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NIESV PPE practice questions

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Question 1Professional Practice, Ethics and Conduct

Under the NIESV professional code, an estate surveyor and valuer who is offered a gift by a client in appreciation of a valuation assignment should primarily be guided by which consideration?

  1. Whether the client insists on the gift being accepted before further instructions
  2. Whether other valuers in the same locality routinely accept similar gifts
  3. Whether accepting the gift could reasonably be seen as compromising the valuer's independence and objectivity Correct answer.
  4. Whether the gift exceeds the monetary value of the professional fee charged

Explanation

The core ethical standard is independence and objectivity: a valuer must not accept benefits that a reasonable observer could interpret as influencing professional judgement. The test is perception of compromised independence, not the size of the fee or local custom. Peer practice and client pressure never override this principle.

Question 2Professional Practice, Ethics and Conduct

Which statement best describes the duty of confidentiality owed by a member of NIESV to a client?

  1. Confidential information should not be disclosed without authority except where required by law or the public interest Correct answer.
  2. Client information may be disclosed freely once the assignment has been completed and the fee paid
  3. Confidentiality applies only to written documents and not to verbal instructions from the client
  4. A member may disclose client information to any fellow member for peer review without consent

Explanation

Confidentiality survives the end of the engagement and covers both written and oral information. Disclosure is permitted only with the client's authority or where law or overriding public interest compels it. Peer discussion without consent is not an exception.

Question 3Professional Practice, Ethics and Conduct

A member is instructed to value a property in which the member's spouse holds a substantial undisclosed ownership interest. What is the most appropriate professional response?

  1. Decline or disclose the interest and obtain informed consent before any further action Correct answer.
  2. Proceed with the valuation but reduce the fee to reflect the potential conflict
  3. Complete the valuation and disclose the interest only if the client later raises a complaint
  4. Proceed because the interest is held by the spouse and not by the member personally

Explanation

A material personal or family interest in the subject property is a conflict of interest that must be disclosed promptly and managed, usually by declining or by obtaining informed written consent. Silence or after-the-fact disclosure breaches the duty of transparency. Fee reduction does not cure the conflict.

Question 4Professional Practice, Ethics and Conduct

Which of the following best reflects the principle of professional competence expected of a NIESV member?

  1. Restricting practice to one asset class for the whole of one's professional life
  2. Declining work outside one's competence or obtaining appropriate specialist support Correct answer.
  3. Accepting every instruction offered in order to build a broad client base
  4. Relying solely on qualifications obtained at the point of registration for the entire career

Explanation

Competence requires that a member only undertake work they are equipped to perform, or else seek specialist assistance and supervision. Continuing professional development is expected throughout a career. Neither blanket acceptance nor permanent restriction to one asset class reflects the principle.

Question 5Professional Practice, Ethics and Conduct

A client asks a valuer to state a predetermined figure in a valuation report intended for a bank. The valuer should:

  1. Withdraw from the instruction and report the client to the police immediately
  2. Comply because the client is the one paying the professional fee
  3. Refuse to be directed on value and report only the valuer's independent opinion Correct answer.
  4. State the figure requested but add a disclaimer that the figure was supplied by the client

Explanation

The valuer's opinion must be independent and must not be dictated by the client, especially where a third party such as a lender will rely on the report. The fee source does not determine the content of a professional opinion. Withdrawal may follow but immediate criminal reporting is not the standard first step.

Question 6Professional Practice, Ethics and Conduct

Which of these is the primary purpose of a professional indemnity insurance policy held by an estate surveyor and valuer?

  1. To replace the need for a written terms of engagement with each client
  2. To guarantee that the member will never be sued by a dissatisfied client
  3. To protect the member against claims for negligence or error arising from professional work Correct answer.
  4. To cover the cost of routine maintenance on properties under management

Explanation

Professional indemnity insurance transfers the financial risk of negligence claims arising from professional services. It does not prevent claims, cover property maintenance, or substitute for a clear engagement letter. It is a risk-management tool, not a guarantee of immunity.

Question 7Professional Practice, Ethics and Conduct

A member is asked to act for both the buyer and the seller in the same transaction. The most defensible professional position is that:

  1. Dual agency is permitted only where the property is residential in nature
  2. Dual agency is acceptable if the member keeps separate files for each party
  3. Dual agency should be avoided because it creates an irreconcilable conflict of duty Correct answer.
  4. Dual agency is acceptable provided both parties are told the fee will be shared equally

Explanation

Acting for both sides in the same transaction places the member under conflicting duties of loyalty and confidentiality that generally cannot be reconciled. Separate files or shared fees do not resolve the underlying conflict. The safe professional course is to decline dual agency.

