated condition is met

Explanation

Fee simple absolute is the most complete estate recognized in property law. The owner holds title of indefinite duration and may sell, lease, mortgage, or devise it, restrained only by the sovereign powers of taxation, eminent domain, police power, and escheat.

Question 2Real Estate Principles and Property Ownership

A deed conveys Blackacre "to Maria for life, then to her heirs." What interest do Maria's heirs hold during Maria's lifetime?

  1. A reversion retained by the grantor
  2. A vested remainder subject to complete divestment
  3. A contingent remainder because their identities are unascertainable
  4. No interest at all, because heirs have no right until Maria dies Correct answer.

Explanation

Under the doctrine of worthier title and the rule that a living person has no heirs, only presumptive heirs exist while Maria lives. The remainder to her heirs is therefore void, and the grantor keeps a reversion that becomes possessory when Maria's life estate ends.

Question 3Real Estate Principles and Property Ownership

Which form of co-ownership includes the right of survivorship so that a deceased co-tenant's share passes automatically to the surviving owners?

  1. Community property
  2. Tenancy by the entirety between business partners
  3. Joint tenancy Correct answer.
  4. Tenancy in common

Explanation

Joint tenancy requires the four unities of time, title, interest, and possession and carries an inherent right of survivorship. On death, the decedent's share is extinguished and the survivors take free of the decedent's will or intestate heirs.

Question 4Real Estate Principles and Property Ownership

A buyer purchases a home and receives a general warranty deed. Which covenant protects the buyer against defects in title that arose before the seller ever owned the property?

  1. Covenant of quiet enjoyment
  2. Covenant of seisin
  3. Covenant of warranty Correct answer.
  4. Covenant against encumbrances

Explanation

The covenant of warranty is a personal covenant to defend title against all lawful claims, including those predating the grantor's ownership. The other present and future covenants generally reach only defects created by the grantor or encumbrances existing at conveyance.

Question 5Real Estate Principles and Property Ownership

A landowner records a deed to a neighbor but the deed is not delivered to the neighbor. What is the legal effect of the recording?

  1. Title passes only if the grantee later accepts the deed
  2. No title passes, because delivery is essential to a valid conveyance Correct answer.
  3. Title passes because recording substitutes for delivery
  4. Title passes if the grantor intended to convey, regardless of delivery

Explanation

A deed must be both delivered and accepted to transfer an interest in land. Recording is a public notice function and cannot cure the absence of delivery, so the grantor retains title despite the recorded instrument.

Question 6Real Estate Principles and Property Ownership

Which recording statute protects a subsequent bona fide purchaser who records first, even if that purchaser had notice of a prior unrecorded deed?

  1. Tract index statute
  2. Notice statute
  3. Race statute Correct answer.
  4. Race-notice statute

Explanation

A pure race statute awards priority to the first purchaser to record, without regard to notice of prior unrecorded interests. Race-notice statutes require both lack of notice and first recording, while notice statutes protect a purchaser without notice who records later.

Question 7Real Estate Principles and Property Ownership

A property owner grants a utility company an easement "for so long as the pipeline is maintained." What type of easement has been created?

  1. Easement by necessity
  2. Easement appurtenant
  3. Easement in gross limited by a condition Correct answer.
  4. Prescriptive easement

Explanation

An easement in gross benefits a particular person or entity rather than a dominant parcel, and this one terminates if the stated condition fails. Utility easements are the classic example of commercial easements in gross.

Question 8Real Estate Principles and Property Ownership

Which covenant running with the land requires a purchaser to pay a share of maintenance costs for a shared private road, where the burden and benefit touch and concern both parcels and the original parties intended it to run?

  1. Equitable servitude
  2. Negative covenant
  3. License
  4. Affirmative covenant Correct answer.

Explanation

An affirmative covenant requires the burdened owner to do something, such as pay for upkeep, and runs with the land when the writing, intent, touch-and-concern, and privity requirements are met. Negative covenants restrict use, and equitable servitudes are enforced by injunction rather than damages.

