The CE Shop Appraisal Practice Exam

To calculate the effective gross income (EGI) for a commercial property, it is essential to account for potential vacancy losses, which reduce the income that the property may actually generate. In this situation, the potential gross income is reported as $1.575 million, and the vacancy loss is 15%.

To find the effective gross income, you must deduct the vacancy loss from the potential gross income. This means calculating 15% of the potential gross income and then subtracting that amount from the potential gross income. By taking this step, you arrive at the actual income that can be expected after accounting for potential vacancies.

In this scenario, calculating EGI involves the following calculation:

1. Determine the amount of vacancy loss: 15% of $1.575 million.

2. Subtract that amount from the potential gross income to ascertain the effective gross income.

This method accurately reflects the economic realities that can impact revenue generation for the property, making it the correct approach to determining effective gross income.