A California appraiser is determining the appropriate vacancy rate for a 20-unit apartment complex in San Jose. The property has had a consistent 2% vacancy rate over the past three years, but the market vacancy rate for comparable properties in San Jose is 5%. Which vacancy rate should the appraiser use in the income approach?
Correct Answer
C) The market rate of 5% as the starting point, with consideration of why the subject's rate differs and whether that difference is likely to continue
Under USPAP and California appraisal practice, the appraiser should use the market vacancy rate as the starting point but consider property-specific factors. If the subject's lower vacancy rate is due to sustainable factors (excellent management, superior location, below-market rents, or unique amenities), the appraiser may justify using a rate between the property's actual rate and the market rate. The analysis should explain why the subject's performance differs from the market.
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Related Topics & Key Terms
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Related Concepts
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
More Property Valuation Financial Analysis Questions
Return of an investor’s investment is provided for through:
A licensed appraiser in California is appraising a home in a subdivision where half the homes are within a Mello-Roos Community Facilities District and half are not. The subject property is within the Mello-Roos district and pays $3,200 annually in special taxes. When selecting comparables, which approach is MOST appropriate under California appraisal standards?
A California real estate agent explains to an investor that the Gross Rent Multiplier (GRM) is a simplified method of property valuation. Compared to the capitalization rate method, what is the main limitation of the GRM approach in the California market?
When conducting a sales comparison analysis in California, an appraiser discovers that the subject property has an Accessory Dwelling Unit (ADU) that was built under California's recent ADU legislation. How should the appraiser handle this feature?
The appraisal approach that estimates value by comparing a property to similar recently sold properties is the:
- → The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure’s:
- → A California real estate agent is selecting comparable sales for a CMA on a property in Fresno. The agent finds a sale from 14 months ago in the same neighborhood. Under standard California CMA practice, why might the agent hesitate to use this comparable?
- → An appraiser in California is using the cost approach for a property in Sacramento and must account for entrepreneurial profit (also called developer's profit). A local developer confirms that typical profit margins in the Sacramento market are 15-20% of total development costs. How should the appraiser handle entrepreneurial profit?
- → An appraiser views the addition of an amenity to an apartment building under which appraisal principle?
- → Which of the four factors of value (DUST) does zoning law most directly affect?
- → An important characteristic of land is that it may be modified or improved. Such improvements tend to increase the value of real estate. Which of the following is NOT an improvement?
- → A property is located in both a CAL FIRE-designated State Responsibility Area and a Very High Fire Hazard Severity Zone. Which of the following BEST describes how these designations affect property value?
- → A California buyer's agent is reviewing comparable sales data and notices that the county recorder's office lists different documentary transfer tax amounts for similar properties in the same city. Some properties show both a county and city transfer tax, while others show only the county tax. What does this difference indicate about the sale verification process?
- → When calculating Net Operating Income (NOI) for the income approach in California, all of the following are deducted as operating expenses EXCEPT:
- → A married couple in California divorces, and one spouse receives the family home as part of the divorce settlement. Under Proposition 13, what happens to the property's assessed value?
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Previous Question
A California appraiser needs to extract a GRM from a comparable sale. A fourplex in Riverside, California recently sold for $680,000. The four units were renting at $1,250, $1,300, $1,200, and $1,250 per month at the time of sale. What is the monthly Gross Rent Multiplier?
Next Question
An appraiser in California is calculating operating expenses for a rental property. The property has recently undergone a change in ownership, triggering a Proposition 13 reassessment. The previous owner's property tax was $4,200/year based on a 1990 purchase price. After reassessment to the current sale price of $850,000, the new property tax will be approximately $10,200/year (at approximately 1.2% including local overrides). Which property tax figure should the appraiser use?