Leases signed this year show similar homes rent for $2,325 per month with two full baths and $2,200 with one. The subject property has two full baths, and a comparable sale has one. A two-bath home currently advertised for rent is asking $2,400. Market participants quote gross rent multipliers on annual rent. A one-bath home in the area, leased at $2,200 per month, sold last month for $343,200. A contractor has bid $24,000 to add a bathroom to a similar home. What adjustment is indicated for the second bath?
Correct Answer
B) $19,500
The sale indicates an annual gross rent multiplier of $343,200 / ($2,200 x 12) = 13.0. The signed leases show a $125 monthly difference, or $1,500 a year, and $1,500 x 13 = $19,500. $18,450 derives the multiplier from the two-bath rent rather than the rent the sold home earned, $31,200 uses an asking rent instead of leased rents, and $24,000 is the cost to add a bath, not the market's reaction.
Why This Is the Correct Answer
Option B is correct because the sale gives an annual multiplier of $343,200 / $26,400 = 13.0. The signed leases show a $125 monthly, or $1,500 annual, difference for the second bath, and $1,500 × 13 = $19,500 is added to the one-bath comparable.
Why the Other Options Are Wrong
Option A: $18,450
Option A, $18,450, derives the multiplier from the $2,325 two-bath rent: $343,200 / $27,900 = 12.3, and $1,500 x 12.3 = $18,450. The home that sold is a one-bath home leased at $2,200, so its multiplier is $343,200 / $26,400 = 13.0 and the adjustment is $19,500.
Option C: $24,000
Option C, $24,000, is a contractor's bid to add a bathroom. Cost to build is not the rent-based measure of what the feature contributes, which is $19,500.
Option D: $31,200
Option D, $31,200, uses the $2,400 asking rent ($200 × 12 × 13). An asking rent is not a signed lease, so the supported difference is $125 a month and the adjustment $19,500.
Same clock for rent and multiplier
Annual multiplier with annual rent, monthly multiplier with monthly rent; mixing them is off by twelve.
How to use: Use this every time a gross rent multiplier is applied to a rent figure.
Exam Tip
Derive the multiplier from the price and the rent of the same sold property, and check that the multiplier and the rent difference are both monthly or both annual before multiplying.
Common Mistakes to Avoid
- -Pairing a sale price with a rent the sold home did not earn
- -Applying an annual multiplier to a monthly rent difference
- -Using asking rents instead of signed leases
- -Treating a construction bid as the adjustment
Concept Deep Dive
Analysis
The question tests deriving a gross rent multiplier from a sale, using the rent that property actually earned and the time unit the market quotes, and applying it to a rent difference in the same unit. The candidate must also choose signed lease rents over an asking rent and set aside a construction bid.
Background Knowledge
A gross rent multiplier is the ratio of sale price to gross rent and can be stated on monthly or annual rent. A monthly multiplier is 12 times the annual one, so applying either to rent in the other time unit is off by a factor of 12.
Real-World Application
An appraiser in a market with many rented homes measures a second-bath adjustment from signed leases. Because local investors quote annual multipliers, the appraiser converts the monthly rent gap to an annual figure before capitalizing it.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
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Previous Question
A verified pair of cash-equivalent sales in the same market has Q2/C3 at $648,000 and Q5/C3 at $558,000. Rights, terms, time and other material characteristics are matched. A suitable comparable sold for $520,000. The subject is Q2/C3; the comparable is Q5/C3. Assume the observed contribution applies and no other adjustments. What signed quality adjustment and adjusted comparable price result?
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A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?