A GRM is most defensible when applied to:
Correct Answer
B) Properties similar in expense structure to the comparables
Why this is correct: A Gross Rent Multiplier (GRM) is derived by dividing a property's sale price by its gross rental income. It implicitly assumes the operating expense ratio is similar between the subject and comparables. If expense structures differ, the GRM application is flawed. Why the other choices are wrong: GRM is not universally applicable to all residential types. It is generally not suitable for commercial net-leased properties. Using it for properties with unusually low costs would distort the value indication without adjustment. Exam tip: GRM is a simple tool that hides expenses. Use it only when you are confident the subject and comps have similar expense profiles.
Why This Is the Correct Answer
Why this is correct: A Gross Rent Multiplier (GRM) is derived by dividing a property's sale price by its gross rental income. It implicitly assumes the operating expense ratio is similar between the subject and comparables. If expense structures differ, the GRM application is flawed. Why the other choices are wrong: GRM is not universally applicable to all residential types. It is generally not suitable for commercial net-leased properties. Using it for properties with unusually low costs would distort the value indication without adjustment. Exam tip: GRM is a simple tool that hides expenses. Use it only when you are confident the subject and comps have similar expense profiles.
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