procedures ch 10 income multipliers

If properties are significantly different in any aspect, so that the difference would result in a difference in the amount of rent they are able to attract, then we have to adjust that rent accordingly. Again, it's the same way we treat comparable sales in the sales comparison approach. If we can isolate one difference, we can quantify it through paired data analysis. Assume that Property A has a garage and Property B does not. Otherwise, they are substantially similar. Property A is able to be rented for $1,000 per month and Property B is rented for $975. The indicated rental value of the garage is $25 per month. Therefore, that is the adjustment we would make to a rental for a property that lacks a garage. In single-unit appraising, rent adjustments are typically made on the basis of a dollar amount per month. An alternative method would be to make percentage adjustments.

adjusting rents

Here are three comparable sales. Sale 1 with a sale price of $127,000 and a monthly rent of $950. Sale 2 with a sale price of $132,000 and a monthly rent of $1025. Sale 3 with a sale price of $122,700 and a monthly rent of $1,000. What is the range of the GRMs?

11

Here are five comparable sales. Sale price / Monthly rent: 1. $142,000/$1,025. 2. $133,000/$1,000. 3. $128,500/$975 4. $145,000/$1,050. 5. $135,000/$1,000. What is the mean of the GRMs?

135.3

When developing an appraisal, you calculate the following GRMs from comparable properties: 94.3, 90.1, 95.6, 109.2, 84.5, 100.7, 99.9. What is the median of the GRMs?

95.6

A property sells for $95,750. At the time of sale it is rented for $975. What is the GRM?

98.2

First we enter the address of each rental comparable, and its proximity to the subject. Then we fill in information about lease dates, if there is a lease. If not, we just enter the rental amount, if it is currently leased. Next we are expected to subtract an amount for any utilities or furnishings that are included in the rent, to get down to a clean monthly rent figure that represents rent for the use of the space itself. They call this "Adjusted Monthly Rent." For example, assume the monthly rent is $1,000. However, it is completely furnished. Your research shows that similar unfurnished apartments rent for $900 per month. Also, the lease includes heat and hot water. Your research shows that apartments that size typically spend $75 per month for heat and hot water. You would subtract a total of $175 per month to arrive at an Adjusted Monthly Rent of $825. Then you should cite your data sources. The source for the rental provisions would be the lease. Then you need to reference your research sources for the adjustment amounts.

Fannie Mae Form 1007

The technique can only be applied if there is a sufficient number of reliable sales and rental data. The comparable sales utilized in a GRM analysis should be at least as good as the comparable sales utilized in the sales comparison approach. They should be similar in size, age, appeal, quality, condition, etc. We can use comparable rentals of similar properties in order to develop an opinion of market rent for the subject property. Then, in order to extract a GRM, we will need comparable properties that were also rented at the time they were sold. Further, we need to be able to ascertain the details of the rental contract. Also, there should be a larger quantity of such rented comparable sales. Three might not be a sufficient number; we might need six or eight, or more, to really provide a valid analysis.

GRM Limitations

GRM analysis may or may not be applicable to single-unit residential properties. It mainly depends upon the character of the market area and the prevailing attitude among buyers in that market area. If there are a substantial number of properties in that market area being purchased for investment purposes, then the approach would be applicable. If you are appraising in a project of condominiums in a resort area where the majority of properties are rented, then you would be remiss in not utilizing the GRM approach. Standards Rule 1-4 says: "In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results."

GRM applicability

The first step in deriving a GRM is to search the market area for similar properties that sold while they were being rented. These properties need to be similar to and competitive with the subject property. They need to be similar in physical characteristics, as well as economic and legal characteristics. There are several additional concerns that come into play when evaluating income property comparables. They should be comparable in terms of: division of utility expenses between the landlord and tenant, ratio of expenses to income, & lease terms

GRM derivation

When selecting a GRM to use in applying the income approach, we usually have several indications of GRM from which to choose. Hence, we have to undertake a reconciliation process that is similar to the one we used when reconciling value indications from our various comparable sales in the sales comparison approach. Certainly, we can employ the same procedure and look at which are our strongest and weakest comparables. However, when reconciling to a GRM, we typically have a larger number of indications to consider. When reconciling comparable sales in the sales comparison approach, many times we only have three or four sales. To properly utilize the GRM approach we should have a considerable number of sales in order to perform a valid analysis. With more numbers we can apply statistical analyses.

