Market rent differs from contract rent in that market rent is:
Correct Answer
B) What the space would command if leased today
Why this is correct: Market rent is an appraisal opinion of the most probable rent a property would command if leased on the open market under current conditions. This is distinct from the actual, or contract, rent of an existing lease. The income approach to value relies on this market-level estimate. Why the other choices are wrong: 'The rent stated in the existing lease' describes contract rent, not market rent. 'The rent net of all operating expenses' describes net income, not the rental rate itself. 'The simple average of all the rents in the building' is an arithmetic calculation that may include non-market or outdated leases and does not reflect current competitive conditions. Exam tip: Remember that 'market' terms in appraisal (rent, value, conditions) always refer to current, arm's-length, competitive open-market transactions, not to the specific facts of a single property.
Why This Is the Correct Answer
Why this is correct: Market rent is an appraisal opinion of the most probable rent a property would command if leased on the open market under current conditions. This is distinct from the actual, or contract, rent of an existing lease. The income approach to value relies on this market-level estimate. Why the other choices are wrong: 'The rent stated in the existing lease' describes contract rent, not market rent. 'The rent net of all operating expenses' describes net income, not the rental rate itself. 'The simple average of all the rents in the building' is an arithmetic calculation that may include non-market or outdated leases and does not reflect current competitive conditions. Exam tip: Remember that 'market' terms in appraisal (rent, value, conditions) always refer to current, arm's-length, competitive open-market transactions, not to the specific facts of a single property.
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A commercial office building is leased to a single tenant under a 20-year absolute net lease with rent escalating annually at 2.5% compounded. The tenant has invested $1.8 million in tenant improvements that will have no residual value at lease expiration. The appraiser is asked to value the leasehold interest. Which factor is MOST directly relevant to determining whether that interest has positive value?