Rent loss of $250 per month is attributed to a subject's location beside a truck depot, and the market multiplier is 110 (monthly GRM). What external obsolescence does capitalization indicate for the whole property?
Correct Answer
D) $27,500, the rent loss times the multiplier
Why this is correct: External obsolescence is a loss in value from external factors. The gross rent multiplier (GRM) converts a monthly rent loss into a total property value loss. The calculation is the monthly rent loss ($250) multiplied by the monthly GRM (110): 250 * 110 = 27,500. This is the indicated loss for the whole property before any allocation between land and improvements. Why the other choices are wrong: "$2,750, one month grossed up" incorrectly uses only one month's rent loss. "$25,000, using an annual factor" incorrectly annualizes the rent loss first (250 * 12 = 3000) but then uses the wrong multiplier. "$30,000, applying the standard rounding convention" is an arbitrary figure not supported by the calculation. Exam tip: For external obsolescence using a monthly GRM, multiply the monthly rent loss directly by the GRM. Do not annualize first.
Why This Is the Correct Answer
Why this is correct: External obsolescence is a loss in value from external factors. The gross rent multiplier (GRM) converts a monthly rent loss into a total property value loss. The calculation is the monthly rent loss ($250) multiplied by the monthly GRM (110): 250 * 110 = 27,500. This is the indicated loss for the whole property before any allocation between land and improvements. Why the other choices are wrong: "$2,750, one month grossed up" incorrectly uses only one month's rent loss. "$25,000, using an annual factor" incorrectly annualizes the rent loss first (250 * 12 = 3000) but then uses the wrong multiplier. "$30,000, applying the standard rounding convention" is an arbitrary figure not supported by the calculation. Exam tip: For external obsolescence using a monthly GRM, multiply the monthly rent loss directly by the GRM. Do not annualize first.
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