Question 8Professional Practice, Ethics and Conduct

Which conduct is most clearly inconsistent with the NIESV requirement to uphold the reputation of the profession?

  1. Attending a continuing professional development seminar on property law
  2. Publicly disparaging a competitor's competence in order to win an instruction Correct answer.
  3. Declining an instruction that falls outside the member's area of expertise
  4. Publishing a peer-reviewed article on valuation methodology

Explanation

Disparaging competitors to win work breaches the duty of professional courtesy and damages the reputation of the profession. Publishing, attending CPD, and declining out-of-scope work are all consistent with professional standards. Competition should be conducted on merit, not by denigration.

Question 9Professional Practice, Ethics and Conduct

A valuer discovers, after issuing a report, that a material factual error was made. According to sound professional practice, the valuer should:

  1. Promptly notify the client and issue a corrected report explaining the error Correct answer.
  2. Quietly amend the file copy without informing anyone
  3. Destroy the original report to avoid liability
  4. Wait for the client to notice the error before taking any action

Explanation

Candour requires prompt disclosure of material errors and correction of the record. Silence or concealment aggravates the harm and breaches the duty of honesty. Destroying records is both unethical and potentially unlawful.

Question 10Professional Practice, Ethics and Conduct

Which of the following best describes the role of a written terms of engagement letter in professional practice?

  1. It defines the scope, basis, and limitations of the assignment and manages client expectations Correct answer.
  2. It guarantees that the valuer's opinion will be accepted by a court
  3. It is optional and serves only as a marketing document
  4. It replaces the need for professional indemnity insurance

Explanation

A terms of engagement letter records the agreed scope, purpose, basis of valuation, assumptions, and fee, thereby managing expectations and reducing disputes. It does not substitute for insurance or bind a court. It is a substantive professional document, not marketing material.

Question 11Professional Practice, Ethics and Conduct

A member is offered an introduction fee by a mortgage broker for referring clients for valuation work. The member should:

  1. Accept the fee but keep it separate from the professional fee account
  2. Decline the fee or disclose it fully and obtain consent before the referral, in line with conflict-of-interest rules Correct answer.
  3. Accept the fee only if it is disclosed to the client after the valuation is completed
  4. Accept the fee because referral fees are a normal commercial arrangement

Explanation

Undisclosed referral fees create a conflict between the member's duty to the client and personal gain. The member must either decline the fee or disclose it transparently and obtain informed consent before acting. Post-completion disclosure defeats the purpose of consent.

Question 12Professional Practice, Ethics and Conduct

Which statement correctly describes the duty of a member regarding money held on behalf of clients?

  1. Client money need not be accounted for if the amount is below a set threshold
  2. Client money may be pooled with the firm's operating funds provided records are kept
  3. Client money should be held in a designated client account separate from the member's own funds Correct answer.
  4. Client money may be used temporarily to meet the firm's cash-flow needs

Explanation

Client money must be held in a designated client account and kept separate from the firm's own funds to prevent misuse. Pooling, temporary use, and ignoring small amounts all breach fiduciary duty. Accurate records and segregation are fundamental.

Question 13Professional Practice, Ethics and Conduct

A member is asked to provide an opinion on a property in a jurisdiction where the member has no knowledge of local planning law. The member should:

  1. Decline or engage a locally qualified specialist before providing the opinion Correct answer.
  2. Rely on the client's own understanding of local planning law
  3. Provide the opinion but state that local law was not considered
  4. Provide the opinion on the assumption that planning law is uniform everywhere

Explanation

Competence requires either declining work outside one's expertise or obtaining appropriate specialist input. Relying on the client or assuming uniformity of law is unsafe. A bare disclaimer does not cure the absence of the required expertise.

Question 14Professional Practice, Ethics and Conduct

Which of the following best captures the meaning of objectivity in valuation practice?

  1. Adopting the client's preferred figure when the evidence is ambiguous
  2. Forming an opinion based on evidence and analysis, free from bias or undue influence Correct answer.
  3. Maintaining the same opinion across all assignments to show consistency
  4. Deferring to the most senior valuer in the firm on every assignment

Explanation

Objectivity means the opinion is grounded in evidence and professional judgement rather than client preference, personal interest, or deference. Consistency across assignments is not the same as objectivity. Deference to seniority does not replace independent analysis.

