CPP41419 Property Valuation and Appraisal 1 — Questions and Answers
Question 1: What is the primary method used by real estate agents to estimate the market value of a residential property?
- Formal bank valuation
- Comparative market analysis (CMA) (Correct answer)
- Replacement cost method
- Gross rental yield calculation
Correct answer: Comparative market analysis (CMA)
Real estate agents primarily use a Comparative Market Analysis (CMA), which compares recent sales of similar properties in the same area to estimate market value.
Question 2: Which of the following factors is generally considered MOST important when selecting comparable sales for a residential property appraisal?
- The time the property has been on the market
- Proximity of the comparable properties to the subject property (Correct answer)
- The number of open homes held
- The vendor's asking price history
Correct answer: Proximity of the comparable properties to the subject property
Proximity is the most critical factor as properties in the same suburb or street share similar locational attributes, making them the most reliable comparables.
Question 3: In Australian real estate, who is legally authorised to provide a formal property valuation?
- A licensed real estate agent
- A certified practising valuer (CPV) (Correct answer)
- A registered property manager
- A licensed auctioneer
Correct answer: A certified practising valuer (CPV)
Only a certified practising valuer (CPV) registered under state legislation is legally authorised to provide a formal property valuation in Australia.
Question 4: What is the key difference between a price appraisal by a real estate agent and a formal property valuation?
- A price appraisal is legally binding; a valuation is not
- A formal valuation is prepared by a licensed valuer and is legally recognised, while a price appraisal is an agent's estimate (Correct answer)
- A price appraisal can be used for mortgage purposes; a valuation cannot
- There is no difference; both are equally valid for legal purposes
Correct answer: A formal valuation is prepared by a licensed valuer and is legally recognised, while a price appraisal is an agent's estimate
A formal valuation is conducted by a licensed valuer and is recognised for legal and lending purposes, whereas a price appraisal is an agent's market estimate not valid for formal financial purposes.
Question 5: Which of the following best describes 'capital growth' in residential property?
- The rental income generated by the property over time
- The increase in a property's market value over time (Correct answer)
- The amount of equity borrowed against a property
- The annual depreciation claimed on a property
Correct answer: The increase in a property's market value over time
Capital growth refers to the increase in a property's market value over time, which is a key measure of investment performance in Australian real estate.
Question 6: When conducting a comparative market analysis, which of the following should an agent adjust for when comparing properties?
- The agent's personal opinion of the neighbourhood
- Differences in property features such as number of bedrooms, land size, and condition (Correct answer)
- The vendor's emotional attachment to the property
- The number of agents who have previously listed the property
Correct answer: Differences in property features such as number of bedrooms, land size, and condition
When using comparable sales, agents must adjust for differences in features such as bedrooms, bathrooms, land size, and condition to ensure an accurate comparison.
Question 7: How many comparable sales should an agent ideally reference when preparing a residential price appraisal in Australia?
- Only one very recent sale from the same street
- A minimum of three recent comparable sales to support the estimated range (Correct answer)
- At least ten sales from across the state
- No comparable sales are required if the agent knows the area well
Correct answer: A minimum of three recent comparable sales to support the estimated range
Best practice and many state regulations require agents to reference at least three recent comparable sales to provide a credible, evidence-based price appraisal.
CPP41419 Property Valuation and Appraisal 1
What is the primary method used by real estate agents to estimate the market value of a residential property?