Question 9Real Estate Principles and Property Ownership

A borrower defaults on a mortgage and the lender forecloses. In a state that permits deficiency judgments, what may the lender recover after the foreclosure sale?

  1. The difference between the debt owed and the foreclosure sale proceeds Correct answer.
  2. The full original loan balance plus accrued interest
  3. The borrower's equity in the property before the sale
  4. Nothing beyond the sale proceeds under any circumstances

Explanation

A deficiency judgment covers the shortfall when the foreclosure sale brings less than the amount owed. The lender must credit the sale proceeds against the debt and may pursue the borrower for the remainder where the jurisdiction allows it.

Question 10Real Estate Principles and Property Ownership

A buyer finances a purchase with a loan that exceeds the conventional conforming limit and is not insured by a government agency. What type of loan has the buyer obtained?

  1. VA-guaranteed loan
  2. FHA-insured loan
  3. Conforming loan
  4. Jumbo loan Correct answer.

Explanation

A jumbo, or nonconforming, loan exceeds the maximum loan amount purchasable by the government-sponsored enterprises. Because the lender cannot sell it to those entities, jumbo loans typically carry stricter underwriting and higher pricing.

Question 11Real Estate Principles and Property Ownership

Which clause in a mortgage allows the lender to declare the entire remaining balance due immediately upon default?

  1. Subordination clause
  2. Prepayment clause
  3. Acceleration clause Correct answer.
  4. Escalation clause

Explanation

An acceleration clause converts an installment obligation into a single lump-sum debt when a specified default occurs. This clause must be triggered before foreclosure, since foreclosure enforces the accelerated debt.

Question 12Real Estate Principles and Property Ownership

A tenant signs a one-year lease at a fixed rent and, after six months, the landlord sells the building. What is the status of the tenant's lease?

  1. It remains valid only if the new owner consents in writing
  2. It converts to a month-to-month tenancy
  3. It binds the new owner, who takes subject to the lease Correct answer.
  4. It terminates automatically on the sale date

Explanation

A lease is both a conveyance and a contract, so a purchaser of the leased property takes title subject to an existing lease. The new owner steps into the landlord's position and must honor the remaining term and its terms.

Question 13Real Estate Principles and Property Ownership

A tenant vacates before the lease term ends and stops paying rent. In a jurisdiction that follows the common law rule, what is the landlord's duty regarding mitigation of damages?

  1. The landlord may leave the premises vacant and collect all future rent as it falls due Correct answer.
  2. The landlord must actively relet the premises to reduce damages
  3. The landlord must sue immediately or lose the right to rent
  4. The landlord must return the security deposit before reletting

Explanation

At common law, a landlord had no duty to mitigate and could treat the lease as continuing, collecting rent as it accrued. Many states have since changed this by statute or decision, but the traditional rule remains the default in some jurisdictions.

Question 14Real Estate Principles and Property Ownership

A tenant installs a built-in bookshelf that is attached to the walls and intended to remain permanently. How is this item classified?

  1. A trade fixture
  2. Personal property of the tenant
  3. A fixture Correct answer.
  4. A chattel

Explanation

A fixture is personal property that has been annexed to realty so that it becomes part of the land. Attachment, adaptation to the use of the property, and intent to make it permanent are the tests, and this bookshelf satisfies all three.

Question 15Real Estate Principles and Property Ownership

A developer divides a large tract into lots and records a plat showing uniform setbacks and a park dedicated to lot owners. What method of land description is the developer using?

  1. Metes and bounds
  2. Monument description
  3. Lot and block description Correct answer.
  4. Government survey system

Explanation

The lot and block system, also called the recorded plat method, identifies parcels by reference to a recorded subdivision map and lot numbers. It is the standard description method for platted subdivisions and can incorporate setback and dedication notes.

Question 16Real Estate Principles and Property Ownership

A parcel is described as the northeast quarter of the southwest quarter of a section. How many acres does the parcel contain?

