Property Valuation
What is the 'gross rent multiplier' (GRM) approach's primary limitation compared to the income capitalization approach?
AA. GRM is harder to calculate
BB. GRM uses gross income without deducting expenses, so it doesn't reflect operating costs that vary between properties✓ Correct
CC. GRM requires more comparable sales
DD. GRM can only be used for commercial properties
Explanation
The GRM's major limitation is that it uses gross income before expenses. Properties with identical gross rents but very different expense ratios will show the same GRM but have very different NOIs and actual values.
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