A 12-unit apartment building has a potential gross income of $120,000, comprised entirely of market rents. The market vacancy rate is 4%, but the subject's historical vacancy and collection loss over the past three years has averaged 9%. When developing an opinion of market value using the income approach, which vacancy rate should the appraiser use to estimate Effective Gross Income?

Option A: The lower 4% rate, as it reflects current market conditions.

Adopting 4 percent outright treats the market average as if it automatically overrides three years of contrary evidence from the subject itself. If the property has an inferior location within the submarket, a weak unit mix or a chronic functional issue, a typical buyer would underwrite a higher loss factor, and the 4 percent figure would overstate effective gross income. Market data sets the framework, but it does not excuse ignoring subject-specific facts.

Option B: The higher 9% rate, as it reflects the property's actual experience.

Using 9 percent because it is what actually happened confuses the actual owner with the typical buyer. Historical loss can be inflated by below-market management, poor screening or a lease-up period, none of which a market value opinion should perpetuate. Market value assumes competent management, so unadjusted owner history is data to be analyzed, not a conclusion.

Option D: Either rate is acceptable as long as it is disclosed.

Disclosure does not substitute for support. Standards Rule 1-1(b) and (c) require the appraiser to avoid substantial errors and to develop a credible opinion, and the Ethics Rule bars communicating a misleading report; saying which number you used does not make an unsupported number defensible. Two appraisers cannot reach materially different values from the same data and both be credible merely because each disclosed the choice.