  1. 10 acres Correct answer.
  2. 20 acres
  3. 80 acres
  4. 40 acres

Explanation

A section contains 640 acres, and each quartering divides the area by four. Two quarter divisions produce one-sixteenth of a section, so 640 divided by 16 equals 40 acres for one quarter-quarter, and the northeast quarter of that quarter-quarter is 10 acres.

Question 17Real Estate Principles and Property Ownership

A buyer purchases property from a seller who acquired it through a forged deed. What is the buyer's position if the buyer paid value and had no knowledge of the forgery?

  1. The buyer takes no title, because a forged deed is void and conveys nothing Correct answer.
  2. The buyer takes good title because value was paid without notice
  3. The buyer takes good title because the deed was recorded
  4. The buyer takes title subject only to the original owner's life estate

Explanation

A forged deed is void from the outset and passes no interest, so even a bona fide purchaser for value cannot acquire title from the forger. This distinguishes forgery from fraud in the factum, which may render a deed voidable rather than void.

Question 18Real Estate Principles and Property Ownership

Which government power allows a local municipality to restrict the height and use of buildings through zoning ordinances?

  1. Eminent domain
  2. Taxation
  3. Police power Correct answer.
  4. Escheat

Explanation

Police power is the state's authority to regulate for the health, safety, morals, and general welfare, and zoning is a classic exercise of it. Regulations must bear a reasonable relation to a legitimate public purpose and cannot amount to a taking without compensation.

Question 19Real Estate Principles and Property Ownership

An owner applies for a zoning change for a specific parcel, and the request would amend the ordinance as it applies to that property only. What is the owner seeking?

  1. A nonconforming use
  2. A special exception
  3. A rezoning amendment Correct answer.
  4. A variance

Explanation

A rezoning amendment changes the zoning classification of a particular parcel and requires a legislative act by the governing body. A variance grants relief from a dimensional standard, while a special exception permits a use already listed as conditional in the ordinance.

Question 20Real Estate Principles and Property Ownership

A property is subject to a lien for unpaid real estate taxes and a later-recorded mortgage. Which lien generally has priority?

  1. The mortgage, because lenders require first position
  2. The mortgage, because it was recorded first
  3. The tax lien, because tax liens typically take priority by statute Correct answer.
  4. Priority is determined by the amount each lien secures

Explanation

Real property tax liens generally enjoy statutory priority over other liens regardless of recording order, because they secure obligations owed to the government. A mortgagee therefore takes subject to unpaid taxes even if the mortgage was recorded earlier.

Question 21Real Estate Principles and Property Ownership

A seller agrees to sell a home to a buyer, and the buyer pays earnest money. The buyer later refuses to close without legal excuse. What remedy is most likely available to the seller?

  1. Liquidated damages in the form of the earnest money Correct answer.
  2. Rescission with return of the earnest money
  3. Specific performance to force the buyer to purchase
  4. An injunction preventing the buyer from buying another home

Explanation

Contract provisions commonly let the seller retain the earnest money as liquidated damages if the buyer defaults without excuse. Specific performance is generally available to buyers because land is unique, but courts rarely compel a buyer to purchase.

Question 22Real Estate Principles and Property Ownership

A broker and seller sign an exclusive right-to-sell listing. The seller personally finds a buyer during the listing term and closes the sale. What is the broker entitled to?

  1. Half of the commission, because the seller produced the buyer
  2. No commission, because the broker did not procure the buyer
  3. A commission, because the exclusive right to sell entitles the broker to compensation regardless of who procures the buyer Correct answer.
  4. Only reimbursement of marketing expenses

Explanation

An exclusive right-to-sell listing gives the broker the right to a commission if the property sells during the term, even if the owner or another party produces the buyer. This contrasts with an exclusive agency listing, which leaves the owner free to sell without paying.

Question 23Real Estate Principles and Property Ownership

A buyer obtains a loan secured by a mortgage and the lender requires the buyer to maintain hazard insurance with the lender named as loss payee. What purpose does this requirement serve?

