A cash-equivalent price is $450,000 and comparable annual gross rental income is $54,000. What annual gross-income multiplier is price ÷ income, rounded to two decimal places?
Correct Answer
B) 8.33
450000÷54000 = 8.33. Common errors: inverting the ratio (income ÷ price) gives 0.12; treating the annual income as monthly gives 100.00; misplacing the decimal in the income gives 83.33.
Why This Is the Correct Answer
Option B is correct because $450,000 ÷ $54,000 = 8.333..., which rounds to 8.33. An annual GIM is price divided by annual gross income.
Why the Other Options Are Wrong
Option A: 0.12
Option A, 0.12, comes from inverting the ratio: $54,000 ÷ $450,000 = 0.12, which is income divided by price. The multiplier is price ÷ income = 8.33.
Option C: 83.33
Option C, 83.33, comes from misplacing the decimal in the income, dividing $450,000 by $5,400 instead of $54,000. Using the correct income gives 8.33.
Option D: 100.00
Option D, 100.00, results from treating the $54,000 annual income as if it were monthly and dividing the price by $4,500 ($54,000 ÷ 12). The question asks for an annual multiplier, so the answer is $450,000 ÷ $54,000 = 8.33.
Price on top
A multiplier answers how many times income the price is, so price goes on top and income on the bottom.
How to use: Use this to set up any GIM or GRM extraction.
Exam Tip
Note whether the question wants an annual or monthly multiplier, and confirm the income figure you divide by is on that basis.
Common Mistakes to Avoid
- -Dividing income by price
- -Treating annual income as monthly
- -Dropping a zero from the income figure
Concept Deep Dive
Analysis
This question tests extraction of an annual gross income multiplier. Divide the cash-equivalent price by annual gross income and round to two decimals.
Background Knowledge
A gross income multiplier relates sale price to gross income and is derived from comparable sales. An annual GIM uses annual income; a monthly gross rent multiplier uses monthly rent, and the two differ by a factor of about 12.
Real-World Application
An appraiser collects sales of small duplexes with verified annual gross rents, divides each price by its annual income to derive GIMs, and reconciles a multiplier to apply to the subject.
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