Some appraisers treat gross rent multipliers as a unit of comparison in the sales comparison approach. What do these multipliers compare?
Correct Answer
B) Sale prices to gross income
An income or rent multiplier compares properties through the ratio of sale price to gross income or rent; the variable of comparison is the income the properties generate.
Why This Is the Correct Answer
Option B is correct because an income or rent multiplier compares properties through the ratio of sale prices to gross income or rent. The unit by which subject and comparables are compared is the income each property produces.
Why the Other Options Are Wrong
Option A: Sale prices to building size
Option A compares sale prices to building size, which describes a price-per-square-foot unit of comparison, not a gross rent multiplier.
Option C: Net income to the loan amount
Option C compares net income to the loan amount, which resembles a lending measure such as a debt yield. A gross rent multiplier uses sale price and gross income or rent, not net income or loan amounts.
Option D: Construction cost to land value
Option D compares construction cost to land value, which relates to cost analysis or land-to-building ratios, not to income multipliers.
Price over rent
GRM equals Price divided by Gross Rent. The G reminds you it is gross, not net.
How to use: Use this to identify the two numbers any rent multiplier question is comparing.
Exam Tip
If a choice includes net income, a loan amount or building cost, it is not describing a gross rent multiplier.
Common Mistakes to Avoid
- -Using net operating income instead of gross rent
- -Confusing a GRM with price per square foot
- -Applying a GRM from properties with very different expense levels
Concept Deep Dive
Analysis
This question tests what a gross rent multiplier measures when used as a unit of comparison. The multiplier is the ratio of sale price to gross income or rent. The variable being compared across properties is the income they generate.
Background Knowledge
A gross rent multiplier (GRM) is found by dividing sale price by gross rent for comparable rental properties. The GRM from comparables is then applied to the subject's gross rent to indicate value. Because it uses gross figures, it assumes the properties have similar expense patterns.
Real-World Application
An appraiser valuing a rented single-family home finds that three comparable rentals sold at about 150 times their monthly rent. Applying that multiplier to the subject's market rent gives a supporting value indication.
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?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
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?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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