Final answer:
When an appraiser uses the gross monthly rent multiplier, they apply it to the current actual rent of the property. The GRM method compares the actual rent with comparable properties to estimate the property's value.
Step-by-step explanation:
The application of the gross monthly rent multiplier (GRM) in property appraisal involves utilizing the current actual rent paid for the subject property. This method provides a quick and straightforward estimate of the property's value based on its income-generating potential. The GRM is derived by analyzing comparable rental properties in the market, specifically by dividing the sale price of these comparable properties by their gross monthly rental income.
When appraising the subject property, the appraiser takes the current actual rent being paid and multiplies it by the previously determined GRM. This calculation offers a rapid and initial assessment of the property's value by drawing comparisons to similar income-producing properties that have already been appraised. The GRM essentially serves as a benchmark for evaluating the relationship between the property's rental income and its overall value.
While the GRM method provides a quick estimate, it is essential to recognize its limitations. The approach assumes a consistent relationship between the rental income and property value across comparable properties. It may not account for variations in property condition, amenities, or other factors that could influence the actual market value. Therefore, while the GRM method is a valuable tool for a rapid appraisal, it is often complemented by more comprehensive methods for a thorough and accurate property valuation.