Question 15Professional Practice, Ethics and Conduct

A member is instructed by a developer to value a scheme in which the member has been promised a success fee contingent on the valuation reaching a target figure. The member should:

  1. Accept but disclose the arrangement to the lender who will rely on the report
  2. Decline the instruction because the contingent fee destroys independence Correct answer.
  3. Accept the instruction because success fees are common in development work
  4. Accept and cap the success fee at a modest percentage of the valuation

Explanation

A fee contingent on achieving a particular valuation outcome directly compromises independence and creates an incentive to reach the target. Disclosure to a third party does not remove the bias. The instruction should be declined or restructured on a non-contingent basis.

Question 16Professional Practice, Ethics and Conduct

Which of these best describes the professional obligation of a member towards continuing professional development (CPD)?

  1. Members should undertake relevant CPD to maintain and update their competence throughout their career Correct answer.
  2. CPD is a voluntary activity with no bearing on fitness to practise
  3. CPD is satisfied by attending any social event organised by the professional body
  4. CPD is required only in the first year after qualification

Explanation

CPD is an ongoing obligation to keep knowledge and skills current so that clients receive competent advice. It is not confined to the first year or to social functions. It is a substantive requirement linked to fitness to practise.

Question 17Professional Practice, Ethics and Conduct

A member receives a court summons to give evidence as an expert witness in a valuation dispute. Which principle governs the member's duty?

  1. The member's overriding duty is to the court to provide independent and impartial evidence Correct answer.
  2. The member's duty is to the party who instructed and paid for the report
  3. The member should advocate the instructing party's case as strongly as possible
  4. The member may withhold unfavourable findings to protect the instructing party

Explanation

An expert witness owes an overriding duty to the court to give independent, impartial evidence, which takes precedence over the duty to the instructing party. Advocacy and selective withholding of unfavourable findings undermine the expert's role. The instructing party's payment does not change this duty.

Question 18Professional Practice, Ethics and Conduct

A member is asked to backdate a valuation report to a date before the inspection actually took place. The member should:

  1. Backdate the report because the client needs it for a loan application
  2. Ask a colleague to sign the backdated report instead
  3. Refuse to misrepresent the date and report the true date of inspection and valuation Correct answer.
  4. Backdate the report but note the true date in a private file

Explanation

Backdating a report to a date before the inspection misrepresents the factual basis of the opinion and is a form of dishonesty. The report must reflect the true dates of inspection and valuation. Involving a colleague does not cure the misrepresentation.

Question 19Professional Practice, Ethics and Conduct

Which of the following is the most appropriate way for a member to handle a client's complaint about the quality of a valuation?

  1. Threaten legal action against the client to discourage further complaint
  2. Ignore the complaint in the hope that the client will drop the matter
  3. Discuss the complaint publicly on social media to defend the firm's reputation
  4. Engage with the complaint through a documented complaints procedure and respond promptly Correct answer.

Explanation

A documented complaints procedure with prompt, professional responses is the proper route to resolving disputes and learning from them. Ignoring complaints, threatening clients, or public discussion all escalate matters and damage the profession. Transparency and record-keeping are essential.

Question 20Professional Practice, Ethics and Conduct

A member is invited to serve on the board of a property company that regularly instructs the member's firm. Which action best manages the resulting conflict?

  1. Decline the appointment because members may never hold company directorships
  2. Accept the appointment, disclose the relationship, and put safeguards in place or decline instructions from the company Correct answer.
  3. Accept the appointment and continue to accept instructions from the company without disclosure
  4. Accept the appointment and resign from the firm's professional body

Explanation

Board membership alongside a client relationship creates a conflict that must be disclosed and managed, typically through safeguards or by declining the related instructions. Members are not barred from directorships in principle. Silence about the relationship is the failure to avoid.

Question 21Professional Practice, Ethics and Conduct

Which statement best explains why a member should keep proper records of instructions, inspections, and advice?

  1. Records provide an evidential trail, support accountability, and protect both client and member Correct answer.
  2. Records are kept only to satisfy the firm's accountant at year end
  3. Records are required only where the property value exceeds a set figure
  4. Records may be discarded once the fee has been received

Explanation

Proper records create an evidential trail that supports accountability, defends the member against unfounded claims, and protects client interests. Record-keeping is not confined to accounting or high-value matters, and records should be retained for an appropriate period after payment.

