A supported price-to-income multiplier of 12 is explicitly defined on the same period and income basis as the subject’s $52,000 annual income. With no further adjustments, what value is indicated by multiplying the two?
Correct Answer
C) $624,000
52000×12 = 624000. Common errors: treating the annual income as monthly and annualizing it gives $7,488,000; dividing by the multiplier instead of multiplying gives $4,333; reporting the income instead of the value gives $52,000.
Why This Is the Correct Answer
Option C is correct because $52,000 x 12 = $624,000. The multiplier and income share the same annual basis, so they can be multiplied directly. This applies the multiplier to the same level of income from which it was derived.
Why the Other Options Are Wrong
Option A: $4,333
Option A is wrong because $4,333 comes from dividing the income by the multiplier: $52,000 / 12 = $4,333. A value multiplier is multiplied by income, so the correct value is $52,000 x 12 = $624,000.
Option B: $52,000
Option B is wrong because $52,000 is the subject's annual income, not its value. Applying the multiplier gives $52,000 x 12 = $624,000.
Option D: $7,488,000
Option D is wrong because $7,488,000 comes from treating the annual income as monthly and annualizing it: $52,000 x 12 x 12 = $7,488,000. The income is already annual and matches the multiplier, so the value is $52,000 x 12 = $624,000.
Matched basis, just multiply
When the multiplier and income share the same basis, value equals income times multiplier with no extra steps.
How to use: Use this when a stem explicitly says the multiplier and income are on the same basis.
Exam Tip
If the stem confirms matching bases, resist the urge to convert periods. Extra conversion steps produce the trap answers.
Common Mistakes to Avoid
- -Dividing income by the multiplier
- -Converting annual income again when the bases already match
- -Reporting the income figure as the value
Concept Deep Dive
Analysis
This question tests straightforward application of a supported multiplier. Because the multiplier of 12 is defined on the same period and income basis as the subject's $52,000 annual income, value is income times multiplier. No conversion between periods is needed.
Background Knowledge
Income multipliers convert a level of income into a value indication by multiplication. They must be applied to the same type and period of income from which they were derived. When the stem confirms the bases match, no conversion is required.
Real-World Application
An appraiser has extracted an annual gross income multiplier of 12 from comparable two- to four-unit residential sales. Applying it to the subject's $52,000 annual gross income indicates about $624,000.
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Previous Question
The subject property has annual EGI of $112,000. A comparable with annual EGI of $110,000, measured on the same basis, sold for a cash-equivalent price of $946,000. Market data indicate the subject would sell at the same price-to-income ratio, with no other adjustments. What value is indicated for the subject, rounded to the nearest dollar?
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Annual potential gross rental income is $560,000. The corresponding vacancy loss is $42,000. What percentage of potential income does that loss represent?