How is effective gross income best defined?

Effective gross income is best defined as the gross income of a property adjusted for potential vacancy and collection losses. This figure represents the actual income that the property is expected to generate after accounting for the likelihood that some units may remain unoccupied or that some rent may not be collected from tenants.

Calculating effective gross income provides a more realistic picture of a property's financial performance because it shifts the focus from theoretical maximum income to the income that the property can reliably generate in practice. This consideration is pivotal for appraisers and investors as it affects property valuation and investment decisions. Thus, option B accurately reflects this understanding of effective gross income.