In October 2026, appraiser Renee Walker is valuing a fourplex owned by Sam Lewis. One unit is leased to Sam's cousin at a rent far above what similar units in the area command. When applying the income approach, which rent figure should Renee rely on?
Correct Answer
A) The market rent supported by comparable rentals in the area
The income approach is based on market rent or income that the property can reasonably be expected to earn in the market. A rent that is artificially high because of a non-market relationship is not the best indicator of market value.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
Various programs and exemptions exist to reduce the property tax burden for specific groups, such as seniors, homesteaders, or veterans.
A transfer tax is a tax imposed on the transfer of ownership of real estate.
More Valuation Market Analysis Questions
The best method to determine fair market value is:
A luxury condominium in Manhattan is being appraised for a buyer who will be subject to the mansion tax. The purchase price is $1.2 million. When preparing the market analysis, which statement about the mansion tax impact is correct?
When commercial office demand and supply decline equally:
The main real estate market participants include:
An appraiser is using the income approach to value a 12-unit rental building in Brooklyn. The building generates $180,000 in annual gross rental income. Operating expenses total $54,000 annually. The appraiser determines that a 7.5% capitalization rate is appropriate for this type of property in this location. What is the indicated value using the income approach?
- → A first-time buyer in New York City asks their agent about the difference between owning a co-op versus a condo. What is the fundamental ownership difference the agent should explain?
- → The cost approach is generally the least reliable of the three approaches for valuing a building constructed in the 1930s. The main reason is:
- → An example of functional obsolescence is:
- → A lender receives a BPO from a broker. All of the following are acceptable uses of a BPO EXCEPT.
- → A lender assigns an appraiser who has never worked in the subject market and does not have access to local data sources. The lender says the appraiser can learn as they go because the fee is low and the turn time is fast. For a Fannie Mae mortgage assignment, what is the best response?
- → A parcel is in a desirable retail corridor and buyers want it, but an unresolved title defect and missing legal access make it hard to close. Which element of value is most directly impaired?
- → An appraiser has been asked to provide a restricted appraisal report instead of an appraisal report for a lending assignment. Under USPAP, what is the key difference between these two report options?
- → Who typically hires the appraiser in a real estate transaction?
- → An appraiser valuing a newly built warehouse with no rental history uses the cost approach as the primary valuation method. Why is the cost approach often most relevant for new or special-purpose properties?
- → For appraising a vacant lot for single-family residence construction, which approach applies?
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Previous Question
In December 2026, appraiser Hannah Reed extracts a consistent GRM of 100 from three recent comparable rental sales. If the subject property's monthly market rent is $3,400, what value is indicated by the income approach?
Next Question
In November 2026, a comparable investment property sold for $756,000. Its potential gross income was $55,000, vacancy and collection loss was 5%, and the expense ratio was 43% of effective gross income. Rounded to the nearest whole percent, what overall cap rate does the sale indicate?