An appraiser is valuing a property that generates $8,000 per month in gross rent. Recent sales of similar properties show gross rent multipliers ranging from 110 to 130. What is the indicated value range using GRM analysis?
Correct Answer
A) $880,000 to $1,040,000
Why this is correct: a multiplier of 110 to 130 is a MONTHLY gross rent multiplier. Annual gross income multipliers run in the single digits to low teens, so a figure in the hundreds can only be applied to monthly rent. Calculation: low $8,000 x 110 = $880,000; high $8,000 x 130 = $1,040,000. Why the other choices are wrong: $1,056,000 to $1,248,000 applies a monthly multiplier to annual rent, which overstates value twelvefold before the arithmetic is even done; $72,727 to $87,273 divides by the multiplier instead of multiplying; $96,000 to $104,000 is annual rent scaled by nothing meaningful.
Why This Is the Correct Answer
Option B is correct because it properly applies annual GRM analysis. The monthly rent of $8,000 converts to annual rent of $96,000 ($8,000 × 12). When GRMs of 110-130 are applied to comparable sales, these are typically annual multipliers in this range. Therefore, the calculation becomes $96,000 × 11 to $96,000 × 13 = $1,056,000 to $1,248,000. The explanation in the question confirms this by showing both the incorrect monthly calculation and the correct annual calculation.
Why the Other Options Are Wrong
GRM Time Match Rule
Remember 'MATCH THE BATCH' - Monthly rent needs Monthly GRM, Annual rent needs Annual GRM. If GRM numbers are 100+, they're usually Annual multipliers. Monthly GRMs typically range from 8-15.
How to use: When you see a GRM problem, first identify if the given rent is monthly or annual, then determine if the GRM range suggests monthly (usually 8-15) or annual (usually 100+) multipliers. Convert the rent to match the GRM period before calculating.
Exam Tip
Always check the time period consistency between rental income and GRM. If you see GRM ranges above 100, they're almost always annual multipliers, so convert monthly rent to annual rent first.
Common Mistakes to Avoid
- -Mixing monthly rent with annual GRM or vice versa
- -Assuming all GRMs are monthly without checking the typical range
- -Forgetting to convert between monthly and annual figures before applying the multiplier
Concept Deep Dive
Analysis
This question tests the application of Gross Rent Multiplier (GRM) analysis, which is a quick valuation method used in income property appraisal. The key concept being tested is the proper conversion between monthly and annual rental income when applying GRM ranges. GRM analysis involves multiplying the gross rental income by a market-derived multiplier to estimate property value. The critical understanding required is that GRMs can be expressed as either monthly or annual multipliers, and the appraiser must ensure consistency between the rental income period and the multiplier period.
Background Knowledge
Gross Rent Multiplier (GRM) is calculated as Sale Price ÷ Gross Rental Income, and can be expressed as either monthly or annual multipliers. When applying GRM to estimate value, you multiply the subject property's gross rental income by the appropriate market-derived GRM. It's crucial to maintain consistency between the time period of the rental income and the GRM being applied.
Real-World Application
In practice, appraisers collect GRM data from comparable sales and must be careful about whether market participants quote monthly or annual GRMs. Commercial properties often use annual GRMs while residential income properties might use monthly GRMs, depending on local market customs.
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An appraiser is valuing a 20-unit apartment building. Recent sales of similar properties show gross rent multipliers ranging from 8.5 to 9.2. If the subject property generates $180,000 in annual gross rent, what is the indicated value range using GRM analysis?
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