A vacancy and collection loss allowance should be derived from:
Correct Answer
C) Market evidence for competing properties of that type
Why this is correct: As the original explanation notes, a vacancy and collection loss allowance is a forward-looking, stabilized estimate. It should be based on market evidence (e.g., surveys of comparable properties) to reflect typical market conditions, not the subject's unique history or arbitrary rules. Why the other choices are wrong: 'The property's own vacancy in the single best year on record' is not representative of a typical year. 'A fixed five percent applied to every income property type' ignores property-specific and market-specific risks. 'The lender's underwriting minimum' is a financing criterion, not a market-derived estimate. Exam tip: Stabilized vacancy = market-based, not property-specific or rule-of-thumb.
Why This Is the Correct Answer
Why this is correct: As the original explanation notes, a vacancy and collection loss allowance is a forward-looking, stabilized estimate. It should be based on market evidence (e.g., surveys of comparable properties) to reflect typical market conditions, not the subject's unique history or arbitrary rules. Why the other choices are wrong: 'The property's own vacancy in the single best year on record' is not representative of a typical year. 'A fixed five percent applied to every income property type' ignores property-specific and market-specific risks. 'The lender's underwriting minimum' is a financing criterion, not a market-derived estimate. Exam tip: Stabilized vacancy = market-based, not property-specific or rule-of-thumb.
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