When an appraiser is reconciling two market-derived vacancy rates for a retail property—one based on a survey of competing properties and one based on the subject's historical performance—the appraiser's final selection for use in the income approach should be primarily based on:
Correct Answer
D) the rate that reflects typical, long-term expectations for the market.
For market valuation, the vacancy and collection loss rate should reflect typical, long-term market expectations. While both historical data and competitor surveys are evidence, the appraiser must determine which evidence best reflects the market's view of ongoing, sustainable performance, not just short-term history or a single set of comparables. This aligns with the concept of stabilized operations in income capitalization.
Why This Is the Correct Answer
For market valuation, the vacancy and collection loss rate should reflect typical, long-term market expectations. While both historical data and competitor surveys are evidence, the appraiser must determine which evidence best reflects the market's view of ongoing, sustainable performance, not just short-term history or a single set of comparables. This aligns with the concept of stabilized operations in income capitalization.
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