Three approaches have been developed. What is the best basis for assigning relative weights?
Correct Answer
B) Applicability and the quality and quantity of evidence.
The existence of three indications does not make them equally reliable. Evaluate method relevance and data quality and quantity, then explain the relative reliance. A weighted average may be used when supported and appropriately explained; automatic equal weighting is not the required reconciliation.
Why This Is the Correct Answer
Option B is correct because weights should reflect each approach's applicability and the quality and quantity of its supporting evidence. USPAP directs the appraiser to reconcile the quality and quantity of data within the approaches and the applicability and relevance of the approaches used. A weighted average can be used when it is supported and explained, but the weights come from this analysis.
Why the Other Options Are Wrong
Option A: One-third each, since there are three approaches.
Option A is wrong because assigning one-third each simply because there are three approaches treats them as equally reliable without evaluating them. Three indications do not automatically carry equal credibility.
Option C: A fixed fraction based on the number of comparable sales.
Option C is wrong because a fixed fraction based on the number of comparable sales is a formula, not an evaluation. The count of sales is one consideration, but their quality and the relevance of each approach also matter.
Option D: A rule that no approach may receive more weight than another.
Option D is wrong because there is no rule that no approach may receive more weight than another. Appraisers commonly give one approach more weight when its evidence is stronger.
Weights come from reasons
Every weight should trace back to a reason: how applicable the approach is and how good and plentiful its data are.
How to use: Use this to reject answer choices that set weights by formula or by counting.
Exam Tip
The USPAP reconciliation language pairs data quality and quantity with applicability and relevance. An answer that echoes both is usually the strongest choice.
Common Mistakes to Avoid
- -Assigning equal weights simply because three approaches were developed
- -Basing weights only on how many comparable sales were found
- -Believing approaches must all receive the same weight
Concept Deep Dive
Analysis
This question asks what should drive the relative weights given to three developed approaches. The correct basis is the same one USPAP names for reconciliation: applicability of each approach and the quality and quantity of its supporting data. Choices that use a fixed formula or a rule of equality skip the required analysis.
Background Knowledge
Weighting in reconciliation can be expressed in words or, when appropriate, as percentages in a weighted average. Either way, the weights must be supported by the appraiser's analysis of data and relevance. Automatic equal weighting is not the required reconciliation.
Real-World Application
An appraiser developing all three approaches for a duplex has six good sales, solid rent comparables and a rough depreciation estimate. The appraiser assigns the most weight to sales comparison, meaningful weight to income and little to cost, and explains each weight in the report.
More Reconciliation Questions
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