  1. It satisfies the recording requirement for the mortgage
  2. It guarantees the borrower will repay the loan regardless of damage
  3. It transfers ownership of the property to the lender on default
  4. It protects the lender's collateral if the property is damaged Correct answer.

Explanation

Hazard insurance protects the lender's security interest by funding repairs or payoff if the improvements are destroyed. Naming the lender as loss payee ensures the insurer pays the lender up to the outstanding balance.

Question 24Real Estate Principles and Property Ownership

A property owner dies intestate, leaving a surviving spouse and children but no will. Under the common law approach to intestate succession, how is the property distributed?

  1. Entirely to the children in equal shares
  2. Equally among the spouse and all children
  3. One-third to the spouse and two-thirds to the children Correct answer.
  4. Entirely to the surviving spouse

Explanation

At common law, dower and curtesy gave the surviving spouse a one-third life interest, and the children took the remainder. Modern statutes vary widely and often give the spouse a larger share, so the governing state statute controls.

Question 25Real Estate Principles and Property Ownership

A property manager collects rent from tenants on behalf of the owner. In whose name are the funds typically held?

  1. The property manager's personal account
  2. The tenants' association account
  3. The owner's general business operating account
  4. A trust or escrow account separate from the manager's funds Correct answer.

Explanation

Rent and security deposits collected for an owner are trust funds and must be kept in a separate escrow or trust account. Commingling them with the manager's own money is prohibited and can result in license discipline.

Question 26Real Estate Principles and Property Ownership

Under the bundle of rights concept, which ownership interest allows an owner to exclude others from the property while still holding the largest possible estate in land?

  1. A leasehold estate for a term of years
  2. A life estate held by the owner
  3. An easement appurtenant benefiting the parcel
  4. Fee simple absolute ownership Correct answer.

Explanation

Fee simple absolute is the most complete estate recognized at common law, potentially lasting forever and carrying the full bundle of rights including possession, use, exclusion, and disposition. Lesser estates such as life estates and leaseholds are carved out of that fee and end at a defined time.

Question 27Real Estate Principles and Property Ownership

An owner conveys a parcel "to my brother for life, then to my niece and her heirs." The niece's interest during the brother's lifetime is best described as which of the following?

  1. An executory interest that shifts on the brother's death
  2. A reversion held by the original owner
  3. A vested remainder in fee simple Correct answer.
  4. A contingent remainder subject to a condition precedent

Explanation

Because the niece is in being, ascertained, and ready to take possession when the life estate ends, her future interest is a remainder. It is vested because no condition precedent must occur first, and it is in fee simple because of the words "and her heirs."

Question 28Real Estate Principles and Property Ownership

A husband and wife take title as tenants by the entirety. Which statement accurately describes their ownership?

  1. Each spouse may unilaterally convey a half interest to a third party
  2. The survivorship right is severed automatically by a legal separation
  3. Each spouse holds an undivided interest that passes by will at death
  4. Each spouse has an equal right to possess the whole, with the survivor taking the entire estate Correct answer.

Explanation

Tenancy by the entirety is a form of concurrent ownership available to married couples that combines the right of survivorship with a unity of person, so neither spouse can convey separately and the survivor owns the whole. Creditors of one spouse generally cannot reach the property while the marriage and the tenancy continue.

Question 29Real Estate Principles and Property Ownership

A deed is delivered to a grantee who immediately records it, but the notary acknowledgment was forged and the grantor's signature was genuine. Under the majority rule, what is the status of the recorded deed as evidence of title?

  1. The deed is void because the defective acknowledgment invalidates delivery
  2. The deed conveys no interest because recording is a condition of validity
  3. The deed is voidable only at the election of the grantee
  4. The deed is valid between the parties but is not entitled to record notice until properly re-acknowledged Correct answer.

Explanation

A defective or forged acknowledgment does not destroy the conveyance between grantor and grantee, since delivery and a genuine signature are what transfer title. Recording statutes, however, protect later purchasers only through properly acknowledged instruments, so the flawed acknowledgment defeats constructive notice.

