When is a gross rent multiplier most defensible as a valuation tool?
Correct Answer
B) For similar small residential rentals with alike expense patterns
Why this is correct: GRM ignores expenses, so it's defensible only for properties with very similar operating expense ratios, like 'similar small residential rentals with alike expense patterns.' Why the other choices are wrong: 'For an office tower with varied and overlapping lease structures' is wrong because office expenses vary widely, making GRM unreliable. 'Whenever fewer than three closed comparables can be located' is incorrect; data scarcity doesn't justify using an inappropriate method. 'For any property whose operating expenses are unknown' is dangerous; unknown expenses make GRM especially risky. Exam tip: Use GRM only when comparables are nearly identical in size, age, condition, and expected expense ratios.
Why This Is the Correct Answer
Why this is correct: GRM ignores expenses, so it's defensible only for properties with very similar operating expense ratios, like 'similar small residential rentals with alike expense patterns.' Why the other choices are wrong: 'For an office tower with varied and overlapping lease structures' is wrong because office expenses vary widely, making GRM unreliable. 'Whenever fewer than three closed comparables can be located' is incorrect; data scarcity doesn't justify using an inappropriate method. 'For any property whose operating expenses are unknown' is dangerous; unknown expenses make GRM especially risky. Exam tip: Use GRM only when comparables are nearly identical in size, age, condition, and expected expense ratios.
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