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Income Approach GRM Example

We'll use the same data and sales comparables from the prior example for another Income Approach appraisal. For this assignment you have to use the Gross Rent Multiplier (GRM) of the sales comparables to estimate the market value of the subject property. Let's say that you've analyzed the Sales Prices of the houses; their Gross Monthly Rents for unfurnished apartments; and their Gross Rent Multipliers. You use unfurnished apartment rental figures for this. The following equations are needed:

  • SP = Sales Price

  • GMR = Gross Monthly Rents

  • GRM = Gross Rent Multiplier

  • GRM = SP/GMR

Your field work for this appraisal assignment has found the following information:

  1. The Sales Prices of the houses are: $125,000, $92,000, $87,000, $116,000, $147,000, $138,000.

  2. The GMR of the houses are: $370, $290, $285, $355, $405, $390.

  3. The GRM of the houses are: 337.84, 317.24, 305.26, 326.76, 362.96, 353.85.

  4. The GMR of the Subject Property is: $380.

Your first step is to place this information in an order that makes it easier to analyze.

Analysis Figures:
Sales Number Sales Price Gross Monthly Rents Gross Rent Multiplier
1
2
3
4
5
6
$ 147,000
138,000
125,000
116,000
92,000
87,000
 $ 405
390
370
355
290
285
$ 362.96
353.85
337.84
326.76
317.24
305.26
Totals: $  ? $380 $  ?

We need to determine the GRM for the subject property. We do this by taking the average of the GRM figures for the sales comparables.

362.96 + 353.85 + 337.84 + 326.76 + 317.24 + 305.26
= 2003.91

2003.91 / 6 = 333.99

334 is the rounded out GRM amount

Next we need to use this figure to estimate the market value of the subject property. We do this by multiplying the GRM amount by the GMR amount for the subject property.

334 x $380 = $126,920

$127,000 is the rounded out
estimated market value of the subject property.

You would use these Income Approach figures to fill out the appraisal form for this report. You can estimate market value by multiplying the Monthly Total Gross Estimated Rent (GMR) by the Gross Rent Multiplier amount (GRM). An example is shown in the sample Multi-Family appraisal report in this book.

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