Certified Residential Appraiser Practice Exam

How is the Gross Income Multiplier (GIM) defined?

1. Ratio of sale price to potential gross income

2. Difference between operating expenses and gross income

3. Calculation of cash flow after taxes

4. Comparison of net operating income to loan value

The correct answer is: Ratio of sale price to potential gross income

The Gross Income Multiplier (GIM) is defined as the ratio of the sale price of a property to its potential gross income. This measurement is commonly used in real estate to assess the value of income-producing properties, such as rental units. By dividing the sale price by the potential gross income, one can determine how many times the gross income it would take to recover the sale price of the property. This helps appraisers and investors gauge the return on investment and make comparisons between different properties. Using the GIM allows for a simplified valuation process, offering insight into a property's income-generating potential compared to its market price, which can be instrumental in investment decision-making. Understanding this ratio is vital for appraisers when evaluating similar income-producing properties in a particular market.