Certified Pennsylvania Evaluator Practice Exam

Which type of rent is not used to determine potential gross income (PGI)?

1. Overage rent

2. Contract or actual rent

3. Market rent

4. Effective gross income

The correct answer is: Contract or actual rent

Potential Gross Income (PGI) represents the maximum possible income that a property could generate if it were fully leased at market rates without taking into account vacancies or collection losses. Contract or actual rent refers to the amount that tenants are currently paying for their leases. This figure can often be lower than what the market would suggest tenants should be paying, particularly in cases where there are concessions, lease renewals, or negotiating challenges. Therefore, while contract or actual rent is critical for calculating Effective Gross Income (EGI), it does not reflect the full income potential of the property in the context of PGI. In contrast, overage rent is dependent on a tenant's sales performance; it would contribute to PGI because it indicates potential income based on actual sales. Market rent provides a theoretical measure of what tenants would pay under current conditions, which directly influences PGI calculations. Effective gross income, while an important metric, is derived from PGI after accounting for vacancies and collection losses, so it is not utilized to determine PGI itself. Thus, contract or actual rent is not considered in the determination of PGI, as it does not represent the potential income the property could achieve.