GRM

[Lee Lansford]

So, if I'm reading this correctly, I take the Indicated Value of my Subject which is $199,350 / $18,576 (1007 Result on Subject) = 10,7 GRM X 12 = 128.77 and that's what I put in the GRM.

You need to develop a market GRM, not an individual GRM that is specific to your subject.

 

[George Hatch]

Market rents for the subject should be valued by GRMs based on the market rents for the comparables. What those buyers can reasonably expect to get. That includes consideration of the effects of any rent controls which would limit what those buyers can reasonably expect to collect.

(IF a market segment is driven by the income)
You might have to perform a rental survey to estimate the mkt rents for each of the comps in order to come up with a market rent based GRM. It's more work but it will also return a more consistent range. Units that aren't reporting income aren't what we would prefer as appraisers, but IRL you have to take what you can get and make the best of it.

 

[sputnam]

You take the sales prices of similar properties that were rented at the time of sale. You divide the sales price by the monthly rent = Gross Rent Multiplier (GRM). You reconcile within the range of GRMs that you have extracted and apply your selected GRM to the subject's estimated market rent (also based on the market). Monthly market rental X GRM = indicated subject value.

Typically, monthly rental rate is used in residential property. Annual in commercial properties, in which case it would be Gross Income Multiplier (GIM) instead of GRM.

 

[OG80]

You take the sales prices of similar properties that were rented at the time of sale. You divide the sales price by the monthly rent = Gross Rent Multiplier (GRM). You reconcile within the range of GRMs that you have extracted and apply your selected GRM to the subject's estimated market rent (also based on the market). Monthly market rental X GRM = indicated subject value.

Typically, monthly rental rate is used in residential property. Annual in commercial properties, in which case it would be Gross Income Multiplier (GIM) instead of GRM.

 

[OG80]

You take the sales prices of similar properties that were rented at the time of sale. You divide the sales price by the monthly rent = Gross Rent Multiplier (GRM). You reconcile within the range of GRMs that you have extracted and apply your selected GRM to the subject's estimated market rent (also based on the market). Monthly market rental X GRM = indicated subject value.

Typically, monthly rental rate is used in residential property. Annual in commercial properties, in which case it would be Gross Income Multiplier (GIM) instead of GRM.

Thank you very much for taking the time for this. It helps!

 

[Carnivore]

What I get out of this entire thread is fairly simple. Standards Rule 1-4 always applies. You as an appraiser must at least consider the Income Approach.
That is similar in a way to the HBU analysis. In many residential assignments, HBU can be determined in about 0.02 milliseconds. The same goes for the residential SFR Income approach, it can take 0.02 milliseconds also. We know or at least have a pretty good idea of what our assignments may entail. How else would we be able to Quote a Fee and turn time? Yes, we can always ask for a fee increase.

We are in the News now and it will continue to get worse. You better have something in your workfile addressing the decision on appropriate/applicable minimum SOW. I am doing a simple Rental Survey for every assignment. Some obviously won't reveal any rentals but I still go through the motions.

Maybe I am over-reacting. I don't think so.

 

[Terrel L. Shields]

MO the GRM approach is flawed

While an element of truth to that, I am not sure the use of a net income method would be better since it is difficult to get the expense data from the owners- as least any you can believe. The reality is though that there is often an element of revisionary value in such investments. Like Hotels. People might invest in a 5 or 10 year time line for a hotel. Say they consider it costs them $3,000,000 to build. They generate net income of $300,000 annually for 5 years and sell the hotel for $3.3 million. They are anticipating that end value while depreciating the hotel for five years. It turns disastrous when they have to sell for $1.5 million because the race track next door closed up, etc...