Question 30Real Estate Principles and Property Ownership

A landowner grants a neighbor the right to cross the landowner's parcel to reach a public road, and the right benefits the neighbor's adjoining property. This right is best classified as which of the following?

  1. An easement appurtenant Correct answer.
  2. An easement in gross
  3. A license revocable at will
  4. A profit a prendre

Explanation

An easement appurtenant benefits a particular parcel of land, called the dominant tenement, and passes automatically with that land when it is transferred. Because the right exists to serve the neighbor's adjoining property rather than a person, it runs with the land.

Question 31Property Valuation and Market Analysis

In a comparative market analysis for a residential letting, which adjustment is applied to the comparable's rent when the comparable has one bedroom more than the subject unit but is otherwise identical?

  1. Apply no adjustment because bedroom count is a physical characteristic
  2. Add the market-derived bedroom premium to the comparable's rent
  3. Deduct the market-derived bedroom premium from the comparable's rent Correct answer.
  4. Deduct the full comparable rent and substitute the subject's asking rent

Explanation

Adjustments are made to the comparable so that it reflects the subject's characteristics. When the comparable is superior in a feature, the value of that superiority is subtracted from the comparable's figure. The bedroom premium must be derived from local paired lettings rather than assumed.

Question 32Property Valuation and Market Analysis

Which statement best describes the role of a property's gross income multiplier in valuation?

  1. It converts a single year's gross income into an indicated capital value Correct answer.
  2. It converts net operating income into an indicated capital value
  3. It expresses the ratio of loan amount to purchase price
  4. It measures the annual depreciation of the building structure

Explanation

The gross income multiplier is derived from sale prices divided by gross income and is applied to the subject's gross income to indicate value. It deliberately ignores operating expenses, which distinguishes it from a capitalisation rate approach. This makes it a quick screening tool rather than a full income analysis.

Question 33Property Valuation and Market Analysis

A valuer inspects a flat and notes rising damp on the rear wall. Under the standard reporting framework, this observation is best classified as:

  1. A matter of legal title affecting marketability
  2. A planning constraint on permitted use
  3. An encumbrance recorded against the registered title
  4. A physical defect requiring disclosure and comment on value effect Correct answer.

Explanation

Damp is a physical condition observed at inspection and must be reported because it can affect value and marketability. Legal and planning matters are distinct categories that arise from documents rather than the physical inspection. The valuer should describe the defect and state whether it has been reflected in the valuation figure.

Question 34Property Valuation and Market Analysis

When selecting comparables for a valuation of a terraced house, which combination of factors most strengthens the evidence?

  1. Sales between related parties completed several years ago
  2. Similar location, type, size, condition and a recent arm's-length sale Correct answer.
  3. Any sale within the same postcode regardless of date or type
  4. Asking prices from current listings on the same street

Explanation

Comparable evidence is strongest when properties share location, physical characteristics and tenure and the transaction was recent and at arm's length. The valuer then adjusts for remaining differences. Weak comparables require larger adjustments and carry less weight.

Question 35Property Valuation and Market Analysis

A subject property has a floor area of 90 square metres. A comparable of 100 square metres sold recently for 300,000. Using a market-derived adjustment of 1,500 per square metre, what is the indicated value of the subject?

  1. 300,000
  2. 270,000
  3. 285,000 Correct answer.
  4. 315,000

Explanation

The comparable is 10 square metres larger, so the adjustment is 10 multiplied by 1,500, giving 15,000. Because the comparable is superior in size, that amount is deducted from its price. The indicated value is therefore 300,000 minus 15,000, or 285,000.

Question 36Property Valuation and Market Analysis

Which of the following is the clearest example of a market-wide factor that a valuer should analyse when assessing local values?

  1. Interest rates and local employment trends Correct answer.
  2. The number of bedrooms in the subject unit
  3. The tenure of the neighbouring property
  4. The condition of the subject property's roof

Explanation

Market-wide factors such as finance costs, employment and migration affect demand across a locality and therefore influence values generally. Property-specific attributes explain differences between individual units. A valuation blends both levels of analysis.

