Why is vacancy loss deducted even when the subject is fully rented today?
Correct Answer
B) Value rests on typical performance over time, not this month
Why this is correct: Market value is based on the expectation of typical, stabilized performance over an investment holding period, not a single moment in time. Even a fully occupied property will experience vacancy between tenants over time. Effective Gross Income reflects a long-term average. Why the other choices are wrong: While lenders do require it, the fundamental reason is about market value, not form compliance. Full occupancy does not necessarily indicate below-market rents. Vacancy deduction is for income loss, not capital expenses. Exam tip: In the income approach, use stabilized, typical vacancy, not just current occupancy.
Why This Is the Correct Answer
Why this is correct: Market value is based on the expectation of typical, stabilized performance over an investment holding period, not a single moment in time. Even a fully occupied property will experience vacancy between tenants over time. Effective Gross Income reflects a long-term average. Why the other choices are wrong: While lenders do require it, the fundamental reason is about market value, not form compliance. Full occupancy does not necessarily indicate below-market rents. Vacancy deduction is for income loss, not capital expenses. Exam tip: In the income approach, use stabilized, typical vacancy, not just current occupancy.
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The reversion in a discounted cash flow model represents:
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An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
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