Question 22Professional Practice, Ethics and Conduct

A member learns that a colleague is systematically overstating valuations to help clients obtain larger mortgages. What is the most appropriate first step?

  1. Confront the colleague publicly in front of clients
  2. Report the matter internally through the firm's whistleblowing or ethics channel Correct answer.
  3. Join in the practice to remain competitive
  4. Ignore the matter because it is the colleague's responsibility

Explanation

Suspected misconduct should be raised through the proper internal ethics or whistleblowing channel so it can be investigated and addressed. Public confrontation, silence, or participation are all inappropriate. If internal channels fail, escalation to the professional body may follow.

Question 23Professional Practice, Ethics and Conduct

Which of the following best describes the standard of care owed by an estate surveyor and valuer to a client?

  1. The standard of an ordinary member of the public acting reasonably
  2. The standard set by the client in the terms of engagement
  3. The standard reasonably expected of a competent professional in the relevant field Correct answer.
  4. The standard of the most highly qualified valuer in the country

Explanation

The standard of care is that of a reasonably competent professional practising in the relevant field, judged against accepted professional practice at the time. It is neither the layperson's standard nor an impossible best-in-country benchmark, and the client cannot unilaterally set the legal standard.

Question 24Professional Practice, Ethics and Conduct

A member is asked to value a property for probate purposes and is also a beneficiary under the will. What is the correct professional course?

  1. Proceed but value the property conservatively to protect the estate
  2. Decline the instruction because a material personal interest creates a conflict of interest Correct answer.
  3. Proceed and disclose the interest only to the other beneficiaries after completion
  4. Proceed, since the valuation is a routine administrative task

Explanation

A direct beneficial interest in the estate creates a material conflict between the member's personal gain and the duty to give an independent valuation. The instruction should be declined or referred to an independent valuer. Adjusting the value or late disclosure does not resolve the conflict.

Question 25Valuation of Real Property

In the income capitalisation approach to property valuation, which formula correctly expresses the relationship between capital value, net operating income and the capitalisation rate?

  1. Capital value equals net operating income divided by the capitalisation rate Correct answer.
  2. Capital value equals net operating income minus the capitalisation rate
  3. Capital value equals net operating income multiplied by the capitalisation rate
  4. Capital value equals the capitalisation rate divided by net operating income

Explanation

The capitalisation rate converts a single year's net operating income into an indication of value, so value is income divided by the rate. A property producing ₦2,000,000 net income at a 10% rate is capitalised at ₦20,000,000. Multiplying or subtracting the rate produces figures with no valuation meaning.

Question 26Valuation of Real Property

A valuer is instructed to assess the most probable price at which a property should exchange on the valuation date between a willing buyer and a willing seller, both acting knowledgeably and without compulsion. Which basis of value does this describe?

  1. Forced sale value
  2. Investment value
  3. Depreciated replacement cost
  4. Market value Correct answer.

Explanation

Market value is defined by the willing-buyer, willing-seller test, with both parties reasonably informed and acting without compulsion. Forced sale value assumes a seller under duress, while investment value reflects the worth to a particular owner. Depreciated replacement cost is a method rather than a basis of value.

Question 27Valuation of Real Property

Which statutory instrument principally governs the registration of title to land and the protection of transactions in land in Nigeria's former federal capital territory and other states that have adopted it?

  1. The Companies and Allied Matters Act
  2. The Stamp Duties Act
  3. The Land Registration Act Correct answer.
  4. The Land Use Act 1978

Explanation

The Land Registration Act provides for the registration of title to land and instruments affecting land, supporting the integrity of transactions a valuer relies upon. The Land Use Act vests all land in the state governor and governs rights of occupancy rather than title registration itself. The other statutes deal with taxation and company law.

Question 28Valuation of Real Property

A valuer measures a rectangular office floor that is 20 metres long and 15 metres wide. What is the gross floor area of that floor?

  1. 600 square metres
  2. 150 square metres
  3. 35 square metres
  4. 300 square metres Correct answer.

Explanation

Gross floor area for a rectangular floor is length multiplied by width, so 20 metres times 15 metres equals 300 square metres. Adding the sides gives a perimeter-related figure, not an area. Area is always expressed in square units derived from multiplying two linear dimensions.

