Vacancy loss differs from collection loss in that collection loss reflects:
Correct Answer
C) Rent owed by occupying tenants that is never paid
Why this is correct: Collection loss (or credit loss) is income lost because a tenant occupies a unit but fails to pay the rent owed. It reflects the risk of non-payment from occupying tenants, distinct from the physical vacancy of a unit. Why the other choices are wrong: 'Rent reductions negotiated by tenants at lease renewal' is a concession or effective rent issue, not a loss from non-payment. 'Units standing empty between tenancies' is the definition of vacancy loss. 'Income from sources other than base rent' is ancillary income, not a loss. Exam tip: Vacancy = empty units. Collection loss = occupied units with unpaid rent.
Why This Is the Correct Answer
Why this is correct: Collection loss (or credit loss) is income lost because a tenant occupies a unit but fails to pay the rent owed. It reflects the risk of non-payment from occupying tenants, distinct from the physical vacancy of a unit. Why the other choices are wrong: 'Rent reductions negotiated by tenants at lease renewal' is a concession or effective rent issue, not a loss from non-payment. 'Units standing empty between tenancies' is the definition of vacancy loss. 'Income from sources other than base rent' is ancillary income, not a loss. Exam tip: Vacancy = empty units. Collection loss = occupied units with unpaid rent.
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
Previous Question
Market vacancy for the area is 7%, but the subject has run 2% for a decade under long-term leases expiring in eight years. The vacancy allowance should reflect:
Next Question
A 12-unit building rents at $1,450 per unit monthly with 6% vacancy and collection loss and $7,200 annual parking income. Effective gross income is: