A tenant pays $18 per square foot under a lease signed years ago; similar space now commands $24. The $18 figure is the:
Correct Answer
A) Contract rent, and the leased fee reflects being bound to it
Why this is correct: 'Contract rent' is the actual rent specified in the lease. The 'leased fee' estate is the landlord's interest, which is burdened by this below-market contract rent during the lease term. Why the other choices are wrong: 'The market rent, since a real tenant is actually paying it' confuses contract rent with market rent; market rent is current market rate. 'The effective rent after netting out landlord concessions' refers to net effective rent considering concessions, not the contract rate. 'The excess rent generated by the location's foot traffic' is not a standard term; excess rent would be above market. Exam tip: Contract rent = lease rate; Market rent = current rate. A below-market contract rent creates a leasehold value for the tenant.
Why This Is the Correct Answer
Why this is correct: 'Contract rent' is the actual rent specified in the lease. The 'leased fee' estate is the landlord's interest, which is burdened by this below-market contract rent during the lease term. Why the other choices are wrong: 'The market rent, since a real tenant is actually paying it' confuses contract rent with market rent; market rent is current market rate. 'The effective rent after netting out landlord concessions' refers to net effective rent considering concessions, not the contract rate. 'The excess rent generated by the location's foot traffic' is not a standard term; excess rent would be above market. Exam tip: Contract rent = lease rate; Market rent = current rate. A below-market contract rent creates a leasehold value for the tenant.
More income-approach Questions
In a percentage lease, rent is commonly structured as:
Escalation clauses and expense stops in a lease matter to the income analysis because they:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Two identical buildings differ only in risk: one has a single tenant on a short lease, the other five tenants on staggered terms. How do their cap rates compare?
Contract rent on a leased office is $30 per sq ft; market rent is $26. The $4 difference is called:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An appraiser is analyzing a 15-unit apartment building. Market research indicates a 6% vacancy rate is typical for similar properties, but this property's historical vacancy has averaged 4%. The subject has experienced a 1% collection loss (uncollectible rents) over the past two years. When estimating effective gross income for the subject, what vacancy and collection loss percentage should the appraiser apply?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam
Previous Question
An appraiser extracts overall capitalization rates (Ro) from four recent sales of retail strip centers. All properties are leased at or near market rent, have stable occupancy, and are subject to similar property tax and insurance conditions. One sale yields Ro = 5.9%, another Ro = 6.3%, a third Ro = 6.7%, and the fourth Ro = 7.1%. The appraiser determines the subject property faces greater long-term tenant turnover risk due to its reliance on short-term leases and less diversified tenant base. Assuming no other material differences, what is the most defensible Ro to apply to the subject, based on direct capitalization theory and market evidence?
Next Question
Owner-performed maintenance that is not paid for should be treated by: