A commercial property with $240,000 annual gross income sold for $2,000,000 three years ago. Assume market evidence supports applying the same annual gross income multiplier to a comparable property now generating $180,000 annual gross income. What value is indicated?
Correct Answer
B) $1,500,000
Why this is correct: First, calculate the Gross Income Multiplier (GIM): Sale Price / Gross Income = $2,000,000 / $240,000 = 8.3333. Then, apply the GIM to the subject's income: Indicated Value = Subject Gross Income * GIM = $180,000 * 8.3333 = $1,500,000 (rounded). Why the other choices are wrong: $1,800,000 incorrectly uses a GIM of 10. $2,160,000 incorrectly uses a GIM of 12. $1,350,000 results from a calculation error or using net income. Exam tip: GIM = Price / Gross Income. Value = Subject Income * GIM. Always derive the multiplier from the comparable first.
Why This Is the Correct Answer
Historical annual GIM is $2,000,000 ÷ $240,000 = 8.333.... Assuming it remains applicable to the comparable subject, $180,000 annual gross income × 8.333... = $1,500,000.
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