Question 29Valuation of Real Property

In the valuation of leasehold interests, what does the term 'unexpired term' refer to?

  1. The notice period required to terminate the tenancy
  2. The total number of years originally granted under the lease
  3. The period already elapsed since the lease was granted
  4. The number of years remaining on the lease from the valuation date to its expiry Correct answer.

Explanation

The unexpired term is the residue of the lease still running at the date of valuation, and it drives the years' purchase multiplier used to capitalise rental income. The original term is the total grant, while the elapsed period is the expired portion. The notice period is a separate contractual matter.

Question 30Valuation of Real Property

Which approach to valuation is most appropriate for a specialised property such as a purpose-built hospital or a public utility installation that is rarely sold on the open market?

  1. Depreciated replacement cost approach Correct answer.
  2. Comparable sales approach
  3. Residual method
  4. Profits method

Explanation

Depreciated replacement cost estimates the cost of replacing the asset and deducts accrued depreciation, which suits specialised properties with no active market. The comparable sales approach needs transaction evidence, and the profits and residual methods depend on trading or development assumptions. Specialised assets are therefore valued on a cost basis as a proxy for market value.

Question 31Valuation of Real Property

A valuer is instructed to value a property for mortgage lending purposes. Which basis of value is normally adopted for this instruction?

  1. Market value Correct answer.
  2. Marriage value
  3. Going concern value
  4. Insurance reinstatement value

Explanation

Mortgage lenders require an opinion of market value because their security depends on what the property would realise in the open market. Going concern value applies to an operating business, while reinstatement value relates to rebuilding costs for insurance. Marriage value arises only where the merging of interests creates additional value.

Question 32Valuation of Real Property

In property valuation terminology, what is 'rental value'?

  1. The total rent collected over the whole lease term
  2. The rent actually payable under an existing lease
  3. The estimated rent at which a property would let on the open market between willing parties Correct answer.
  4. The rent deposit held by a landlord as security

Explanation

Rental value, also called market rent, is the best rent obtainable on the open market at the valuation date between a willing lessor and willing lessee. It is an estimate, distinct from the passing or contract rent actually reserved in a lease. The total rent over a term and any deposit are different concepts.

Question 33Valuation of Real Property

A freehold property produces a net income of ₦1,200,000 per annum and is capitalised at 8%. Using the simple income capitalisation method, what is the indicated capital value?

  1. ₦15,000,000 Correct answer.
  2. ₦9,600,000
  3. ₦96,000
  4. ₦1,296,000

Explanation

Capital value equals net income divided by the capitalisation rate, so ₦1,200,000 divided by 0.08 gives ₦15,000,000. The calculation converts a single year's income into a capital sum reflecting the yield required. Multiplying the income by the rate or adding it to the income does not produce a capital value.

Question 34Valuation of Real Property

A leasehold interest has 12 years unexpired, and the appropriate years' purchase figure for the remaining term at the relevant yield is 7.5. If the net income is ₦800,000 per annum, what is the value of the leasehold interest?

  1. ₦6,000,000 Correct answer.
  2. ₦9,600,000
  3. ₦10,666,667
  4. ₦5,000,000

Explanation

The value of a terminable income stream is the annual net income multiplied by the years' purchase factor, so ₦800,000 times 7.5 equals ₦6,000,000. Dividing income by the factor or applying a different multiplier gives an incorrect result. The years' purchase already accounts for the finite 12-year term.

Question 35Valuation of Real Property

In the residual method of development appraisal, which item is deducted from the gross development value to arrive at the residual land value?

  1. The purchase price of comparable land only
  2. Only the construction cost of the building
  3. Construction costs, professional fees, finance charges, developer's profit and contingency Correct answer.
  4. The rental income capitalised at the market yield

Explanation

The residual method deducts all development costs, including construction, fees, finance, contingency and an allowance for developer's profit, from the completed development value. What remains is the amount available to pay for the land. Deducting only one cost element or using comparables alone would not produce a residual land value.

Question 36Valuation of Real Property

Which method of valuation is most suitable for a hotel, where value depends primarily on the trading potential of the business rather than on the physical building alone?

  1. Profits method Correct answer.
  2. Depreciated replacement cost approach
  3. Comparable sales approach
  4. Investment method using market rent

Explanation

The profits method capitalises the maintainable trading profit of a business to arrive at the value of the property as an operational entity. It is used where the property's value is inseparable from the trade carried on, such as hotels, pubs and filling stations. Comparable sales may support the result but do not capture trading potential directly.

