Real Estate Appraisal

A real estate appraisal is a licensed appraiser's opinion of a property's value, developed through the sales comparison, cost and income approaches. Gross rent multiplier is an appraisal tool: on one to four unit rentals, appraisers extract GRMs from comparable sales and apply them to the subject's rent as a check on value.

Fannie Mae's small residential income property appraisal form includes a gross rent multiplier analysis alongside the sales comparison grid. The appraiser lists comparable rental sales, divides each price by its monthly or annual rent, and applies the resulting range to the subject.

The appraisal also supplies the rent. A comparable rent schedule estimates market rent from nearby rentals, which is the figure a lender uses and the figure a GRM should be built on. When a buyer's GRM and the appraiser's disagree, it is usually because the buyer used the listing's rent and the appraiser used the market's.

Further reading: Real Estate Appraisal on Wikipedia.