The effective gross income multiplier is calculated as:
Correct Answer
D) Sale price divided by effective gross income
Why this is correct: The effective gross income multiplier (EGIM) is a ratio used to convert a property's effective gross income (EGI) into an indication of value. By definition, it is calculated as Sale Price divided by Effective Gross Income. This aligns with the general principle that a multiplier is price over income, while a rate (like a capitalization rate) is income over price. Why the other choices are wrong: "Sale price divided by net operating income" calculates the overall capitalization rate's inverse, not the EGIM. "Net operating income divided by sale price" calculates the overall capitalization rate itself. "Effective gross income divided by sale price" inverts the correct formula, producing a rate, not a multiplier. Exam tip: Remember the mnemonic: Multiplier is Price over Income (MPI). This helps avoid the common inversion error.
Why This Is the Correct Answer
Why this is correct: The effective gross income multiplier (EGIM) is a ratio used to convert a property's effective gross income (EGI) into an indication of value. By definition, it is calculated as Sale Price divided by Effective Gross Income. This aligns with the general principle that a multiplier is price over income, while a rate (like a capitalization rate) is income over price. Why the other choices are wrong: "Sale price divided by net operating income" calculates the overall capitalization rate's inverse, not the EGIM. "Net operating income divided by sale price" calculates the overall capitalization rate itself. "Effective gross income divided by sale price" inverts the correct formula, producing a rate, not a multiplier. Exam tip: Remember the mnemonic: Multiplier is Price over Income (MPI). This helps avoid the common inversion error.
More income-approach Questions
In a percentage lease, rent is commonly structured as:
Escalation clauses and expense stops in a lease matter to the income analysis because they:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Two identical buildings differ only in risk: one has a single tenant on a short lease, the other five tenants on staggered terms. How do their cap rates compare?
Contract rent on a leased office is $30 per sq ft; market rent is $26. The $4 difference is called:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An appraiser is analyzing a 15-unit apartment building. Market research indicates a 6% vacancy rate is typical for similar properties, but this property's historical vacancy has averaged 4%. The subject has experienced a 1% collection loss (uncollectible rents) over the past two years. When estimating effective gross income for the subject, what vacancy and collection loss percentage should the appraiser apply?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam