What does effective gross income refer to in property appraisal?

Effective gross income in property appraisal refers to the gross income of a property adjusted for factors such as vacancies and bad debt allowances. This means that it represents the actual income that a property owner can expect to receive, taking into account the reality that not all rented spaces will be occupied and that some tenants may fail to pay their rent.

This concept is crucial in property appraisal as it provides a more accurate financial picture than simply considering the total income generated by the property without adjustments. The other definitions provided do not capture these necessary deductions: total income without deductions does not reflect potential losses, while net income after all operating expenses are paid goes a step further and looks at profitability rather than gross income. Income from comparable properties doesn’t address the specific operational realities of the property being appraised, making it less relevant for calculating effective gross income.