GRM reconciliation

The primary difference between GRM and GIM is that

GRM uses monthly rent, while GIM uses annual income

__________ work on the same principle as gross rent multipliers. Value is indicated by a certain ratio of income to value. However, GRMs are typically used for smaller income properties, typically one to four-unit properties. Gross income multipliers (GIMs) are applied to larger multi-unit properties and other income-producing properties of any kind. Rent is strictly income from the use of land or improvements. Gross income from a property may include rent plus other kinds of income: perhaps from renting of garages, coin operated washers and dryers, etc. Perhaps the most significant difference is that GRM is based on monthly rent, whereas GIM is based on annual income. Two-to-four-unit residential properties are generally purchased for the income that can be obtained. The buyer may or may not plan on occupying any of the units. The income approach can be analyzed on a GRM basis. If you were appraising six or 10 units, GIM might be a more appropriate technique.

Gross income multipliers

There are many factors that could influence the earnings capacity of a single-unit property. Any of those could require an ________ when estimating market rent. Small or minor differences that would not be recognized by a typical renter need not require an adjustment. Adjustments should be made only for significant differences. Some property characteristics that might require an adjustment when estimating market rents would include, but not be limited to Location, Access, Transportation, Schools, Shopping, Views, Size of unit, Condition, Quality, Amenities, Functional utility, Mechanical systems, Appliances, Individual thermostats, Closet space,Car storage,Layout, Windows, Soundproofing, Furnishings, Operating expenses, Lease provisions

adjustment

The next fields on form 1007 allow for space to adjust for differences in _______, as well as for room count and GLA. In a similar fashion, adjustments might be made for significant differences between the subject and the rental comparables by adding or subtracting a market derived figure to the existing rent of the comparable.

age/condition

How might an appraiser obtain expense ratio information for income properties?

all of these. reading published studied, interviewing market participants, and reviewing the appraisers files

A set of numbers that has two modes is referred to as a:

bi-modal distribution

Then on form 1007 there are two ________ we may utilize for adjusting for any other factor. The form suggests one possibility, and that is basement. Every property is different, so the possibilities for adjustment are substantial. We have to analyze each situation and make a decision as to whether or not there are additional factors that need to be taken into account.

blank lines

It is critical that the appraiser research and verify the ______________. This will be detailed in the lease, if available. Sometimes the lease is not available or the property may just be rented on a month-to-month basis. An interview with the landlord, tenant, real estate agent, or managing agent may prove to be the only way to ascertain the details. We need to know what is included in that rent figure. One property may rent for $700 per month and include all the utility charges. This would be compatible and comparable with another property renting for $600 per month in which the tenant must pay his or her own utility charges, which amount to $100 per month. We can accommodate those differences and make adjustments. In the example above, we could adjust the $700 rental downward by $100 per month for utilities. Before we can make the adjustment, though, we need to know for sure what is included in the gross rent. Many times the decision as to whether or not utilities are included in rents is a product of local custom. It just may be typical in an area that almost every time a property is rented, the landlord provides utilities in the rent. When researching rental comparables, we need to know what is included in the rental amounts, to ensure we are comparing apples to apples.

details of a rental transaction

GRM assumes there is __________ relationship between rental income and value.

direct linear

the procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate.

discounted cash flow analysis

How is a GRM derived?

dividing sale price by gross monthly unfurnished market rent

The anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income. The gross income multipliers may be employed with either potential or effective gross income streams. The effective gross income multiplier (EGIM) would be preferable because of the increased accuracy, but the data is harder to verify. In the absence of better data, the potential gross income multiplier (PGIM) may be employed.

