In September 2026, investor Nina Brooks compares two duplexes that collect similar monthly rent, but one has much higher taxes, insurance, and maintenance costs. Which statement best explains why GRM alone may be misleading?
Correct Answer
B) Because GRM looks at gross rent and does not directly reflect expense differences
GRM is based on gross rent, so it does not directly account for the fact that one property may have much higher expenses than another. Two properties can show similar rent yet differ materially in NOI and therefore in what knowledgeable buyers are willing to pay.
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Previous Question
In August 2026, appraiser Omar Lewis is valuing a small retail strip. Potential gross income is $96,000, vacancy and collection loss is $6,000, annual operating expenses are $30,000, and market participants are using a 10% overall cap rate. What value is indicated by direct capitalization?
Next Question
In October 2026, appraiser Caleb Moore is reviewing an income statement for Oak Place. The property's NOI is $67,500, the expense ratio is 25%, and vacancy and collection loss is 10% of potential gross income. Assuming there is no other income, what is the property's potential gross income?