Certified Residential Appraiser Practice Exam

Excess rent is defined as:

1. The total rent for all properties

2. The difference between contract rent and market rent

3. The percentage paid over the base rent

4. The actual income after operating expenses

The correct answer is: The difference between contract rent and market rent

Excess rent is defined as the difference between contract rent and market rent. This concept is crucial in real estate appraisal as it provides insight into whether a property is generating rent that is above or below what the market demands. When a property is leased at a contract rent that exceeds the market rent, the owner benefits from excess rent, indicating a potentially favorable situation for the property owner or investor. This situation often arises in cases where long-term leases were signed during periods of higher demand for real estate; as the market changes, the contract rent may remain higher than the prevailing market conditions. Understanding this distinction is essential for appraisers because it affects value assessments and investment decisions. In contrast, the other choices do not accurately define excess rent: calculating total rent for all properties does not focus on the relationship between individual property contracts and the market, a percentage paid over base rent may pertain to different rental structures, and actual income after operating expenses relates to net operating income rather than assessing rental contracts. Thus, the definition of excess rent specifically highlights the interaction between the contract and market rents.