Contract rent above market rent creates, from the landlord's perspective:
Correct Answer
B) A leased fee advantage lasting until the lease expires
Why this is correct: The governing concept is the leased fee estate, which is the landlord's interest subject to a lease. When contract rent exceeds market rent, the landlord receives an above-market income stream. This creates a positive leasehold advantage for the landlord, known as a leased fee advantage. The original explanation correctly states this is an asset acquired with the property, valued as the present value of the excess rent over the remaining lease term. Why the other choices are wrong: 'An immediate reduction in the property's value' is wrong because above-market rent increases the landlord's income stream, which typically increases value. 'A leasehold advantage belonging to the tenant' is wrong; a leasehold advantage for the tenant occurs when contract rent is below market rent. 'No effect, since market rent governs all valuations' is wrong because appraisers must analyze the actual lease contract; above-market rent directly impacts the leased fee value. Exam tip: Remember the mirror relationship: above-market rent = leased fee advantage; below-market rent = leasehold advantage.
Why This Is the Correct Answer
Why this is correct: The governing concept is the leased fee estate, which is the landlord's interest subject to a lease. When contract rent exceeds market rent, the landlord receives an above-market income stream. This creates a positive leasehold advantage for the landlord, known as a leased fee advantage. The original explanation correctly states this is an asset acquired with the property, valued as the present value of the excess rent over the remaining lease term. Why the other choices are wrong: 'An immediate reduction in the property's value' is wrong because above-market rent increases the landlord's income stream, which typically increases value. 'A leasehold advantage belonging to the tenant' is wrong; a leasehold advantage for the tenant occurs when contract rent is below market rent. 'No effect, since market rent governs all valuations' is wrong because appraisers must analyze the actual lease contract; above-market rent directly impacts the leased fee value. Exam tip: Remember the mirror relationship: above-market rent = leased fee advantage; below-market rent = leasehold advantage.
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