You are a qualified valuer with a graduate valuer working under your supervision. You want to train up this junior valuer and give him a valuation task using the following data:

A freehold shop with an existing tenancy that will expire in 3 years. The existing annual rent is$42,500 gross, and the outgoings are at 25% of gross rent. The capitalisation rate for similar properties is 7% and the current full market gross rent is $50,000 p.a.

The junior valuer has prepared the following valuation for your scrutiny.

Annual gross rent$42,500Less outgoings @ 25%$10,625Net rent$31,875YP in perp @ 7%14.2857Market value$455,357, say, $456,000

Comment on the validity of this valuation. Is it correct? If not, what is wrong?(10 marks)

Complete valuation to show the junior valuer the correct approach.(10 marks)

Show the junior valuer how the equivalent yield for this property is calculated.(10 marks)