effective gross income

The Fannie Mae 1007 form is intended to

estimate the market rent of the subject property

The subject property is a four-unit building, consisting of two 2-bedroom units and two 1-bedroom units. Through research and analysis, you estimate the market rents for the 2-bedroom units at $1,500 per month, and the 1-bedroom units at $1,100 per month. The market-extracted GRM is 95. What is the indicated value for the subject property? 2-bedroom units = $1,500 x 2 = $3,000 1-bedroom units = $1,100 x 2 = $2,200 Total gross monthly rent = $5,200 Multiplying the monthly rent of $5,200 x 95 GRM = $494,000 indicated value by the GRM income approach.

example of value indication using GRM

Even in single-unit properties, the ratio of expenses to income is an important factor. Two similar properties might be equally desirable in the eyes of a tenant, and they would be willing to pay comparable rents. However, if one property is older, has less efficient mechanical systems, and requires greater maintenance and upkeep; it will be less desirable in the eyes of potential buyers. Even though the property can command an equivalent rent, the bigger bite taken by the greater expenses will leave less net income in the owner's pocket. Therefore, the two properties would not be viewed as equivalent by buyers, and they would not have the same value, even though they can produce the same gross rent. Expense ratios for more complex income-producing or commercial properties may be ascertained by interview of market participants or by examining published studies. Expense ratios for single-unit properties are harder to come by. You may gain valuable insights by interviewing buyers, sellers, investors, real estate agents, and other appraisers.

expense ratios

The ratio of _________ is a crucial factor when comparing properties. Every income-producing property requires certain operating expenses. Depending upon the nature of the property, this ratio of expenses to total income varies. In renting unfurnished apartments, for example, the expenses may consume something in the range of 35% to 45% of the total income. This means that for every dollar of rent collected, $0.35 to $0.45 goes to just operating the property. This would mean covering the utilities, taxes, insurance, repairs, maintenance, etc.

expenses to rent

True or False: New single-unit homes are frequently purchased as rental investment properties.

false

The current URAR form (March 2005) has expanded the section for completion of an income approach to three lines. The first line is very similar to the old URAR, in which you enter the market rent and multiply it by the GRM to arrive at the indicated value by the income approach. However, the next two lines specifically ask for a summary of the income approach "including support for market rent and GRM." So we are required to justify our conclusions and stipulate how we arrived at those two numbers. If you are performing an appraisal of a single-unit property that will not be an investment, Fannie Mae does not require an income approach. However, if you decide to complete an income approach because you feel it is necessary for credible results, then you would have to show support for your market rent estimate and your calculated GRM. If the subject of your assignment is a single-unit investment property, then Fannie Mae does require the completion and attachment of the form 1007. That will provide support for how you arrived at the market rent figure. You should still attach information detailing your calculation of the appropriate GRM. It would be appropriate to cite specific sales and identify their rents at the time of sale, as we did in previous exercises.

fannie mae form 1004

In the old URAR (June 1993) the section for completing an income approach was a one-liner. You only had to insert two numbers, multiply them together, and put the product in the third blank space. Most times you were not asked to justify how you arrived at those two numbers for the market rent and the GRM. Obviously, good appraisal practice dictates that you made a diligent effort, undertook some research and reconciled your way to those final figures. Even if it was not required in the form to address your sources and methodology, you should have kept such information in your workfile.

fannie mae form 1004 (old)

The last section of the form has space for narrative comments and for a _________. First is an area in which you are asked to specifically comment on a number of items, including: market data, range of rents, estimate of vacancy rates, general trend of rents and vacancy, support for the above adjustments. Then, in parentheses, there is an admonition and reminder that rent concessions should be adjusted to the market, not to the subject property. Obviously, if there are other significant factors that you feel are important in this assignment and that impact the estimate of market rent, then they require explanation and comment as well. If you need more space, you need to continue your comments in an addendum. The last field on the form provides space to narratively explain your final reconciliation of market rent. If you only use three comparable rental properties, then statistical analysis such as computing a mean, median, and mode would not be appropriate. Statistical analysis needs a larger data set to be significant. You would conduct a reconciliation of your database upon the strengths and weaknesses of each comparable, the number of adjustments necessary for each one, and the nature of the adjustments required.

