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)

Prepare a 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)