California Real Estate Practice Exam

The Gross Multiplier is an arbitrary number employed by appraisers in the evaluation of certain types of income property. It is calculated in which of the following ways?

1. The confirmed sale price of the property is divided by the gross monthly rental

2. The gross monthly rental is divided by the appraised value of the property

3. The gross monthly rental is multiplied by the capitalization rate

4. The market value of the property is multiplied by the capitalization rate

The correct answer is: The confirmed sale price of the property is divided by the gross monthly rental

The Gross Multiplier is indeed an important tool used by appraisers to evaluate certain types of income-producing properties, particularly in residential real estate. The correct method for calculating the Gross Multiplier involves dividing the confirmed sale price of the property by the gross monthly rental income it produces. This ratio provides a quick way to assess the property’s value relative to the rental income it generates. By calculating this multiplier, appraisers can compare different properties more easily, allowing for straightforward assessments of relative value in the market. A higher Gross Multiplier may indicate that a property's sale price is high compared to its rental income, while a lower multiplier suggests a lower price relative to the rental income. This can aid investors in making informed decisions about property purchases. In contrast, the other methods listed do not accurately reflect how the Gross Multiplier is calculated. The division of rental income by appraised value or the multiplication of rental income by capitalization rates pertains to different valuation techniques not associated with the Gross Multiplier. Understanding this method's specific calculation helps appraisers and investors quickly evaluate properties against one another based on their income generation capabilities.