A duplex rents for $1,650 per unit monthly. Comparable duplex sales show monthly GRMs near 150. The indicated value is:
Correct Answer
D) $495,000 from both units' rent
Why this is correct: The governing concept is that the Gross Rent Multiplier (GRM) method estimates value as monthly rent multiplied by the GRM. Here, total monthly rent for both units is $1,650 × 2 = $3,300. With a GRM of 150, indicated value is $3,300 × 150 = $495,000. Why the other choices are wrong: "$594,000 at an annual multiplier" is incorrect because using annual rent ($3,300 × 12 = $39,600) with a monthly GRM would be inconsistent. "$247,500 using one unit's rent" is incorrect because it omits the second unit's rent. "$412,500 at a conservative multiplier" is incorrect because it uses a GRM of 125, not 150, without justification. Exam tip: Ensure consistency between rent (monthly/annual) and multiplier (monthly/annual) in GRM calculations.
Why This Is the Correct Answer
Option D is correct because it uses the full property rent and the multiplier as extracted. Both units together generate $3,300 per month, and applying the monthly GRM of 150 yields exactly $495,000. This is also the only answer where the units of the inputs are consistent, since a monthly multiplier drawn from comparable sales must meet monthly rent. Any deviation from that pairing, or from total property rent, produces one of the wrong figures offered.
Why the Other Options Are Wrong
Option A: $594,000 at an annual multiplier
The $594,000 figure comes from mismatching the time basis, and it embeds an internally inconsistent calculation rather than a defensible one. A multiplier derived from monthly rents cannot be applied to annual rent, because the comparables' price-to-rent ratios were computed on a monthly denominator. Whenever an option is described as using an annual multiplier while the stem states a monthly one, the units have been broken and the answer is wrong on that basis alone.
Option B: $247,500 using one unit's rent
Using $1,650 rather than $3,300 values only half the property, which is why the result is exactly half of the correct figure. The subject is a duplex and the comparables are duplexes, so the multiplier was extracted against two-unit rent and must be applied against two-unit rent. This is the most common careless error on multi-unit GRM problems.
Option C: $412,500 at a conservative multiplier
The $412,500 figure comes from substituting a multiplier of 125 for the 150 the market data indicate. Calling a lower multiplier conservative is not an appraisal justification; the multiplier is extracted from comparable sales, and adjusting it downward without support introduces bias rather than caution. If the subject genuinely differs from the comparables in expense structure or unit mix, that difference must be identified and supported, not applied as a vague haircut.
Match the Clock, Count the Doors
Two checks solve every GRM problem. Match the clock: monthly rent with a monthly multiplier, annual with annual. Count the doors: a duplex has two, so use both rents. Clock plus doors, then multiply once. Any answer that is exactly half or exactly twelve times another answer is telling you which check the test writer expects you to miss.
How to use: Before multiplying, write the rent with its period and the multiplier with its period side by side and confirm they agree. Then confirm the rent figure covers the entire property. Scan the answer choices for pairs related by two or by twelve, since those are the planted errors and spotting them confirms you have identified the trap.
Exam Tip
A monthly GRM near 150 and an annual GRM near 12.5 describe the same market; if a stem's multiplier looks like one and the answer choices assume the other, that mismatch is the whole question.
Common Mistakes to Avoid
- -Applying a monthly multiplier to annual rent or the reverse
- -Using one unit's rent instead of total property rent on a multi-unit subject
- -Applying a GRM extracted from properties with a different expense structure, such as tenant-paid versus owner-paid utilities
Concept Deep Dive
Analysis
This question tests the mechanics of the gross rent multiplier and, above all, the requirement that rent and multiplier share the same time basis. A GRM is derived by dividing a comparable's sale price by its gross rent, and it is applied by multiplying the subject's gross rent by the multiplier extracted from those comparables. Because the multiplier is a ratio of price to rent, a monthly GRM must be multiplied by monthly rent and an annual gross rent multiplier by annual rent; mixing the two produces an error of a factor of twelve. The subject is a duplex, so gross rent means the total rent for the property, both units together, not the rent of a single unit. Here total monthly rent is $1,650 times 2, or $3,300, and $3,300 multiplied by a monthly GRM of 150 gives $495,000. Note also what a GRM does not do: it makes no allowance for vacancy or operating expenses, so it is only reliable when the comparables share the subject's expense structure and occupancy profile.
Background Knowledge
You need to know how a GRM is extracted, sale price divided by gross rent, and that the same time basis must be used for extraction and application. You should also know that GRM ignores vacancy and operating expenses, which makes it appropriate mainly for small residential income properties whose comparables have similar expense ratios, and that GIM, the gross income multiplier, is the analogous tool applied to total gross income including other income.
Real-World Application
Valuing a duplex, an appraiser extracts monthly GRMs of 147, 151, and 153 from three recent duplex sales with comparable owner-paid utilities, concludes 150, applies it to actual and market rent of $3,300 per month, and cross-checks the $495,000 indication against the sales comparison approach before reconciling.
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