An income approach is necessary. The client requests rent-growth projections unsupported by market evidence. What should the appraiser do?
Correct Answer
B) Base projections on clear evidence of trends, supply and demand
When income analysis is necessary, SR 1-4(c) calls for appropriate rental or earnings, expense and capitalization or discount-rate analysis. Future income and expense projections must rest on reasonably clear and appropriate evidence, considering relevant history, current supply and demand, and anticipated events such as competing construction. A client preference or Restricted Appraisal Report does not waive necessary credible development.
Why This Is the Correct Answer
Option B is correct because SR 1-4(c) requires the appraiser to base projections of future rent or income and expenses on reasonably clear and appropriate evidence, and to weigh historical information and trends, current supply and demand factors, and anticipated events such as competition from developments under construction. A client's unsupported projection does not meet that standard.
Why the Other Options Are Wrong
Option A: Use the requested growth, since income analysis belongs to the client
Option A, using the requested growth because income analysis belongs to the client, is wrong because the appraiser is responsible for credible development, and unsupported client projections do not satisfy the evidence requirement.
Option C: Replace the income analysis with a site value estimate alone
Option C, replacing the income analysis with a site value estimate alone, is wrong because the income approach is necessary for credible results here, and a site value does not substitute for it.
Option D: Skip the evidence step because the report is a restricted report
Option D, skipping the evidence step because the report is a Restricted Appraisal Report, is wrong because the reporting option affects how much is communicated, not the development requirements for credible analysis.
Evidence drives the forecast
Rent growth comes from market evidence, not from the client's wish list.
How to use: Use this when a client pushes projections that the market data do not support.
Exam Tip
Report type and client preference do not lower development standards; choose the answer grounded in market evidence.
Common Mistakes to Avoid
- -Accepting client-supplied projections without market support
- -Thinking a Restricted Appraisal Report reduces development duties
- -Substituting a different value indication for a necessary approach
Concept Deep Dive
Analysis
This question tests SR 1-4(c) on the income approach. When the income approach is necessary, projections of future rent and expenses must rest on reasonably clear and appropriate evidence, weighing history, trends, supply and demand, and anticipated events.
Background Knowledge
The income approach converts expected income into value, so projections must be grounded in market evidence. Development requirements in Standard 1 apply regardless of which report option is chosen or what the client prefers.
Real-World Application
A builder asks the appraiser to assume aggressive annual rent growth for a newly built fourplex. The appraiser reviews local rent history, vacancy, and new rental supply under construction, and uses the growth rate those data support.
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