Real Estate Appraisal Practice Exam

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Study for the Real Estate Appraisal Exam. Prepare with flashcards and multiple choice questions, each question offering hints and explanations. Get ready for your exam!

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Which of the following describes the amount of income a property can produce if it's fully occupied and earning market rent?

Gross rental income.
Net operating income.
Potential gross income.
Effective gross income.

The correct answer is: Potential gross income.

The amount of income a property can produce if it's fully occupied and earning market rent is referred to as potential gross income. This term encompasses the theoretical maximum income that a property could achieve under ideal conditions, meaning every unit is rented at the market rate without any vacancies or rent concessions. Potential gross income is primarily used in appraisal and investment analysis to assess the highest financial performance a property could generate, providing a benchmark for evaluating a property’s economic viability. In contrast, gross rental income generally refers to the actual rental income received, while net operating income considers operational expenses and potential losses due to vacancies. Effective gross income takes into account these factors and represents what the property realistically earns after considering losses from vacancies and collection losses. Recognizing the distinction among these terms is crucial for understanding property valuation and income potential in real estate appraisal.