final reconciliation

Fannie Mae requires the use of ________ when the subject is a one-unit investment property. The mortgage underwriter wants to know the appraiser's opinion of market rent for the subject property; this form provides the appraiser's support and rationale for that opinion. The top of the form describes the expectations and states, "This form is intended to provide the appraiser with a familiar format to estimate the market rent of the subject property. Adjustments should be made only for items of significant difference between the comparables and the subject property."

form 1007

Another practical reason why we draw the line at ________ for residential appraisers is because of limitations imposed by the federal financial institution regulatory agencies and incorporated into state licensing statutes. These limitations stipulate that licensed residential appraisers are qualified to appraise non-complex 1-4 residential units with a transaction value of less than $1 million, and complex 1-4 unit residential units with a transaction value less than $250,000. Certified residential appraisers can appraise 1-4 unit residential properties without regard to value or complexity. To appraise residential property with more than 4 units, or to appraise any non-residential property, a Certified General Appraiser credential is required. If you are in a mandatory state and appraise a property with more than four living units, you need to have a general appraiser certification. Remember, that even when appraising four units or less, the COMPETENCY RULE of USPAP applies. An appraiser must have the knowledge and experience to competently complete an assignment or must take other steps addressed in the Rule. Also, state laws might come into play as well. For example, some states permit licensed residential appraisers and certified residential appraisers to appraise properties with more than 4 units if the appraisal is not for a federally-related lending transaction. It is essential to be aware of, and comply with, your state's appraiser licensing laws and regulations.

four units

Which term is defined as: "The relationship or ratio between the sale price or value of a property and its gross annual rental income"?

gross income multiplier

The relationship or ratio between the sale price or value of a property and its gross annual rental income.

gross income multiplier (GIM)

Once we have determined our GRM, we are halfway home. The next step is to estimate the __________ of the subject property, on an unfurnished basis. If the subject is already rented, we certainly need to analyze the current contract rent and see if it appears to be reasonable. We would need to examine the provisions of the lease, as we discussed earlier, and investigate if there were any atypical motivations when the lease was consummated. Then we need to go to the market and see what the market rent would be for that particular property, as opposed to the existing contract rent. When all is said and done, market rent and contract rent might be the same. Many times properties are rented at the correct level. But we cannot assume that any contract rent is automatically equal to market rent. Contract rent is the amount for which the property is currently rented; market rent is the amount for which the property should be rented.

gross monthly market rent

When performing an income approach on a single unit residential property, we employ ______________ analysis. GRMs are derived by dividing the sales price by the gross monthly unfurnished market rent at the time of sale. Then the GRMs are analyzed and reconciled into an appropriate multiplier that can be used to develop an indication of value by the income approach. The reconciled GRM is multiplied by the market rent of the subject property.

gross rent multiplier

Which term is defined as: "The relationship or ratio between the sale price or value of a property and its periodic gross rental income"?

gross rent multiplier

is based on the assumption that there is a direct relationship between rental income and value. The more rental income a property can produce, the more valuable it is. Or conversely, the more valuable a property is, the more rental income it should be able to generate. Owners and tenants are motivated by some of the same things. A better quality structure, in superior condition, and in a desirable neighborhood, will be more attractive to both tenants and potential homebuyers. Such a property will command a premium in sale price or in rent. GRM analysis assumes that there is a direct linear relationship between rental income and value. This has proven to be the case over and over. It may be, for example, that properties of a certain type in a specific neighborhood typically sell for 90 times their monthly rent. If the rent is $1,000 per month, then the property would be worth $90,000 to a typical purchaser. If another property is capable of generating $1,200 a month rent in the same market area, the property's indicated value would be 90 x $1,200 or $108,000.

