The 'gross rent multiplier' (GRM) method for quick valuation of a rental property uses:
Why The property's sale price divided by its gross monthly (or annual) rent to establish a multiplier used to estimate value Is Correct
Answer B: The property's sale price divided by its gross monthly (or annual) rent to establish a multiplier used to estimate value
Exam Tip: Property Valuation
Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.
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Key Terms to Know
A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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