What does the term 'effective gross income' refer to in property appraisal?

The term 'effective gross income' in property appraisal specifically refers to the income generated by a property after accounting for vacancies and collection losses. This figure represents the actual revenue that a property owner expects to receive throughout the year, as it factors in the amount of rental income that may be lost due to unoccupied units or tenants not fulfilling their lease agreements.

Effective gross income is a crucial component in the income approach to property valuation, as it provides a more realistic picture of a property's financial performance. It captures the potential income while also recognizing the impact of factors that can reduce overall income, such as tenant turnover and vacancy rates. Thus, effective gross income gives appraisers a better understanding of the property's value based on its ability to generate income.

In contrast, total revenues from a property before expenses would not take into account any losses due to vacancies. The annual revenue generated by a property would also lack consideration of any deductions for unoccupied units. Finally, revenue minus mortgage payments pertains to net cash flow available to property owners and does not relate directly to effective gross income, which focuses specifically on gross revenues before finance-related deductions.