gross rent multiplier analysis

The relationship or ratio between the sale price or value of a property and its periodic gross rental income.

gross rent multiplier definition

sale price: $98,500 monthly rent: $750 GRM: 131.3 sale price: $103,000 monthly rent: $800 GRM: 128.8 sale price: $91,750 monthly rent: $725 GRM: 126.6 sale price: $94,000 monthly rent: $700 GRM: 134.3

gross rent multiplier example

Single unit homes are less frequently purchased for investment. With older houses, it is more likely that it may be possible to buy a single-unit home and rent it out at a profit. Think of middle-aged homes in older developments in your area, or older urban dwellings. Of course, another concern with investment in a single unit is that if it is vacant, it is 100% empty. If that investment property sits vacant for three months, you have lost 25% of your annual income. Conversely, if you have four units and one happens to sit empty for three months, it's not nearly as burdensome. An investor looking to purchase a single-unit property needs to do some research and answer some basic questions. One of the more important considerations is the neighborhood or market area itself. Is this an area that is almost exclusively owner-occupied? Are there other properties that are rented? Some neighborhoods have a relatively high percentage of properties that are tenant-occupied as opposed to owner-occupied. Some basic research can tell you that. Some neighborhoods were purposely constructed of duplexes or fourplexes where almost all the units are tenant-occupied and investor-owned. Other areas may exhibit trends where there are a relatively high percentage of homes that are rented, by default. These areas may be in slow markets and owners who want to sell are forced to rent out their properties because they can't afford to leave the property empty. For example, an owner may have moved away and purchased a house in another area but has been unable to sell his or her house. The owner cannot afford to make the full payments on both houses, but if the owner rents out his or her old house, the income may help him or her make the mortgage payment.

investment units

Beyond the written terms, we need to try to investigate the motivations behind the consummation of the written lease. This process is somewhat similar to what we do in the sales comparison approach - we want to know if it was an arm's-length transaction. Were the parties related? Were they typically well-informed? Was there undue duress on either party? Verification of the situation under which the lease was consummated might reveal atypical motivations. Perhaps the tenant was an elderly person who had been leasing the property for 15 years, was never any problem, and always paid the rent on time. The landlord might welcome the opportunity to extend the lease at a below-market rate simply for the satisfaction of continuing this desirable relationship. It may turn out that a tenant is also paying a below-market rental rate because they help out and do some work around the property. Perhaps they cut the grass or shovel the snow.

lease terms

It is also important to ascertain the provisions of the lease. Again, we might have two properties producing the same rental income. Assume there are two very similar houses that are each rented for $1,200 per month. On the face of it, they might be considered to be comparable. However, there are many provisions that may appear in a lease that would have an impact on the overall value and desirability of one property as compared to another. These particular provisions might include: length of term, amount of security deposit, apportionment of expenses, penalties for breaking the lease, penalties for late payments, ability to sub-let, options to renew, rental concessions, inclusion of furnishings

lease terms

The second item on form 1007 is for _________. You may have two virtually identical units in a project. However, one is on the top floor with a spectacular view and the other is on the first floor facing the parking lot. Or, you might have two very similar houses, but one fronts on a busy street and the other is at the end of a quiet cul-de-sac. These items might require an adjustment. Remember here, that we would not be making dollar adjustments that would reflect the difference in sale price (such as $3,000), but would make an adjustment that would reflect the difference in rent per month (such as $30).

