Rental Value

Rental value is the rent a property would command on the open market between a willing landlord and tenant, also called fair market rent or estimated rental value. It is the rent figure a gross rent multiplier should use. A GRM computed on a below-market lease understates the property; one computed on a seller's hopeful projection overstates it.

For a leased property, the passing rent and the rental value can differ. A lease at $2,200 on a unit worth $2,500 gives a GRM of 11.4 on passing rent and 10 on market rent at a $300,000 price. Buyers pay for the reversion when the lease resets, so the market-rent GRM is the better guide to value.

For a vacant property, rental value is the only rent there is, and it has to be supported by comparable listings, not the seller's number. Appraisers estimate it on a rent schedule from comparable rentals. Whichever figure you use, use the same basis for every property you compare, or the GRMs are not comparable.

Further reading: Rental Value on Wikipedia.