During reconciliation, a pending rezoning is known to buyers but is reflected in only one of the three indications. What should the appraiser do?
Correct Answer
C) Consider the factor that most indications omit
In the reconciliation process, consideration should be given to factors influencing value that are either not reflected or only partially reflected in the indicators.
Why This Is the Correct Answer
Option C is correct because in reconciliation, consideration should be given to factors influencing value that are not reflected or only partly reflected in the indicators. A rezoning known to buyers is such a factor, and it appears in only one of the three indications. The appraiser should weigh how that factor affects value rather than letting the unadjusted indications control.
Why the Other Options Are Wrong
Option A: Average the indications, since the effect is small
Option A, averaging the indications because the effect is small, assumes the effect is small without analysis and lets two indications that miss a known market factor dilute the result. Averaging does not account for the factor.
Option B: Disregard the rezoning, since it is not yet final
Option B, disregarding the rezoning because it is not yet final, ignores that buyers already know about it and may be reacting to it. Market value reflects what informed buyers consider, which can include a pending change.
Option D: Use the indication that is the lowest as conservative
Option D, using the lowest indication as conservative, replaces analysis with a preference for a low figure. Choosing the lowest number does not address the rezoning and is not an impartial, supported conclusion.
What did the numbers miss?
Before settling on a value, ask what market factor the indications missed or only partly captured.
How to use: Use this when a reconciliation question mentions a market factor reflected in only some indications.
Exam Tip
When an answer choice tells you to consider a factor the indications do not fully reflect, compare it with choices that simply average or pick a figure; the averaging and picking choices skip the analysis.
Common Mistakes to Avoid
- -Ignoring a pending change that buyers already price in
- -Averaging indications that do not reflect a known value factor
- -Picking the lowest indication to be conservative
Concept Deep Dive
Analysis
This question tests what reconciliation must consider beyond the numbers produced by the approaches. A pending rezoning that buyers know about can influence value, yet two of the three indications do not reflect it. Reconciliation should give consideration to value factors that the indications reflect only partly or not at all.
Background Knowledge
Reconciliation is not just a choice among the numbers the approaches produce. The appraiser also asks whether market influences known to buyers are captured in each indication. Factors that the indications miss or only partly capture still have to be considered in the final opinion.
Real-World Application
A parcel zoned residential is the subject of a pending commercial rezoning that local buyers are discussing. The income approach reflects the potential, but the sales and cost indications do not. The appraiser considers the market's reaction to the pending rezoning when reaching the final opinion and explains that reasoning.
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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