What is the exam-ready answer?
| Official syllabus topic | Income Approach and Market Analysis |
|---|---|
| Official PSI area | Valuation and Market Analysis |
| Published area weight | 8% of the 100-question national portion |
| Exam portion | National salesperson portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
The Rule
PSI publishes the weight for the complete content area, not a fixed question count for this lesson. Learn the rule well enough to apply it when PSI changes names, numbers, or parties in a new scenario.
The lesson
These ideas work together. On the exam, the wrong answers usually describe a nearby concept, so learn where each one stops.
Net operating income
NOI is effective gross income minus operating expenses, before debt service, income taxes, and depreciation deductions. Financing is not a property operating expense.
Direct capitalization
Use V = I ÷ R. If value and rate are known, income equals value times rate. If income and value are known, rate equals income divided by value.
Gross-rent multiplier
Value equals gross rent times the applicable multiplier. Match monthly rent with a monthly multiplier and annual rent with an annual multiplier.
CMA, BPO, and AVM
A CMA analyzes competitive market evidence for brokerage purposes. A BPO is a broker's price opinion where permitted. An AVM produces a model-based estimate whose reliability depends on data and design.
Decision rule
Georgia-specific distinction
Worked example
Scenario. A property produces NOI of $54,000 and market evidence supports a 9% capitalization rate.
Reason it through. Use V = I ÷ R: $54,000 ÷ 0.09.
Answer. The indicated value is $600,000.
Common exam traps
- Subtracting debt service to compute NOI
- Multiplying NOI by the cap rate
- Mixing monthly rent with an annual multiplier
- Calling an AVM an appraisal
Original practice questions with detailed explanations
These questions were written for instruction and mapped to the current outline. They are not copied from PSI or any live examination. Choose an answer before opening the explanation.
Question 1A small office building has effective gross income of $150,000, operating expenses of $55,000, and annual mortgage payments of $40,000. What is its net operating income?
- A. $55,000
- B. $110,000
- C. $150,000
- D. $95,000
Show answer and explanation →
Answer: D. $95,000
NOI is effective gross income minus operating expenses: $150,000 minus $55,000 is $95,000. Mortgage payments are debt service, a financing cost, so also subtracting them to reach $55,000 is the classic mistake.
Question 2A property's NOI is $63,000, and comparable sales support a 7% capitalization rate. What value does direct capitalization indicate?
- A. $4,410
- B. $900,000
- C. $90,000
- D. $441,000
Show answer and explanation →
Answer: B. $900,000
Value equals income divided by rate: $63,000 divided by 0.07 is $900,000. Multiplying NOI by the rate gives $4,410, and dividing by 0.7 instead of 0.07 gives $90,000.
Question 3A seller's licensee prepares a comparative market analysis to price a listing, and an online AVM shows a different number. How should the licensee describe the CMA?
- A. As an appraisal, since a licensee prepared it
- B. As a certified value a lender can rely on
- C. As a market analysis for pricing, not an appraisal
- D. As an AVM, since both rely on sales data
Show answer and explanation →
Answer: C. As a market analysis for pricing, not an appraisal
A CMA analyzes competing market evidence for brokerage purposes, such as pricing a listing, and it must not be presented as an appraisal. An AVM is a model-based estimate built from data and algorithms, and it is not an appraisal either. Calling the CMA an appraisal because a licensee prepared it is the trap.
Ready to move on?
You are ready for the next lesson when all of these are true.
- Explain Income Approach and Market Analysis in one clear answer without notes.
- Separate Net operating income from Direct capitalization using a fresh example.
- Apply the decision rule to a new fact pattern and name the fact that controls the result.
- State the Georgia-specific point or explain why the national rule applies unchanged.
- Answer every practice question and explain the rule each rejected option misapplies.
- Revisit this topic later in mixed practice without category labels.
Recommended next lesson
Continue with Financing Instruments and Promissory Notes. Next, financing instruments turns from valuing a property to borrowing against it, showing how a promissory note creates the debt and a Georgia security deed secures it by conveying legal title.
Return to the Valuation and Market Analysis hub to see every official branch and the complete lesson sequence for this content area.