RES exam question on Real Estate Market: Rachel, a valuer, must value a purpose-built school that has never been sold or let, so…
Rachel, a valuer, must value a purpose-built school that has never been sold or let, so she turns to the depreciated replacement cost method. Her junior drafts four notes for the file on how the method is built up. (i) Physical, functional and economic obsolescence is deducted from the value of the land. (ii) The rent the school could fetch is capitalised, and that figure forms the core of the valuation. (iii) It starts from the current cost of replacing the buildings with a modern equivalent. (iv) The market value of the land is added to the depreciated cost of the buildings. Which of the statements are correct?
- A(iii) and (iv) only
- B(i), (iii) and (iv) only
- C(ii), (iii) and (iv) only
- D(i) and (ii) only
Show answer & explanation
Answer
A. (iii) and (iv) only
Explanation
Answer: (iii) and (iv) only. Depreciation comes off the buildings, the land goes in at market value, and rent plays no part.(iii) True. The method starts from replacement cost: the cost to rebuild new.(iv) True. Value is the market value of the land plus the depreciated replacement cost of the buildings.Rule: The cost method is a last resort for special-purpose property that rarely trades and earns no income. Value is the market value of the land plus the depreciated replacement cost of the buildings: their cost to rebuild new, less depreciation for age and obsolescence.Source: RESPrep /learn/property-valuation-methods-singapore, current at 1 October 2026
Why the other options are wrong
- (i) False. Depreciation comes off the cost of the buildings, not the land.
- (ii) False. Capitalising rent is the investment method, which a school with no rent cannot use.
Study the concept behind this question: Property Valuation: The 5 Methods (with worked examples)
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