Single-house sales have materially different expense and vacancy characteristics from a subject apartment building, and no support is available for transfer. How should their GRM be treated?
Correct Answer
A) Do not apply it uncritically; obtain evidence supporting comparability or another method.
Different operating characteristics can impair multiplier applicability, but a property-type label alone does not prove a transfer is invalid. Analyze income definitions, vacancy, expense patterns, rights and market evidence. Scarcity does not require using an unsupported multiplier.
Why This Is the Correct Answer
Option A is correct because comparable sales used for a multiplier must be similar to the subject in income potential, expense ratios and other characteristics. Here the single-house sales differ materially in expenses and vacancy and no support exists for transfer. The appraiser should not apply the GRM uncritically and should seek supporting evidence or use another method.
Why the Other Options Are Wrong
Option B: Use it as is, because both properties are residential.
Option B says to use the GRM as is because both properties are residential. A shared residential label does not make expense ratios and vacancy comparable, and those differences affect how gross rent relates to price.
Option C: Use it, because the unit count is numerically similar.
Option C says to use it because the unit count is numerically similar. Unit count alone does not address the material differences in expenses and vacancy that make the multiplier unreliable.
Option D: Apply it without further support whenever apartment sales are scarce in the subject’s market area.
Option D says to apply it without further support whenever apartment sales are scarce. Scarcity of better data does not make an unsupported multiplier reliable; it calls for other evidence or another approach.
Gross hides the expenses
A GRM looks only at gross rent, so it silently assumes the same expense and vacancy pattern. If those differ, the multiplier carries hidden error.
How to use: Use this to test whether comparables are similar enough to supply a GRM.
Exam Tip
Favor answers that require support for comparability; avoid answers that justify a multiplier by a label or by data scarcity alone.
Common Mistakes to Avoid
- -Assuming all residential properties share the same multiplier
- -Using a GRM from a different property type because better data are scarce
- -Ignoring expense and vacancy differences when selecting multiplier comparables
Concept Deep Dive
Analysis
This question tests whether a gross rent multiplier from one property type can be applied to another with different expense and vacancy patterns. Multipliers rely on comparability in income potential and expense ratios, so a GRM from single-house sales is not reliable for an apartment building without support. The best answer calls for evidence or another method.
Background Knowledge
Gross rent multipliers ignore expenses, so they work only when the comparables and subject have similar expense ratios and vacancy. Comparable sales should match the subject in income potential, expense ratios, location and physical characteristics. When those differ, the multiplier needs support or another method is used.
Real-World Application
An appraiser asked to value a 10-unit apartment building finds plenty of rented single-family sales but few apartment sales. Because the houses have very different expense and vacancy profiles, the appraiser looks further for apartment data and relies more on direct capitalization.
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Next Question
Annual potential rent is $480,000. Apply 8% combined loss to rent only. Other collectible real-estate income is already effective at $15,000, with no further loss. What total EGI results? Do not include unrelated business receipts.