Question 37Valuation of Real Property

A valuer must value the freehold interest in a shop let to a tenant at a passing rent below the current market rent. Which factor explains why the freehold has additional value beyond the capitalised passing income?

  1. The depreciation of the building over time
  2. The landlord's obligation to insure the building
  3. The tenant's right to occupy the premises indefinitely
  4. The reversionary potential arising when the lease can be reviewed or renewed to market rent Correct answer.

Explanation

Where passing rent is below market rent, the landlord holds a reversion to a higher income at review or lease renewal, and this reversionary potential adds to value. A term-and-reversion valuation captures both the current income and the expected uplift. The tenant has no indefinite right, and insurance and depreciation do not create this uplift.

Question 38Valuation of Real Property

In the investment method, what does the 'years' purchase' figure represent?

  1. The present value of one unit of income received annually for a given number of years at a specified yield Correct answer.
  2. The annual rent divided by the capital value
  3. The number of years the property has been owned
  4. The number of years remaining before the building must be demolished

Explanation

Years' purchase is the present value of an annuity of one unit of income over a defined period at a given rate, so multiplying it by the annual income gives the capital value. It is derived from the present value of an annuity formula. It does not measure ownership duration or building life, and the rent-to-value ratio is the inverse relationship.

Question 39Valuation of Real Property

A valuer is assessing the effect of physical deterioration on a 30-year-old warehouse. Which concept describes the loss in value caused by wear and tear, age and disrepair, as distinct from external obsolescence?

  1. Betterment
  2. Physical depreciation Correct answer.
  3. Economic obsolescence
  4. Functional obsolescence

Explanation

Physical depreciation is the loss in value from deterioration, wear and tear and the action of the elements on the structure. Functional obsolescence arises from outdated design or facilities within the property, while economic obsolescence stems from external factors. Betterment refers to improvements that increase value.

Question 40Valuation of Real Property

When valuing a property under the comparable sales approach, which adjustment is required when the comparable sold some months before the valuation date in a rising market?

  1. An adjustment for the seller's personal circumstances
  2. No adjustment, because comparable sales are always taken at face value
  3. An adjustment only for the size of the property
  4. An adjustment to reflect the change in market conditions between the sale date and the valuation date Correct answer.

Explanation

Comparable evidence must be adjusted for any movement in market conditions between the transaction date and the valuation date, especially in a rising market. Adjustments may also be needed for differences in location, size, condition and tenure. Ignoring the time lag would understate value in an appreciating market.

Question 41Valuation of Real Property

A valuer is asked to advise on the market value of a property that is subject to a restrictive covenant limiting its use to residential purposes. How should the valuer treat the covenant?

  1. Reflect it as a legal limitation that may restrict the range of purchasers and the use, thereby affecting value Correct answer.
  2. Ignore it, because covenants do not affect market value
  3. Value the property as if the covenant had been removed
  4. Add the cost of removing the covenant to the market value

Explanation

A restrictive covenant is an encumbrance that can limit the use and the pool of potential purchasers, and the valuer must reflect this in the opinion of value. The valuer should consider whether the covenant is enforceable and whether it can be modified. Ignoring it or assuming removal would misstate the market position.

Question 42Valuation of Real Property

Which of the following best describes the 'investment value' of a property?

  1. The value of the property to a lender as security for a mortgage
  2. The cost of replacing the property with a modern equivalent
  3. The value of the property to a particular investor based on that investor's required return and objectives Correct answer.
  4. The price at which the property would sell in the open market

Explanation

Investment value is the worth of an asset to a specific investor, reflecting that investor's criteria, required return and circumstances. It may differ from market value because it is personal to the holder. Market value, replacement cost and mortgage lending value are distinct concepts.

Question 43Valuation of Real Property

In a term-and-reversion valuation of a freehold let at a rent below market, why is the reversion capitalised at a different yield from the term?

  1. Because yields must always be identical for all interests
  2. Because the reversion is received further in the future and carries greater risk, so a higher yield is often applied Correct answer.
  3. Because the reversion is always received sooner than the term income
  4. Because the term income is riskier than the reversion

Explanation

The reversion is a future capital sum subject to greater uncertainty and deferment, so valuers often apply a higher yield to it than to the secure term income. The term income is relatively certain because it is contracted. Using a higher yield for the reversion reflects the increased risk and timing.

