Property Valuation
In South Dakota, when an appraiser uses the 'gross rent multiplier' (GRM) method for a single-family rental, they divide:
AAnnual expenses by annual income
BThe sale price by annual gross rent to derive the GRM, which is then applied to the subject's rent✓ Correct
CAnnual NOI by the cap rate
DMonthly rent by the sale price
Explanation
The GRM is derived from comparable sales by dividing the sale price by annual gross rent. The derived GRM is then applied to the subject property's annual gross rent to estimate its value: Value = Annual Gross Rent × GRM.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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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