An appraiser is valuing a rental property with gross monthly rent of $8,400. Using a gross rent multiplier (GRM) of 142, what is the indicated value?
Correct Answer
A) $1,192,800
GRM is calculated by multiplying monthly gross rent by the GRM factor: $8,400 × 142 = $1,192,800. This provides a quick estimate of value based on gross rental income.
Why This Is the Correct Answer
Option A ($1,192,800) is correct because it properly applies the GRM formula: Property Value = Monthly Gross Rent × GRM. The calculation is straightforward: $8,400 × 142 = $1,192,800. This multiplication gives the indicated market value based on the gross rent multiplier method. The GRM method assumes that properties with similar gross rental income ratios will have comparable values in the market.
Why the Other Options Are Wrong
Option B: $99,400
Option B ($99,400) appears to result from dividing the monthly rent by a factor rather than multiplying, possibly confusing GRM with a capitalization rate calculation or making an arithmetic error.
Option C: $119,280
Option C ($119,280) seems to result from multiplying the monthly rent by approximately 14.2 instead of 142, likely a decimal placement error or misreading the GRM factor.
Option D: $1,428,000
Option D ($1,428,000) appears to result from incorrect multiplication, possibly reversing the digits in the GRM (using 170 instead of 142) or making a computational error in the multiplication process.
GRM = Gross Rent Magic
Remember 'GRM Magic': Gross Rent × Multiplier = Market value. Think of the multiplier as a 'magic number' that transforms monthly rent into property value.
How to use: When you see a GRM question, immediately identify the monthly gross rent and the GRM factor, then simply multiply them together - no division, no complex calculations, just straight multiplication for the 'magic' result.
Exam Tip
Always double-check that you're using monthly rent (not annual) with GRM, and ensure you multiply rather than divide - GRM questions are designed to test basic multiplication skills and formula application.
Common Mistakes to Avoid
- -Dividing instead of multiplying the rent by the GRM
- -Using annual rent instead of monthly rent in the calculation
- -Confusing GRM with capitalization rates or other income multipliers
Concept Deep Dive
Analysis
The Gross Rent Multiplier (GRM) is a quick valuation method used in the income approach to estimate property value based on gross rental income. It represents the relationship between a property's sale price and its gross monthly rental income, providing a simple multiplication factor. The GRM is derived from comparable sales data where similar properties' sale prices are divided by their monthly gross rents. This method is particularly useful for quick estimates and preliminary valuations, though it's less precise than detailed income capitalization methods since it doesn't account for operating expenses, vacancy rates, or other income factors.
Background Knowledge
The Gross Rent Multiplier is calculated by dividing the sale price of comparable properties by their monthly gross rent to establish a market-derived multiplier. This multiplier is then applied to the subject property's monthly gross rent to estimate value, making it a useful tool for quick valuations in the income approach.
Real-World Application
Appraisers use GRM for quick property valuations when analyzing rental properties, especially for preliminary estimates, mass appraisal work, or when detailed income and expense data isn't readily available, though it should be supplemented with more detailed income approach methods for final valuations.
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