The subject property’s monthly gross rent is $2,500. Sales of similar rented properties show a gross rent multiplier of 120 on the same monthly rent basis. What value does the multiplier indicate?
Correct Answer
C) $300,000
2500×120 = 300000. Common errors: applying a monthly multiplier to annual rent gives $3,600,000; reporting the annual rent instead of the value gives $30,000; dividing the result by 12 gives $25,000.
Why This Is the Correct Answer
Option C is correct because value equals monthly rent times the monthly multiplier: $2,500 × 120 = $300,000. The multiplier is applied to the same level and period of income from which it was derived. No conversion to annual income is needed.
Why the Other Options Are Wrong
Option A: $25,000
Option A, $25,000, divides the result by 12: $2,500 × 120 ÷ 12 = $25,000. There is no reason to divide; the value is $2,500 × 120 = $300,000.
Option B: $30,000
Option B, $30,000, reports the annual rent instead of the value: $2,500 × 12 = $30,000. Value comes from applying the multiplier, $2,500 × 120 = $300,000.
Option D: $3,600,000
Option D, $3,600,000, applies the monthly multiplier to annual rent: $2,500 × 12 × 120 = $3,600,000. A monthly multiplier goes with monthly rent, giving $300,000.
Monthly GRM, monthly rent
Match the period: a monthly multiplier is multiplied by monthly rent, nothing more.
How to use: Use this to avoid mixing annual rent into a monthly GRM calculation.
Exam Tip
If an answer equals annual rent or is twelve times the reasonable value, it reflects a period mismatch.
Common Mistakes to Avoid
- -Applying a monthly multiplier to annual rent
- -Reporting annual rent as the value
- -Dividing the value by 12
Concept Deep Dive
Analysis
This question tests applying a monthly gross rent multiplier to monthly rent. The multiplier of 120 is based on monthly gross rent, matching the subject's $2,500. Multiplying gives $2,500 × 120 = $300,000.
Background Knowledge
Monthly gross rent multipliers are common in single-family and small residential rental appraisal. They are extracted from comparable rented sales and applied to the subject's monthly market rent. The period of the rent must match the period used to derive the multiplier.
Real-World Application
An appraiser values a rented townhouse for an investor's purchase loan. She estimates monthly market rent from nearby rentals and applies the monthly GRM derived from rented sales. The result serves as the income approach indication in her report.
More Income Approach Questions
Which stated cause of supported value loss is external?
Improvement cost new is $450,000. Separately supported improvement depreciation deductions of $45,000, $25,000, $15,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $125,000, already reflecting any site losses. What total indicated value results?
Which two depreciation categories may each be classified as curable or incurable by comparing the cost to remedy a deficiency with the value gained?
Improvement cost new is $800,000. Separately supported improvement depreciation deductions of $120,000, $80,000, $40,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
The principle of anticipation in real estate valuation states that:
Which highest-and-best-use criterion addresses whether a proposed use is allowed by zoning and applicable legal restrictions?
Three comparables produce adjusted indications of $312,000, $309,000 and $315,000, requiring gross adjustments of 9%, 14% and 22% respectively. Verification also establishes that the first sale is the closest competitive substitute and its adjustments are better supported than the other two. Which indication deserves the most weight on those facts?
When reconciling value indications from the three approaches to value, an appraiser should:
A property sold at a cash-equivalent price of $1,062,500. Its stabilized annual NOI is $85,000. What is the indicated overall rate?
In reconciliation, an appraiser should:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Related Tools
Previous Question
An appraiser is valuing a rental house with a monthly gross rent of $2,400. Rented sales in the market area indicate a gross rent multiplier of 120, based on monthly gross rent. What is the indicated value?
Next Question
The current cost new of the improvements is $2,500,000. They have an actual age of 5 years, an effective age of 8 years and a total economic life of 50 years. What is the depreciation by the straight-line age-life method?