Florida Real Estate Broker ExaminationValuation and Market AnalysisHard
An appraiser is performing a valuation for a commercial property that includes a retail space on the ground floor and office spaces on upper floors. The appraiser determines the Gross Rent Multiplier (GRM) for comparable retail properties and also for comparable office properties. To arrive at a final value for the subject property, the appraiser should:
- ASelect the GRM from the component that represents the majority of the property's square footage.
- BApply the highest GRM from either the retail or office comparables.
- CApply the appropriate GRM to the specific income generated by each component (retail/office) and then sum the results.
- DAverage the GRMs from all retail and office comparables.
Show answer & explanationAnswer & explanation
Correct answer: C. Apply the appropriate GRM to the specific income generated by each component (retail/office) and then sum the results.
For mixed-use properties, it is appropriate to apply different valuation techniques or multipliers to each distinct component based on its income stream and market comparables. Summing the results provides a more accurate valuation than using a single, averaged, or selected multiplier for the entire property.
Why the other options are wrong
- A. Using a GRM based solely on square footage might ignore the differing income and risk profiles of mixed-use components.
- B. Applying only the highest GRM would likely overstate the value of the entire property.
- D. Averaging GRMs for different property types would dilute the accuracy for each specific component.
Valuation of Mixed-Use Properties
Properties with multiple distinct income-generating uses (e.g., retail and residential) often require separate valuation analyses for each component, which are then summed to arrive at a total property value.
- Different property types have different market characteristics and risk profiles.
- Separate income streams should be analyzed individually.
- Component values are typically added together to estimate the total value.
Memory trick: Mixed-use means mixed math for value.