A GRM derived from comparables is most reliable when those comparables:
Correct Answer
B) Have similar expense ratios, vacancy and physical character
Gross multipliers are more informative when comparable and subject income definitions, periods and operating characteristics are consistent. Similar expense ratios and vacancy help when using a gross measure. Loan terms need not be identical, but sale terms and concessions may require analysis to obtain comparable cash-equivalent prices.
Why This Is the Correct Answer
Gross multipliers are more informative when comparable and subject income definitions, periods and operating characteristics are consistent. Similar expense ratios and vacancy help when using a gross measure. Loan terms need not be identical, but sale terms and concessions may require analysis to obtain comparable cash-equivalent prices.
More Income Approach Questions
Which model describes yield capitalization of property benefits?
An appraiser is valuing a duplex. A market survey of recent duplex sales reports prices at 10.8 times potential gross income, with stabilized vacancy and credit loss of 10% of PGI and no other income. The subject's rent schedule is unavailable, but the property manager's records show collected income of $54,000 a year, in line with market rent and the 10% market loss. What value is indicated?
The subject property is a fourplex with annual EGI of $72,000 and operating expenses of $28,800. Of those expenses, $18,000 is fixed and $10,800 varies in direct proportion to EGI. The owner's annual mortgage payments are $21,000. An appraiser projects that EGI will fall 10% because of higher vacancy. What is the projected NOI?
Annual NOI available for debt service is $168,000 and total annual mortgage principal and interest debt service is $120,000. What is NOI ÷ debt service?
Annual PGI is $250,000 and combined vacancy and collection loss is explicitly 12% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $360,000 and combined vacancy and collection loss is explicitly 8% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $640,000. Combined vacancy and collection loss is 6.25% of PGI. There is no other income. What EGI remains?
An appraiser is updating a prior appraisal of a triplex with potential gross income of $60,000 and no other income. The prior appraisal used vacancy and credit loss of 5% of PGI, and a new survey of competing rentals indicates 8%. The operating expenses of $24,000 are property taxes, insurance and contract services that do not vary with occupancy, and the market overall rate remains 7.5%. By what percentages do effective gross income and indicated value decrease?
Annual potential rental income is $600,000 and vacancy loss alone is $36,000. What percentage of potential rent does that loss represent?
In the subject's market, lenders on fourplexes have lowered their typical loan-to-value ratio from 70% to 60%. The annual mortgage constant remains 5% and the equity dividend rate remains 10%. The subject's NOI has not changed. How does this affect the overall rate indicated by the band of investment and the indicated value?
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Previous Question
The mortgage interest in a property is valued at $1,050,000, and annual debt service is $96,000. Annual NOI is $142,000. The equity dividend rate is 10%. Using the equity residual technique, what is the total property value?
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A property has annual NOI of $96,000 and a known land value of $200,000. The land capitalization rate is 7% and the building capitalization rate is 10%. Using the building residual technique, what is the building value?