location/view

To determine _________, we need to investigate rental transactions of similar properties in the market area. Our sources for rental information may come from: the subject property, comparable sales used in the sales comparison approach, other comparable sales, interviews with investors, interviews with landlords, interviews with tenants, interviews with neighbors, interviews with leasing agents, interviews with other appraisers, your own files. Gathering rental data should be an ongoing process for any appraiser. We can accumulate this type of information from these various sources at any time. Rental data can be obtained from a longer time frame, as it usually doesn't change rapidly. Comparable sales hopefully occur within the last six months. Rental data and GRM indicators can be from further back in time, depending upon the activity in the local rental market. Inspect current rental transactions to ascertain if rental rates have changed significantly, either up or down. We may have to make an adjustment in the market rent in accordance with changes in market conditions. So we study a number of rental transactions and then perhaps adjust the rents for differences in market conditions, physical differences, and lease conditions (if necessary). The rental comparables that we utilize may or may not have sold recently. As we stated, we need comparables that were rented at the time of sale when developing a GRM. However, when developing an opinion of market rent, our rent comparables can be properties that are simply rented but have not sold.

market rent

"The sum of values for a variable in a sample or population divided by the number of items in the sample or population" is the definition of

mean

A measure of central tendency. The sum of values for a variable in a sample or population divided by the number of items in the sample or population. The arithmetic average.

mean

Which can be affected by extremes at either end of the distribution?

mean

A measure of central tendency identified as the middle value in an ordered array of numerical values, e.g., 7 is the median of (1, 4, 6, 6, 7, 9, 11, 22, 41 ). If the ordered array contains an even number of values, then the median is the mean of the two values on either side of the middle.

median

A measure of central tendency consisting of the numerical value or categorical characteristic that occurs most frequently in a sample or population. For example, of the data set (2, 4, 5, 6, 6, 7, 7, 8, 8, 8, 8, 10, 12) it is 8, and the mode of (poor, poor, below average, average, average, average, average, good, good, excellent) is average.

mode

The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted. PGI is the most possible rent a property could produce. It assumes the units are rented every day of the year at market rent.

potential gross income

"The region or area over which something is found, is distributed, or occurs" is the definition of

range

The region or area over which something is found, is distributed, or occurs.

range

The first item on form 1007 is ____________. These are similar to sales concessions. They provide inducements to entice prospective tenants to rent a property. They are frequently employed in slow markets when there are lots of competing units for rent. We also find them sometimes in new rental projects, where concessions are employed to get a new project up and running. They typically take the form of a reduced rent or free rent for the first month or two if a lease is signed. Others could be in the form of providing some extra services or covering part of the utility costs

rent concessions

If you are in a market area in which there are rent controls, then GRM analysis should not be utilized. The whole premise of GRM is that there is an ongoing ratio relationship between rents and values. This further presumes that rents and values are free to fluctuate according to the dictates of the marketplace. It usually develops that there is a somewhat constant ratio relationship. Let us just assume for the moment, that single-unit properties in an area typically sell at 120 times gross monthly rent. Over time properties may appreciate (or depreciate). If properties appreciate in value, then they should be able to command more rent. If properties were to appreciate 5% in a year, then rents most likely would tend to go up at the same rate. Therefore, this ratio relationship between the two would remain approximately the same, and properties would still sell at about 120 times monthly rent. However, even in a normal, free market, ratio relationships are not always perfectly constant. Prices are subject to more rapid fluctuations than rent. Also, many rents are locked in for a year or two through leases. It's only when a lease expires or a tenant moves out, that the owner has an opportunity to raise the rent to the market level. However, over time, the rents and values will fall back into the same relationship and move along in lock step. Rent controls do not permit the unrestricted movement of one of the two vital ingredients. Rents are locked into place, many at artificially low levels, for long periods of time. The relationships between the two factors are not allowed to follow normal market patterns, and the indicators become meaningless.

rent controls

When developing an income approach in appraising residential properties (one to four units), we usually employ multipliers. Owner/occupant homeowners are attracted to houses because of the amenity benefits inherent in ownership. Unlike owner/occupants, investors are attracted to the income characteristics of a property. Their anticipated future benefits are financial in nature. In the appraisal world we draw the line between a residential property and a non-residential property at four units. Usually, if people buy a one-unit property, it is to live in. It is also fairly common for people to buy a two-, three- or four-unit property and live in one unit. That gives them a place to live and hopefully they can carry most or all of the living expenses by renting out the other units. Of course, there are occasions when someone purchases a one-unit home or 2-4 unit property purely for investment. Nevertheless, these would be considered residential properties, and properties with 5 or more living units are considered to be non-residential properties. Mixed use properties (e.g., a store on the first floor with two apartments above) are also considered to be non-residential properties.

