An appraiser develops an income-approach cap-rate adjustment for tenant and lease differences. Which listed development provision most directly addresses analysis of comparable rental, expense and rate evidence?
Correct Answer
A) USPAP Standards Rule 1-4(c).
Standards Rule 1-4(c) addresses income-approach analysis of comparable rental, expense and capitalization or discount-rate evidence. Any cap-rate adjustment for tenant or lease differences needs support from that market evidence. SR 2-2 governs report content, and SR 1-2 governs problem identification. Neither one sets cap-rate adjustments. SR 1-4(b) governs the cost approach.
Why This Is the Correct Answer
Option A is correct because SR 1-4(c) governs the income approach and requires analysis of comparable rental data, operating expenses and capitalization or discount rate evidence. A cap-rate adjustment for tenant and lease differences needs support from that market evidence.
Why the Other Options Are Wrong
Option B: USPAP Standards Rule 2-2(a).
Option B is wrong because SR 2-2(a) addresses report content, not development of income approach evidence. It tells the appraiser what to report, not how to analyze rents and rates.
Option C: USPAP Standards Rule 1-4(b).
Option C is wrong because SR 1-4(b) governs the cost approach. It does not address rental, expense or capitalization rate evidence.
Option D: USPAP Standards Rule 1-2(e).
Option D is wrong because SR 1-2(e) is part of problem identification under SR 1-2. It does not set requirements for analyzing income approach data.
A, B, C: sales, cost, income
Within SR 1-4, the letters run a, b, c for sales comparison, cost and income, in that order.
How to use: Use this to match approach questions to the correct SR 1-4 subsection.
Exam Tip
Separate development rules in Standard 1 from reporting rules in Standard 2 before picking a citation.
Common Mistakes to Avoid
- -Citing a reporting rule for a development question
- -Mixing up the cost and income approach subsections
- -Confusing problem identification with approach development
Concept Deep Dive
Analysis
This question tests knowing which Standards Rule covers income approach development. The task involves comparable rental, expense and rate evidence, which falls under SR 1-4(c).
Background Knowledge
SR 1-4 lists the development requirements for the approaches to value: (a) sales comparison, (b) cost and (c) income. Standard 2 covers reporting, and SR 1-2 covers identifying the assignment problem.
Real-World Application
An appraiser valuing a shopping center adjusts the cap rate because one anchor tenant has a short remaining lease. The appraiser supports the adjustment with comparable lease and sale data under the income approach requirements.
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