Whats the Formula for figuring GRM?

[spacewalker]

I had an appraisal done on a investment property that I own, and the GRM that was used is in question. I think he used the wrong one! How do figure out the GRM? Are you not supposed to use the median value out of the 5 Comps that were used? The building was built in 1912. It has been completely gutted with all the Victorian trim work being saved and reinstalled. This property is unique in that there is not another property out there to compare it to, and the 5 Comps that were used are not even close. any help on the subject would certainly be appreciated. Thanks

 

[CANative]

How many units does your property have? Did the comparable properties have a similar number of similar units?

 

[The Warrior Monk]

I had an appraisal done on a investment property that I own, and the GRM that was used is in question. I think he used the wrong one! How do figure out the GRM?

(Sales Price) / (Monthly rent) = GRM

Are you not supposed to use the median value out of the 5 Comps that were used?

There is no particular formula. The appraiser would address how the GRM was concluded in the reconciliation.

The building was built in 1912. It has been completely gutted with all the Victorian trim work being saved and reinstalled. This property is unique in that there is not another property out there to compare it to, and the 5 Comps that were used are not even close. any help on the subject would certainly be appreciated. Thanks

My first question in such an assignment is how do market participants price properties?...Do buyers purchase properties in your area based on their on their rental income? If not, this income methodology may not be the appropriate methodology in the first place. Just because the property is an investment property doesn't automatically mean that an income approach is a necessary, or even proper, approach to utilize.

 

[MDAPPR]

The GRM number was back-in with the market value to magically come up with a predetermine GRM rate and market value no mater what is the gross rent, simply Brilliant!!!

 

[spacewalker]

How many units does your property have? Did the comparable properties have a similar number of similar units?

The property has 4 units. No, Two were Triplex's , three were Duplex's.

 

[spacewalker]

(Sales Price) / (Monthly rent) = GRM



There is no particular formula. The appraiser would address how the GRM was concluded in the reconciliation.



.Do buyers purchase properties in your area based on their on their rental income? If not, this income methodology may not be the appropriate methodology in the first place. Just because the property is an investment property doesn't automatically mean that an income approach is a necessary, or even proper, approach to utilize.

My first question in such an assignment is how do market participants price properties?..

They use a number of factors, including the number of bedrooms, bathroom and the square footage of comparable homes in the area.

 

[CANative]

Is GRM typically based on monthly rent?

 

[Scott Kibler]

Rent = monthly

Income = annual

I'm sure David did not mean "annual" rent/

 

[The Warrior Monk]

Rent = monthly

Income = annual

Fixed.

I was thinking GIM.

 

[Michigan CG]

Fixed.

I was thinking GIM.

Goofy commercial appraiser.

GRMs are derived from sale properties that are income properties. The sale comparable purchase prices are divided by the total monthly rent those properties receive. For instance:

-Sale 1: 3 units with rents totaling $1,050 (350/unit) and a sales price of $95,000 has a GRM of 90.47.

-Sale 2: 4 units with rents totaling $1,400 and a sales price of $120,000 has a GRM of 85.71.

-Sale 3: 2 units with rents totaling $800 and a sales price of $75,000 has a GRM of 93.75.

The appraiser will (should) take the GRMs and reconcile them to the subject property. The properties that are most similar in features, improvements, updates, bedrooms, units, location and other factors should be given the most weight while also considering the rents the subject property commands.

It is not accepted appraisal practice to average the GRMs. The reconciliation of the GRM as well as the value conclusion should be thoroughly explained in the report.

Just because your property is unique and has been gutted it is only worth what you can generate in income. It could be that your market will not pay more for your property than other available rental properties and that tenants will not pay more rent for your property than other competing properties.