Question 44Valuation of Real Property

A developer is appraising a site where the completed scheme has a gross development value of ₦500,000,000. Total development costs including fees, finance and contingency are ₦380,000,000, and the developer requires a profit of 20% of gross development value. What is the residual land value before purchase costs?

  1. ₦100,000,000
  2. ₦120,000,000
  3. ₦80,000,000
  4. ₦20,000,000 Correct answer.

Explanation

Profit at 20% of gross development value is ₦100,000,000. Deducting this and the ₦380,000,000 costs from ₦500,000,000 leaves a residual land value of ₦20,000,000. The calculation shows how sensitive land value is to the profit allowance and cost assumptions.

Question 45Valuation of Real Property

A valuer is valuing a property where the current use is not the most profitable use permissible. Under the highest and best use principle, what should the valuer consider?

  1. The current use only, because existing use is always the basis of value
  2. The use preferred by the current owner
  3. The use with the lowest development cost
  4. The use that is legally permissible, physically possible, financially feasible and produces the highest value Correct answer.

Explanation

Highest and best use is the reasonably probable use that is legally permissible, physically possible, financially feasible and results in the highest value. It may differ from the existing use and is fundamental to market value. Owner preference or lowest cost are not the tests.

Question 46Valuation of Real Property

In the valuation of a leasehold interest subject to a ground rent, how does the ground rent affect the value of the leasehold to the lessee?

  1. It is deducted from the income produced by the property when computing the net income to the lessee Correct answer.
  2. It is added to the leasehold value as an income benefit
  3. It has no effect on the leasehold value
  4. It is capitalised separately and added to the reversion

Explanation

The lessee receives the income from the property but must pay the ground rent to the freeholder, so the ground rent is a deduction in arriving at the net income attributable to the leasehold. The leasehold value reflects only the surplus after that payment. Adding it or ignoring it would misstate the lessee's interest.

Question 47Valuation of Real Property

Which statement correctly distinguishes 'market rent' from 'passing rent' in the valuation of an investment property?

  1. Market rent is the open market estimate at the valuation date, while passing rent is the rent currently payable under the lease Correct answer.
  2. Passing rent is the rent payable after the next review, while market rent is the rent before review
  3. Market rent and passing rent are always identical
  4. Market rent is the rent actually reserved in the lease, while passing rent is the open market estimate

Explanation

Market rent is the estimated open market rent at the valuation date, whereas passing rent is the contractual rent currently being paid. The two diverge when leases were agreed at different times or on different terms. This distinction underpins term-and-reversion valuations.

Question 48Valuation of Real Property

A valuer is instructed to provide a valuation for financial reporting under a fair value basis. Which consideration most directly affects the choice of valuation technique?

  1. The preference of the property's caretaker
  2. The age of the valuer's professional indemnity policy
  3. The availability and reliability of market evidence and the nature of the asset Correct answer.
  4. The valuer's personal familiarity with one method

Explanation

The choice of technique under fair value depends on the nature of the asset and the availability and reliability of market inputs, with observable market data preferred where it exists. Fair value measurement prioritises market-based evidence over entity-specific assumptions. Personal familiarity or unrelated preferences are not valid determinants.

Question 49Valuation of Real Property

In the context of property taxation and rating valuation, what is the 'rateable value' of a hereditament generally intended to represent?

  1. The cost of repairs required to the property
  2. The capital sum the property would fetch if sold
  3. The outstanding mortgage secured on the property
  4. The annual rent at which the property might reasonably be expected to let Correct answer.

Explanation

Rateable value is generally based on the annual rent at which a hereditament might reasonably be expected to let, reflecting its rental value rather than its capital price. Rating assessments use this annual basis to apportion the tax burden. Capital value, repair cost and mortgage debt are separate matters.

Question 50Valuation of Real Property

A valuer is preparing a valuation of a commercial office block and must state the basis of value on which the figure is founded. Which basis is defined as the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing, where each party has acted knowledgeably, prudently and without compulsion?

  1. Forced sale value
  2. Investment value
  3. Market rent
  4. Market value Correct answer.

Explanation

Market value is the internationally recognised basis describing an arm's length exchange between a willing buyer and willing seller after proper marketing, with both parties acting knowledgeably and without compulsion. It is the default basis for most valuations unless the instruction specifies otherwise.