residential income approach

GRMs are derived by dividing the _______________ by the _______________ at the time of sale.

sale price, gross monthly unfurnished market rent

When considering purchase of a single unit investment property, it is important to investigate the market area including such items as: rent levels, vacancy rates, do the tenants pay most or all the utilities?, any proposed land use changes?, any proposed zoning changes?, number of other homes purchased for investment, are these rental purchases interim uses?, do they signal a transition of use in the market area?, are the rentals on a month-to-month basis?, are long term leases (more than 1 year) common?, availability of financing, will lenders charge higher interest and provide less desirable terms for investment property purchase? Answers to these questions will tell you a lot about the desirability of purchasing a single-unit home and expecting to rent it out profitably. Values may have decreased to the point where renting a house out becomes a viable alternative. Maybe there is an expected influx of temporary people into the market area. There may be transient workers on a large construction project, or military personnel. There may be an increased demand for rental units that will drive up rental prices.

single unit investment

We don't adjust our GRM indicators. The presumption is that the GRM would be self-adjusting according to the marketplace, that is, by the give and take between buyers and sellers in determining the sale process. To perform our ____________, we need to understand the strengths and weaknesses of these statistical indicators. The mean is easy to understand and to apply. However, it can be affected by extremes at either end of the distribution. The median is not much affected by extremes. The mode may or may not be meaningful. There may not be any mode at all in a data set. Let's suppose that we finally decide on 106 as the best indication for the GRM. That would then be multiplied by the market rent. The final value estimate will vary depending on that choice. If we decide the market rent for the subject is $600, then the value would be 106 X $600, or $63,600. If we determine the market rent to be $700, then the value becomes 106 X $700, or $74,200.

statistical reconciliation

When developing an appraisal, you calculate the following GRMs from comparable properties: 94.3, 90.1, 95.6, 109.2, 84.5, 100.7, 99.9. What is the mode of the GRMs?

there is no mode

True or False: An appraiser would typically not value a 50-unit apartment complex with a gross rent multiplier (GRM).

true

True or False: GRM analysis should not be used in areas with rent controls.

true

One of the main categories of operating expenses for any property is the _________. Depending on the property, this could include charges for heating, cooling, electricity, gas, water heating, water, sewer, trash collection. The big question is - who pays for what? In some instances, the landlord provides all of these utilities. At the other extreme, the tenant would be required to foot the bills. Of course, there are many instances in which there is a combination and each party pays part of the utility charges.

utility expenses

The __________ has to suit the property type appraised. We need to develop an appropriate scope of work to solve the problem in each appraisal assignment. Market value is viewed through the eyes of a typical purchaser. One to four unit properties are typically bought either by a homeowner or a small investor. You may find people who buy up three or four multi-unit properties and manage them on their own. It may prove to be a good investment. The other extreme would be professional investors or investment companies. They may purchase hundreds or thousands of rental units at a time in multi-million dollar transactions. They are more sophisticated in valuation techniques. They demand greater sophistication in valuation methodology and are willing to pay for it. You might appraise a three-unit property by using a gross rent multiplier, but if you were to appraise a 400-unit apartment building on that basis, it would likely not be appropriate. You would likely employ a capitalization of net income by a capitalization rate, or you might also employ other techniques such as a discounted cash flow (DCF) analysis.

valuation technique

When using a GRM to value a property, the difficult and time-consuming tasks are developing the opinion of market rent for the subject and extracting the GRM from the market. The easy part is doing the math to arrive at the indication of value; it is simple multiplication. We just multiply the gross monthly market rent by the GRM to obtain the _______

value indication