Which of the following is true about potential gross income in the context of real estate appraisal?

The correct understanding of potential gross income is that it is computed before any losses or expenses are deducted. This income figure represents the total income that a property could generate if all units were rented at market rates and no vacancies or collection losses occurred. It is a crucial metric in real estate appraisal as it provides an upper limit on income potential before the effects of vacancies and other factors are taken into account.

Potential gross income is not concerned with operating expenses; instead, it focuses solely on the income-generating aspects of the property. While it includes potential rental revenues, it does not reflect the actual income generated, as that would include deductions for vacancies and operating expenses. Therefore, seeing potential gross income as a preliminary figure before any adjustments is essential for an accurate financial analysis of a property.