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
Correct Answer
A) 6% rate, as it is the market-derived stabilized rate.
Correct. When developing an opinion of market value, the income approach should reflect stabilized operations. The use of a market-derived, long-term vacancy and collection loss rate (6%) is appropriate to estimate Effective Gross Income, rather than a temporarily high or low actual rate. This follows the principle of normalizing income to reflect a typical level of operations. (AO-34, FNMA Selling Guide).
Why This Is the Correct Answer
Correct. When developing an opinion of market value, the income approach should reflect stabilized operations. The use of a market-derived, long-term vacancy and collection loss rate (6%) is appropriate to estimate Effective Gross Income, rather than a temporarily high or low actual rate. This follows the principle of normalizing income to reflect a typical level of operations. (AO-34, FNMA Selling Guide).
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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?
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Previous Question
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?
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Which item is properly excluded when computing net operating income?