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. In addition, market data shows that the term yield is 6%.

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

 

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

 

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

Prepare a valuation to show the junior valuer the correct approach.                    

Show the junior valuer how the equivalent yield for this property is calculated.