Cash-equivalent sale price is $438,000 and matching monthly gross rent is $2,400. What monthly gross-rent multiplier is price ÷ monthly rent?
Correct Answer
C) 182.5
438000÷2400 = 182.5. Common errors: computing the annual-basis multiplier instead of the monthly one gives 15.2; multiplying the monthly multiplier by 12 gives 2190.0; misplacing the decimal (dividing by 24,000) gives 18.3.
Why This Is the Correct Answer
Option C is correct because the monthly GRM equals price ÷ monthly rent: $438,000 ÷ $2,400 = 182.5. This matches the monthly rent basis used on residential appraisal forms.
Why the Other Options Are Wrong
Option A: 15.2
Option A, 15.2, is the annual-basis multiplier: $438,000 ÷ ($2,400 × 12) = 15.2. The question asks for the monthly multiplier, which is $438,000 ÷ $2,400 = 182.5.
Option B: 18.3
Option B, 18.3, comes from misplacing the decimal and dividing by $24,000: $438,000 ÷ $24,000 = 18.3. Monthly rent is $2,400, giving $438,000 ÷ $2,400 = 182.5.
Option D: 2190.0
Option D, 2190.0, results from multiplying the monthly multiplier by 12: $438,000 ÷ $2,400 × 12 = 2,190.0. The monthly GRM is simply $438,000 ÷ $2,400 = 182.5.
Monthly GRM: hundreds, not tens
Price over monthly rent gives a number in the hundreds for typical homes; price over annual rent gives a number in the teens.
How to use: Use this size check to spot whether you computed a monthly or annual multiplier.
Exam Tip
Note whether the question asks for a monthly or annual multiplier, then divide by the matching rent figure.
Common Mistakes to Avoid
- -Using annual rent when a monthly GRM is required
- -Misplacing the decimal in the rent
- -Multiplying the monthly GRM by 12
Concept Deep Dive
Analysis
This question tests extracting a monthly gross rent multiplier from a sale. The GRM is price divided by monthly rent, so $438,000 ÷ $2,400. Because monthly rent is a small figure relative to price, a monthly GRM is a large number, typically in the hundreds for residential properties.
Background Knowledge
The gross rent multiplier relates sale price to monthly gross rent and is commonly used for single-family and small residential income properties. Residential appraisal forms apply it as estimated monthly market rent times GRM. The multiplier must be applied to the same rent basis from which it was derived.
Real-World Application
An appraiser completing a single-family report finds several rented comparable sales. Dividing each sale price by its monthly rent produces GRMs that the appraiser reconciles and applies to the subject's estimated monthly market rent.
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Previous Question
The subject property has an annual potential gross income (PGI) of $142,000. Sales of similar properties in the market area indicate a multiplier of 8.5, based on annual PGI. What is the indicated value of the subject?
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Cash-equivalent sale price is $396,000 and matching monthly gross rent is $2,200. What monthly gross-rent multiplier is price ÷ monthly rent?