Certified Residential Appraiser Practice Exam

What term describes the comparison of concession rents to standard rents?

1. Effective Rent

2. Market Rent

3. Potential Gross Income

4. Excess Rent

The correct answer is: Effective Rent

The term that accurately describes the comparison of concession rents to standard rents is known as Effective Rent. This concept is used to provide a clearer view of the actual rental income generated by a property after considering any concessions or discounts offered to tenants. Effective Rent takes into account the lower rent that may be charged when concessions are provided, such as reduced lease rates, free rent periods, or additional amenities given to attract tenants. By calculating Effective Rent, appraisers can more accurately reflect the property's potential pricing strategy in the current market, as it provides a more realistic expectation of income from rental properties. Other terms, such as Market Rent, refer to the current rental rates that similar properties are achieving without concessions, and Potential Gross Income reflects the total income a property could generate at full occupancy and at market rates. Excess Rent typically refers to rental income above the market rate for a property, which wouldn’t apply in this context as it does not consider the impact of concessions.