In the cost approach for a 25-year-old house, the appraiser bases accrued depreciation on an effective age of 8 years. In the sales comparison grid, comparables with effective ages of about 12 years are adjusted downward for superior condition, which treats the subject as the more worn house. What should the appraiser do before reconciling the two indications?
Correct Answer
D) Resolve the conflicting condition and effective-age assumptions so both approaches treat the house alike.
The review that precedes reconciliation checks that data and reasoning are used consistently across the approaches. An effective age of 8 years in the cost approach conflicts with a sales grid that treats the subject as more worn than 12-year-effective-age comparables, so one of the analyses misstates the subject's condition. Weighting toward cost or averaging leaves the error in place, and the approaches are not entitled to separate views of the same house's condition.
Why This Is the Correct Answer
Option D is correct because the effective age and condition used in the cost approach should match the condition used for sales grid adjustments. Here they conflict, so at least one indication rests on a misstatement of the subject's condition. Resolving the conflict first means the indications that are later weighed describe the same property.
Why the Other Options Are Wrong
Option A: Give the cost indication more weight, because an effective age of 8 years shows the cost data are current.
Option A treats an effective age of 8 years as proof that the cost data are current, but effective age describes the house's condition, not the date of the cost data. The low effective age is the very assumption that conflicts with the sales grid, so it cannot justify extra weight.
Option B: Average the two indications, so that the conflicting condition assumptions offset each other.
Option B averages the two indications so the conflicting condition assumptions offset each other, but averaging hides an error rather than correcting it. The final value would still rest on two inconsistent descriptions of the house.
Option C: Keep both analyses as developed, because each approach measures condition in its own way.
Option C keeps both analyses as developed because each approach measures condition in its own way. The methods differ, but the subject's actual condition is one fact, and the approaches should reflect it consistently.
One house, one condition
Each approach may use different tools, but they all describe the same house. If the cost approach and the sales grid disagree about its wear, fix the description before weighing.
How to use: Use this when a question shows the approaches making different assumptions about the subject's age, condition or quality.
Exam Tip
When a stem shows two approaches making conflicting assumptions about the subject, look for the answer that corrects the inconsistency before weighting.
Common Mistakes to Avoid
- -Averaging indications built on conflicting assumptions instead of correcting them
- -Treating each approach's view of the subject's condition as independent
- -Confusing effective age with the age of the cost data
Concept Deep Dive
Analysis
This question tests the review step that comes before weighing the indications. The two approaches describe the same house in conflicting ways: the cost approach treats it as lightly worn, while the sales grid treats it as more worn than comparables with an effective age of about 12 years. Before any weighting can be meaningful, the appraiser has to find which description is right and make both approaches consistent.
Background Knowledge
Before reconciliation, the appraiser reviews the whole appraisal, checking calculations and the consistent use of data in each value indicator. Depreciation in the cost approach should agree with related condition and age adjustments in the sales comparison approach. An inconsistency found in this review is corrected before weights are assigned.
Real-World Application
A reviewer notices that an appraiser's cost approach shows a well-maintained home with little depreciation, while the sales grid adjusts every comparable downward for better condition. The appraiser rechecks the inspection notes, finds the home has original systems and dated finishes, and revises the effective age before reconciling.
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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