A duplex has two units at supported monthly gross rent of $1,650 each. Apply a supported monthly GRM of exactly 150 to the whole property’s monthly rent. What value results?
Correct Answer
C) $495,000
2×1650×150 = 495000. Common errors: applying the multiplier to only one unit gives $247,500; applying a monthly multiplier to annual rent gives $5,940,000; reporting the annual gross rent instead of the value gives $39,600.
Why This Is the Correct Answer
Option C is correct because the whole property's monthly rent is 2 × $1,650 = $3,300, and applying the monthly GRM gives $3,300 × 150 = $495,000. The multiplier is applied to the same level of income from which it was derived.
Why the Other Options Are Wrong
Option A: $39,600
Option A, $39,600, is the annual gross rent, not a value: 2 × $1,650 × 12 = $39,600. The value is monthly rent times the monthly GRM, $3,300 × 150 = $495,000.
Option B: $247,500
Option B, $247,500, applies the multiplier to only one unit: $1,650 × 150 = $247,500. Both units must be included, giving 2 × $1,650 × 150 = $495,000.
Option D: $5,940,000
Option D, $5,940,000, applies a monthly multiplier to annual rent: 2 × $1,650 × 12 × 150 = $5,940,000. A monthly GRM goes with monthly rent, so the value is $3,300 × 150 = $495,000.
Monthly with monthly
Pair the multiplier with income of the same period and the same property scope: monthly GRM, total monthly rent.
How to use: Use this check before multiplying rent by any gross multiplier.
Exam Tip
Confirm that the rent covers all units and the same time period as the multiplier before multiplying.
Common Mistakes to Avoid
- -Applying the GRM to one unit's rent
- -Applying a monthly GRM to annual rent
- -Reporting annual rent as the value
Concept Deep Dive
Analysis
This question tests applying a monthly gross rent multiplier to the total monthly rent of a two-unit property. Both units' rents must be combined, and the monthly multiplier must be applied to monthly rent. 2 × $1,650 = $3,300, and $3,300 × 150 = $495,000.
Background Knowledge
A gross rent multiplier relates sale price to gross rent and is commonly used for small residential income properties. A monthly GRM must be applied to monthly rent, and an annual multiplier to annual rent. The standard residential appraisal form expresses this as estimated monthly market rent times the GRM.
Real-World Application
An appraiser valuing a duplex finds market rent of $1,650 per unit and a monthly GRM of 150 from comparable duplex sales. Applying 150 to the $3,300 total monthly rent gives an income approach indication of $495,000.
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Previous Question
An appraiser is capitalizing a property's income. Annual property tax equals an effective tax rate multiplied by value, and the base capitalization rate does not include any tax component. When is it appropriate to add the effective tax rate to the base rate?
Next Question
An appraiser is developing an overall rate for a stabilized office building and has researched four cash sales of similar buildings. Sale 1 sold for $1,280,000 with NOI of $96,000. Sale 2 sold for $2,000,000 with NOI of $156,000. Sale 3 sold for $1,000,000 with NOI of $72,000. Sale 4 was half vacant and in lease-up when it sold for $1,500,000, with in-place NOI of $61,500 and projected stabilized NOI of $136,500. Using the sales suited to this subject, what is the mean overall rate?