Other conditions equal, net comparable apartments available for rent increase while effective demand for that segment remains unchanged. What competitive pressure on new-lease asking rents is most likely?
Correct Answer
D) Downward pressure as vacancy rises
With unchanged effective demand and additional competing available units, rental competition tends to create downward asking-rent pressure, other things equal. Signed lease rents do not instantly reset. Population alone would not establish that demand was unchanged.
Why This Is the Correct Answer
Option D is correct because when market supply increases while market demand remains constant, price tends to decrease. In a rental market, the extra competing units tend to raise vacancy and lead landlords to lower asking rents or offer concessions to attract tenants. Rents on already signed leases do not reset instantly, so the pressure appears mainly in new-lease asking rents.
Why the Other Options Are Wrong
Option A: An immediate increase in construction costs
Option A, an immediate increase in construction costs, does not follow from more available apartments with unchanged demand. Construction costs are a separate matter, and the question asks about pressure on asking rents.
Option B: Upward pressure from the newer inventory
Option B, upward pressure from the newer inventory, reverses the supply-and-demand effect. More competing units with unchanged demand tend to push asking rents down, not up.
Option C: No change, since rents are set by contract
Option C, no change because rents are set by contract, confuses existing signed leases with new-lease asking rents. Existing contract rents may stay fixed, but asking rents for new leases respond to competition.
More units, softer rents
More competing apartments chasing the same number of renters means landlords must compete harder, which tends to soften asking rents.
How to use: Use this when a question changes supply while holding demand constant.
Exam Tip
Note phrases like 'other conditions equal' and 'demand remains unchanged'; they signal a straightforward supply-and-demand question.
Common Mistakes to Avoid
- -Assuming newer inventory raises rents for all competing units
- -Treating fixed contract rents as proof that market rents cannot change
- -Confusing construction cost changes with rent pressure
Concept Deep Dive
Analysis
This question tests the basic supply-and-demand relationship applied to rental housing. When supply of competing units rises while effective demand stays the same, more units compete for the same pool of renters. That tends to raise vacancy and put downward pressure on asking rents for new leases, other things equal.
Background Knowledge
Price in a market tends to move toward the point where supply and demand balance. If supply rises and demand is unchanged, excess supply tends to reduce price; if demand rises and supply is unchanged, price tends to increase. Appraisers apply this to rents, vacancy and concessions when analyzing income property markets.
Real-World Application
Two new apartment complexes open in a submarket where job and household growth have been flat. An appraiser analyzing a nearby complex finds rising vacancy and more move-in concessions, and reflects softer new-lease rents in the market rent analysis.
More Market Questions
In market area analysis, what characteristic distinguishes a district from a neighborhood?
Under USPAP Standards Rule 1-3(a), which item must an appraiser identify and analyze when necessary for credible results in a market value assignment?
How does the Fannie Mae Selling Guide define a neighborhood?
Several homes in a neighborhood are vacant and boarded up. Which market force does Fannie Mae classify this as?
Infrastructure investment such as a new interchange typically affects nearby land by:
A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
An appraiser believes, without market evidence, that a nearby group home lowers values. What does Fannie Mae require?
Which three categories are used to report the supply of properties in a Fannie Mae neighborhood section?
An appraiser is asked for a retrospective value opinion as of three years ago. When must the appraiser meet the Competency Rule?
Can mixed land uses in a residential neighborhood ever enhance home values, according to Fannie Mae?
People Also Study
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
Seven recent closed sales in the subject’s competitive market have sale-to-list ratios (sale price ÷ most recent list price) of 0.95, 0.97, 0.98, 0.99, 1.00, 1.02 and 1.04. What is their arithmetic mean sale-to-list ratio, rounded to three decimal places?
Next Question
An assignment expressly defines its requested measure as the contribution a particular property makes to a specified ongoing use, rather than the amount it would exchange for in an open-market sale. Which value premise is being described?