Certified Pennsylvania Evaluator Practice Exam

What characterizes excess rent?

1. The percentage of data used to calculate PGI

2. The total rent paid under all contracts

3. The difference between contract rent and market rent

4. The rent associated with long-term tenants

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

Excess rent is characterized as the difference between contract rent and market rent. This occurs when the rent being paid under a lease (the contract rent) is higher than what the current market conditions would dictate (the market rent). It indicates that the tenant is effectively paying more for the property than its value in the open market, which may arise in situations such as long-term leases signed during periods of higher market demand or rent prices. This understanding of excess rent is important for property valuation and investment analysis, as it can affect financing decisions and the overall profitability of a real estate investment. Recognizing when a property has excess rent can impact how appraisers evaluate income-generating properties and inform potential investors about market dynamics. Other options provided do not accurately define excess rent. The percentage of data used to calculate potential gross income refers to a metric utilized in income valuation rather than defining rent characteristics. The total rent paid under all contracts pertains more to overall income rather than the difference that characterizes excess rent. Rent associated with long-term tenants does not inherently indicate excess, as long-term leases can sometimes align with market rates too.