In arriving at an effective gross income figure, an appraiser of rental property makes a deduction for?

The effective gross income (EGI) figure is crucial in determining the potential income that a rental property can generate after accounting for various deductions. In the income approach to appraisal, one of the most significant considerations is the vacancy rate.

Vacancy refers to the percentage of time that rental units are unoccupied or not generating income. To arrive at an accurate EGI, an appraiser deducts an estimated vacancy amount from the potential gross income. This adjustment reflects the reality that not all rental units will be occupied at all times, and it provides a more realistic picture of the income that the property is likely to produce.

Deductions for items such as real property taxes, repairs, and depreciation occur in other contexts within the financial analysis of a property, but they do not directly affect the calculation of effective gross income. Instead, these factors are typically considered when evaluating the net operating income or cash flow of the property rather than its effective gross income. Thus, acknowledging the expected vacancy losses is essential for producing a sound estimate of a property's earning potential.