The monthly gross rent loss at the subject property is $250, and the monthly multiplier applicable to this loss is 110. What is the indicated loss in value of the whole property, before any allocation between site and improvements?
Correct Answer
C) $27,500
250×110 = 27500. Common errors: annualizing the monthly loss before applying a monthly multiplier gives $330,000; treating the monthly rent loss as the value loss gives $250; reporting the annual rent loss instead of the value loss gives $3,000.
Why This Is the Correct Answer
Option C is correct because a monthly loss multiplier is applied to the same level of income from which it was derived, which here is monthly rent. $250 × 110 = $27,500, the whole-property value-loss indication before any allocation to site and improvements.
Why the Other Options Are Wrong
Option A: $250
Option A, $250, simply restates the monthly rent loss as if it were the value loss. Rent loss is an income figure; it must be multiplied by the multiplier ($250 × 110 = $27,500) to convert it to value.
Option B: $3,000
Option B, $3,000, is the annual rent loss ($250 × 12). It is still an income figure, not a value loss, and annualizing is not needed with a monthly multiplier; the correct result is $250 × 110 = $27,500.
Option D: $330,000
Option D, $330,000, comes from annualizing the loss and then applying the monthly multiplier ($250 × 12 × 110). This mismatches income period and multiplier; the monthly multiplier belongs with monthly rent, so the answer is $250 × 110 = $27,500.
Monthly with monthly, annual with annual
Match the period of the income to the period of the multiplier. A monthly multiplier only works on monthly rent.
How to use: Use this check whenever you see a multiplier and a rent figure stated for different periods.
Exam Tip
Before multiplying, confirm whether the multiplier is monthly or annual and whether the rent loss is stated on the same basis. Mismatched periods produce answers 12 times too large or too small.
Common Mistakes to Avoid
- -Annualizing monthly rent before applying a monthly multiplier
- -Reporting the rent loss itself as the value loss
- -Treating the annual rent loss as the final value effect
Concept Deep Dive
Analysis
This question tests capitalization of rental loss using a gross rent multiplier. The key is matching the income period to the multiplier: a monthly multiplier is applied to monthly rent loss. Multiply the $250 monthly loss by the 110 monthly multiplier to get the value loss.
Background Knowledge
The capitalization of rental loss technique converts a supported loss of rent into a loss of value and can measure loss from any cause. A gross rent multiplier must be applied to income on the same basis (monthly or annual, gross or net) from which it was derived. The resulting whole-property loss may then need allocation between site and improvements.
Real-World Application
An appraiser finds that homes next to a new commercial loading dock rent for $250 less per month than similar homes elsewhere. Using a monthly gross rent multiplier extracted from local sales of rented homes, the appraiser converts that monthly rent loss into a value-loss indication for the cost approach.
More Cost Approach Questions
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