Certified Pennsylvania Evaluator Practice Exam

How is the Potential Gross Income (PGI) defined?

1. Annualized market rents at 100% occupancy

2. The total income minus expenses

3. The average income obtained from previous years

4. The income a property generates without any losses

The correct answer is: Annualized market rents at 100% occupancy

The definition of Potential Gross Income (PGI) is indeed tied to the concept of market rents in real estate evaluation. PGI represents the maximum income a property could generate if it were fully leased at current market rents, assuming there are no vacancies. This definition emphasizes an ideal scenario where the property is at full occupancy, highlighting the revenue potential without accounting for factors like tenant turnover or lease defaults. When calculating PGI, evaluators focus solely on the income side, disregarding the realities of operating expenses, vacancies, and concessions that might reduce actual income. Thus, it is derived from annualized market rents multiplied by the total number of units or area available for lease, achieving a theoretical maximum figure that can be projected for evaluation purposes. This understanding is crucial in real estate assessments, as PGI serves as a benchmark against which other income metrics, like Effective Gross Income (EGI), can be compared to assess a property's financial health and performance.