Question 37Property Valuation and Market Analysis

A valuer is asked to provide a rental assessment for a small retail unit. Which approach is most directly appropriate?

  1. Replacement cost of the building shell
  2. Comparable rents for similar retail units in the locality Correct answer.
  3. Capitalised value of the freehold using a yield
  4. Residual value of the tenant's business goodwill

Explanation

Rental assessments rely primarily on evidence of rents agreed for comparable premises, adjusted for differences in location, size, frontage and lease terms. Cost and yield-based capital approaches address capital value rather than rent. Business goodwill belongs to the occupier's enterprise and is not part of the property rent.

Question 38Property Valuation and Market Analysis

A comparable shop let recently at 24,000 per annum on a lease with a rent-free period of six months in the first year. Ignoring other differences, what effective annual rent does this evidence indicate?

  1. 24,000
  2. 22,000 Correct answer.
  3. 12,000
  4. 18,000

Explanation

An incentive must be reflected when analysing evidence because the headline rent overstates the true consideration. A six-month rent-free period in a one-year term equals a concession of 12,000 spread over that term. Deducting 2,000 per annum from the headline figure gives an effective rent of 22,000.

Question 39Property Valuation and Market Analysis

Which statement about a capitalisation rate derived from comparable sales is correct?

  1. It is set by the local planning authority
  2. It is calculated by dividing net operating income by sale price Correct answer.
  3. It equals the gross income multiplier
  4. It is calculated by dividing sale price by net operating income

Explanation

The capitalisation rate is the ratio of net operating income to sale price, so income is divided by price. Applying that rate to the subject's net income indicates capital value. It reflects investor expectations of risk and growth in the market.

Question 40Property Valuation and Market Analysis

During a market analysis the valuer finds only one recent sale in the immediate neighbourhood, and it involved a forced sale following a bereavement. What is the most appropriate treatment?

  1. Disregard all evidence and decline to provide a figure
  2. Use it as the primary comparable because it is the most recent
  3. Adjust it upward by an arbitrary percentage to reflect the forced circumstances
  4. Use it with caution and give weight to wider evidence from surrounding areas Correct answer.

Explanation

A forced sale may not reflect open market consideration, so it is weaker evidence. The valuer should still consider it but should test it against transactions from a wider area and adjust where the circumstances are known. Arbitrary uplifts are not defensible.

Question 41Property Valuation and Market Analysis

Which factor is most likely to explain why two identical flats in the same building achieve noticeably different sale prices?

  1. Both flats share the same lease length and service charge
  2. Both flats were built by the same contractor
  3. One flat has an open outlook while the other faces a busy road Correct answer.
  4. Both flats have the same energy performance rating

Explanation

Outlook and exposure to noise are locational attributes within a building that buyers price differently. Shared characteristics such as lease length, service charge, construction and energy rating would not explain a price gap. The valuer should identify and quantify such micro-location differences when adjusting comparables.

Question 42Property Valuation and Market Analysis

A valuer is assessing the highest and best use of a vacant corner site in a mixed-use area. Which test is applied first?

  1. Whether the use matches the current owner's preference
  2. Whether the use requires the least construction cost
  3. Whether the use is physically possible and legally permissible Correct answer.
  4. Whether the use produces the greatest architectural merit

Explanation

Highest and best use analysis begins with tests of physical possibility and legal permissibility, including planning. Only uses passing those tests are then examined for financial feasibility and maximum productivity. Owner preference and design merit are not the governing criteria.

Question 43Property Valuation and Market Analysis

A comparable office suite has a floor area of 200 square metres and let at 60,000 per annum. The subject suite has 250 square metres but a poorer floorplate configuration. Using a rate per square metre and a 5 percent deduction for configuration, what is the indicated rent?

  1. 78,750
  2. 71,250 Correct answer.
  3. 75,000
  4. 60,000

Explanation

The comparable rate is 300 per square metre, obtained by dividing 60,000 by 200. Applying that rate to 250 square metres gives 75,000, and a 5 percent deduction for the inferior configuration reduces this to 71,250. Each step must be supported by market evidence.

