Which consistency review is useful when reconciling the approaches used?
Correct Answer
A) Assess depreciation support, sales-data adequacy, and compatibility of income and capitalization inputs.
Check the market support for depreciation, the adequacy and relevance of sales evidence, and compatible income and capitalization assumptions. Heavy reliance on one sale merits investigation, not a universal rule that one observation is always prohibited or that a fixed count ensures reliability.
Why This Is the Correct Answer
Option A is correct because reconciliation should check the market support for depreciation, the adequacy and relevance of sales evidence, and compatible income and capitalization assumptions. Guidance says the cost estimate should be reviewed for the reliability of the depreciation estimate, and the income approach is supportable when income forecasts and capitalization rates are supported by market data. Reviewing these inputs reveals which indications are reliable.
Why the Other Options Are Wrong
Option B: Reject any sales analysis that relies heavily on one sale without examining it.
Option B would reject any sales analysis that relies heavily on one sale without examining it. Heavy reliance on one sale merits investigation, but rejecting it without examination is a blanket rule rather than analysis.
Option C: Make each approach equal the highest indication before reconciliation begins, then average the three results.
Option C, making each approach equal the highest indication and then averaging, manipulates the results. Forcing indications to match destroys the purpose of reconciliation.
Option D: Average first so that checking inconsistent inputs becomes unnecessary.
Option D, averaging first so that checking inconsistent inputs becomes unnecessary, skips the review. Averaging does not fix inconsistent or unsupported inputs.
Check each engine's fuel
Cost runs on depreciation, sales on good comparables, income on rents and cap rates. Check each fuel before trusting the engine.
How to use: Use this to recall what to review for each approach during reconciliation.
Exam Tip
Choose the option that reviews inputs for support. Options that force agreement or skip analysis are wrong.
Common Mistakes to Avoid
- -Averaging results without checking inputs
- -Rejecting a sale outright instead of examining it
- -Pairing income and capitalization inputs from different markets
Concept Deep Dive
Analysis
This question tests the review an appraiser performs on each approach during reconciliation. A good consistency review checks the main inputs of each approach for market support. Options that apply rigid rules or skip the review are wrong.
Background Knowledge
Each approach has key inputs that can weaken it: depreciation for cost, comparable selection and adjustments for sales, and rents, expenses and capitalization rates for income. Reconciliation tests those inputs before weighting.
Real-World Application
Before concluding, an appraiser notices her capitalization rate came from older single-family rental sales while her rents are current fourplex rents. She revises the inputs so they are compatible before weighing the income indication.
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?
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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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Previous Question
Three sales adjust to $300,000, $310,000 and $330,000, with gross adjustments of $85,000, $15,000 and $37,200 respectively. The appraiser assigns 60%, 30% and 10% weight in order of gross adjustment as a share of the adjusted price, smallest first. What is the reconciled indication?
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Within the cost approach, what does reconciliation involve?