Question

In which of the following situations would the GRM be used?

A. Income approach for commercial office building
B. Cost approach
C. Income approach for single family homes
D. Market/Data approach

Answer 1

The GRM (Gross Rent Multiplier) is used in the income approach for single family homes when estimating their value based on rental income.

Step-by-step explanation:

The GRM (Gross Rent Multiplier) is commonly used in real estate valuation and can be applied in the situation of income approach for single family homes.

The GRM is calculated by dividing the property's sale price by its annual gross rental income. It is a useful tool for estimating the value of income-producing properties, such as rental homes, based on their rental income.

For example, if a single family home generates $40,000 in annual gross rental income and similar properties in the area have sold for $400,000, the GRM would be 10 (400,000 ÷ 40,000). This means that the property's value is approximately 10 times its annual gross rental income.