Question 44Property Valuation and Market Analysis

Which document would a valuer most likely consult to confirm whether a proposed extension to a dwelling has planning consent?

  1. The mortgage lender's valuation report
  2. The local planning authority's decision notice Correct answer.
  3. The registered title plan
  4. The energy performance certificate

Explanation

Planning consent is evidenced by the decision notice issued by the local planning authority. The title plan shows boundaries and registered extent rather than permissions. Energy certificates and previous valuation reports do not establish planning status.

Question 45Property Valuation and Market Analysis

In a discounted cash flow appraisal of a property investment, which change would reduce the indicated present value?

  1. Extending the holding period with unchanged cash flows
  2. Increasing the assumed rental growth rate
  3. Increasing the discount rate Correct answer.
  4. Reducing the discount rate

Explanation

A higher discount rate reduces the present value of future cash flows because each amount is discounted more heavily. Lower rates or higher growth assumptions increase present value. The sensitivity of the result to the discount rate should be tested and reported.

Question 46Property Valuation and Market Analysis

A valuer reports that a property is 'subject to a tenancy at will'. What is the practical significance for market value?

  1. The occupier has a secure long-term interest that transfers with the property
  2. The occupier owns the freehold reversion
  3. The occupier may be asked to leave at short notice, which can deter investors Correct answer.
  4. The occupier holds a lease exceeding 21 years

Explanation

A tenancy at will can be terminated by either party at short notice and offers no security of tenure. Investors may discount the property because income is uncertain and vacant possession is easily obtained. The valuer should reflect this in the capitalisation and in reporting.

Question 47Property Valuation and Market Analysis

When reconciling indications from the comparable, income and cost approaches, what is the valuer's primary task?

  1. Weighing the relevance and reliability of each approach for the property type Correct answer.
  2. Selecting the figure produced by the cost approach
  3. Averaging the three figures arithmetically
  4. Adopting the highest figure to protect the client

Explanation

Reconciliation is a matter of judgement in which the valuer considers which approaches best reflect the behaviour of buyers and sellers for that property type. Simple averaging is not a substitute for reasoning. The weighting and the reasons for it should be explained in the report.

Question 48Property Valuation and Market Analysis

A residential landlord's service charge has risen sharply, and the valuer is assessing the effect on unit values. Which reasoning is most sound?

  1. Service charges never affect capital values because they are recoverable
  2. The charge should be ignored because it can change annually
  3. Higher recurring charges reduce net income to the occupier and may depress value Correct answer.
  4. The charge affects only the landlord's accounts, not the units

Explanation

Service charges are a recurring cost of occupation and influence what buyers are prepared to pay. A sustained increase can reduce net effective costs to the occupier and thereby depress capital values. The valuer should compare charges with similar blocks when adjusting comparables.

Question 49Property Valuation and Market Analysis

A freehold industrial unit produces a net operating income of 80,000 per annum. Recent sales of similar units indicate a capitalisation rate of 8 percent. What capital value is indicated?

  1. 800,000
  2. 1,000,000 Correct answer.
  3. 640,000
  4. 1,250,000

Explanation

Capital value is found by dividing net operating income by the capitalisation rate. Dividing 80,000 by 0.08 gives 1,000,000. Multiplying income by the rate would be an error because the rate is a divisor, not a multiplier.

Question 50Property Valuation and Market Analysis

A valuer is asked to assess the effect of a new light rail stop on values in an adjacent neighbourhood. Which analytical method is most appropriate?

  1. Reviewing the tenant's business accounts
  2. Comparing sale prices before and after the announcement in the affected area against a control area Correct answer.
  3. Applying the cost approach to the rail infrastructure
  4. Estimating the replacement cost of local dwellings

Explanation

A before-and-after comparison against a control area helps isolate the effect of the infrastructure from general market movement. This is a form of difference-in-differences reasoning used in market analysis. Cost-based methods do not capture the external benefit conferred by accessibility.