Sometimes, single-family homes are purchased for their income. As a substitute for the income approach, the gross rent multiplier (GRM) method is often used in appraising such properties. The GRM relates the sale price of a property to its rental price and can be determined by the following formula

Sales Price ÷ Monthly Rental Income = GRM

 

For example, a home recently sold for $180,000. The monthly rental income was $1000. The GRM for the property would be :

$ 180,000 ÷ $1,000, or 180

 

To establish an accurate GRM, an appraiser must have recent sales and rental data from at least four properties that are similar to the subject property. The resulting GRM could be applied to the estimated fair market rental of the subject property in order to arrive at its market value. The formula would then be

Monthly Rental Income x GRM = Value

 

Generally, gross annual income is used in appraising industrial and commercial properties. The ratio to convert annual income into market value is the called a gross income multiplier (GIM).

 

Much skill require to use multipliers accurately for all areas of all types of properties. Therefore, many appraisers view the technique simply as a quick way to check the validity of a property value obtained by the three accepted appraisal methods.