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?
Correct Answer
D) 7% (the market vacancy rate plus the subject's collection loss)
Correct. USPAP and standard income approach practice require the use of market-derived data for the valuation. The market vacancy rate (6%) reflects typical market experience, which the appraiser must apply. The subject's collection loss is a property-specific, market-supported expense that should be added. Therefore, the total deduction for vacancy and collection loss should be the market vacancy rate (6%) plus the market-supported collection loss (1%), resulting in 7%. The subject's lower historical vacancy is not market-supported for the valuation.
Why This Is the Correct Answer
Correct. USPAP and standard income approach practice require the use of market-derived data for the valuation. The market vacancy rate (6%) reflects typical market experience, which the appraiser must apply. The subject's collection loss is a property-specific, market-supported expense that should be added. Therefore, the total deduction for vacancy and collection loss should be the market vacancy rate (6%) plus the market-supported collection loss (1%), resulting in 7%. The subject's lower historical vacancy is not market-supported for the valuation.
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A property sold for $2,400,000 with NOI of $168,000. Its overall rate is:
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An appraiser is analyzing a 50-unit apartment building. Market research indicates a stabilized vacancy and collection loss rate of 6%. The property's current occupancy is 98%, with all tenants in good standing. For the purpose of stabilizing the income stream in the direct capitalization model, the appraiser should apply the