An appraiser reconciles a gross rent multiplier indication with a direct capitalization indication. What matters most?
Correct Answer
B) Which rests on the better supported market data
Compare the relevance and support of the multiplier and direct-capitalization data, with compatible income definitions and periods. Neither agreement with another approach, conservatism nor ease of calculation alone determines reliability. A larger sample is useful only insofar as it supplies relevant, credible evidence.
Why This Is the Correct Answer
Option B is correct because the indication resting on the better supported market data deserves more reliance. When the appraiser has adequate and reliable data, the greatest reliance goes to the indicator that best measures the benefits the property yields. The appraiser should also confirm that the multipliers and capitalization rates were derived with income definitions and periods compatible with the subject.
Why the Other Options Are Wrong
Option A: Which figure is closer to the sales comparison result
Option A is wrong because being closer to the sales comparison result does not make an income indication more reliable. Agreement with another approach can corroborate, but it is not a measure of a method's own data support.
Option C: Which produces the more conservative conclusion
Option C is wrong because producing the more conservative conclusion is not a basis for reliability. Market value calls for the best-supported opinion, not a deliberately low one.
Option D: Which required fewer calculations to develop
Option D is wrong because requiring fewer calculations does not make a method more reliable. A simpler method is useful only if its market data are relevant and well supported.
Data, not convenience
Between two income methods, trust the one with the better market data, not the one that is easier, lower or closer to another number.
How to use: Use this when reconciling two methods within the same approach.
Exam Tip
Options about conservatism, convenience or agreement with another approach are frequent distractors. The best answer usually refers to data support.
Common Mistakes to Avoid
- -Favoring whichever income indication is closer to the sales approach
- -Choosing the lower indication to be conservative
- -Mixing income definitions when comparing a GRM with a capitalization rate
Concept Deep Dive
Analysis
This question tests reconciliation within the income approach, between a gross rent multiplier indication and a direct capitalization indication. The deciding factor is which method rests on better supported, relevant market data, using compatible income definitions. Closeness to another approach, conservatism or ease of calculation do not measure reliability.
Background Knowledge
A gross rent multiplier relates sale price to gross rent, while direct capitalization converts net operating income into value using a capitalization rate. Both depend on comparable data derived on a consistent basis. A larger sample helps only when it supplies relevant, credible evidence.
Real-World Application
An appraiser values a fourplex using a GRM from five recent fourplex sales and a capitalization rate from two sales with incomplete expense data. Because the GRM data are more numerous and better verified, the appraiser gives the GRM indication more weight and explains why.
More Reconciliation Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
Why must a report identify any real property interest that is being excluded from the value opinion?
Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
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