Which formula defines the gross rent multiplier (GRM) method of estimating value?

Which formula defines the gross rent multiplier (GRM) method of estimating value?

• A. Value = GRM × gross monthly rent.
• B. Value = GRM ÷ gross monthly rent.
• C. Value = GRM × net operating income.
• D. Value = GRM plus gross monthly rent.

Answer: (A)

GRM uses a multiplier applied to gross rent to produce an estimated value. The Gross Rent Multiplier is a factor derived from market data that shows how many dollars of value buyers assign to each dollar of gross rent. To estimate value, multiply the GRM by the property's gross monthly rent (or by annual gross rent if the GRM is defined on a yearly basis). This approach is simple and intentional: it ignores expenses, vacancies, and financing, giving a quick rough value. Dividing by gross monthly rent would invert the relationship and wouldn’t produce a price estimate in this method. Using net operating income points to a different technique (income capitalization), not GRM, and adding the GRM to rent doesn’t form a valid price metric.

GRM uses a multiplier applied to gross rent to produce an estimated value. The Gross Rent Multiplier is a factor derived from market data that shows how many dollars of value buyers assign to each dollar of gross rent. To estimate value, multiply the GRM by the property's gross monthly rent (or by annual gross rent if the GRM is defined on a yearly basis). This approach is simple and intentional: it ignores expenses, vacancies, and financing, giving a quick rough value. Dividing by gross monthly rent would invert the relationship and wouldn’t produce a price estimate in this method. Using net operating income points to a different technique (income capitalization), not GRM, and adding the GRM to rent doesn’t form a valid price metric.