California Real Estate Practice Exam

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Economic rent is the same as:

  1. Contract rent

  2. Below market rent

  3. Market rent

  4. Above market rent

The correct answer is: Market rent

Economic rent refers to the amount of money that a property could potentially earn based on its market value. It is essentially the rent that a property could command in an open and competitive market. When we refer to market rent, we are discussing the rate at which similar properties are being leased in that specific area under current market conditions. Market rent takes into account the supply and demand dynamics in the rental market, including the characteristics of the property, location, and prevailing economic conditions. It represents the most realistic and fair measure of what tenants are willing to pay for rental properties similar to the one in question. In this context, contract rent, below market rent, and above market rent do not equate to economic rent. Contract rent refers to the specific amount agreed upon in a lease, which may be higher or lower than the economic or market rent. Below market rent is when the rent set is lower than what is common in the market, thus not reflecting the true market value. Above market rent occurs when the rent exceeds typical market rates. Therefore, understanding that economic rent aligns with market rent helps clarify how property values are assessed and how rental pricing should ideally be positioned.

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