A single-family rental indicates $372,000 by sales comparison. Market rent is $2,000 a month and the market GRM is 180. If sales comparison receives 75% weight and the income approach 25%, what is the reconciled value?
Correct Answer
A) $369,000
The income indication is $2,000 × 180 = $360,000. Weighted: $372,000 × 0.75 + $360,000 × 0.25 = $279,000 + $90,000 = $369,000.
Why This Is the Correct Answer
Option A is correct because the income indication is 2,000 x 180 = $360,000. The weighted value is 372,000 x 0.75 + 360,000 x 0.25 = 279,000 + 90,000 = $369,000. Each weight is applied to its stated approach.
Why the Other Options Are Wrong
Option B: $366,000
Option B's $366,000 uses equal weights: (372,000 + 360,000) / 2 = $366,000. The stem assigns 75% and 25%, which gives 279,000 + 90,000 = $369,000.
Option C: $363,000
Option C's $363,000 swaps the weights: 372,000 x 0.25 + 360,000 x 0.75 = 93,000 + 270,000 = $363,000. Sales comparison gets 75%, so the correct figure is $369,000.
Option D: $372,000
Option D's $372,000 is the sales comparison indication alone, ignoring the income approach. Including the 25% weight on the $360,000 income indication gives $369,000.
Rent times GRM, then weight
Turn rent into value with the GRM first, then apply each weight to its own approach.
How to use: Use this when a reconciliation question includes a rent multiplier.
Exam Tip
Confirm whether the GRM is monthly or annual and match it to the rent given before weighting.
Common Mistakes to Avoid
- -Weighting the two indications equally
- -Swapping the stated weights
- -Forgetting to include the income indication
Concept Deep Dive
Analysis
This question tests a two-step calculation: deriving an income indication with a gross rent multiplier, then reconciling with stated weights. First multiply monthly market rent by the GRM, then weight that result against the sales comparison indication. Distractors come from equal weights, swapped weights or ignoring income.
Background Knowledge
A gross rent multiplier converts market rent into a value indication by multiplying rent by a market-derived factor. Reconciliation then weighs that indication against others based on reliability. Weighted averages multiply each indication by its weight and add the products.
Real-World Application
An appraiser values a rented single-family home where investors are active. Sales comparison indicates $372,000 and a market GRM applied to rent indicates $360,000. The appraiser gives sales 75% weight and explains why.
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