Which review best helps explain divergent cost, sales-comparison and income indications?
Correct Answer
B) Check depreciation support, sales evidence and income input consistency.
Review whether depreciation is market supported, whether sales evidence is adequate and relevant, and whether income and capitalization inputs are compatible. A result heavily dependent on one sale merits scrutiny; that dependence alone is not a universal prohibition.
Why This Is the Correct Answer
Option B is correct because checking whether depreciation is market supported, whether sales evidence is adequate and relevant, and whether income and capitalization inputs are compatible addresses the likely sources of divergence. USPAP calls for reconciling the quality and quantity of data and the applicability and relevance of the approaches used. This review explains the differences and supports the weighting that follows.
Why the Other Options Are Wrong
Option A: Select the approach that required the most work to develop.
Option A, selecting the approach that required the most work, is wrong because effort spent is not a measure of reliability. A labor-intensive analysis can still rest on weak data.
Option C: Apply equal weights to all three before checking any of the inputs.
Option C, applying equal weights before checking any inputs, is wrong because it skips the review that reconciliation requires. Equal weighting does not explain why the indications differ or which is better supported.
Option D: Discard the lowest indication without first examining how it was supported.
Option D, discarding the lowest indication without examining its support, is wrong because a low figure is not necessarily an incorrect one. The appraiser must review how each indication was supported before rejecting it.
Trace the gap to inputs
When indications disagree, follow each one back to its key inputs: depreciation, sales evidence and income data.
How to use: Use this when a question asks how to explain or resolve divergent approach indications.
Exam Tip
Choose answers that test the support behind each indication. Answers based on effort, position in the range or equal weighting are distractors.
Common Mistakes to Avoid
- -Weighting approaches before reviewing their inputs
- -Rejecting an indication only because it is lowest or highest
- -Assuming the most labor-intensive approach is most reliable
Concept Deep Dive
Analysis
This question tests how to investigate why the three approaches produced different indications. The productive step is to test the key inputs of each approach: depreciation in the cost approach, sales evidence in sales comparison, and income and capitalization inputs in the income approach. Divergence is a signal to examine support, not to pick a number mechanically.
Background Knowledge
Each approach has inputs that commonly drive error: accrued depreciation in the cost approach, comparable selection and adjustments in sales comparison, and market rent, expenses and capitalization rates in the income approach. Reconciliation evaluates these to judge which indications are most reliable.
Real-World Application
On a rented duplex, the cost approach comes in well above the sales and income approaches. The appraiser rechecks the external obsolescence estimate, confirms the comparable sales were arm's-length, and verifies that the capitalization rate came from sales with similar income characteristics 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?
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?
Which considerations provide the soundest basis for reconciling appraisal indications?
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Previous Question
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?
Next Question
Direct comparable land sales indicate $120,000 and extraction indicates $95,000. What is the best next step before reconciliation?