medium · National Real Estate Exam valuation
An appraiser chooses to use the Gross Rent Multiplier (GRM) rather than the capitalization rate (Cap Rate) for a single-family rental.
What is the primary reason for this choice?
- GRM is more commonly used for 1-4 unit residential properties where detailed expense data is less available.
- There is no federal law requiring appraisers to specifically use the GRM for residential appraisals.
- GRM accounts for operating expenses and vacancy losses just as accurately and precisely as the Cap Rate does.
- The Cap Rate applies only to properties with multiple rental units, like large apartment complexes with tenants.
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