The reconciliation process in an appraisal involves:
Correct Answer
B) Weighing each approach's reliability for a final opinion
Reconciliation evaluates the applicability and reliability of the indications and explains the resulting value opinion. Equal weighting is not required merely because multiple approaches were developed. The form of the opinion must suit the assignment; a point estimate is not universally the only permissible form.
Why This Is the Correct Answer
Option B is correct because reconciliation weighs the applicability and reliability of each approach's indication to reach and explain the final value opinion. The reliability of value indicators is resolved in this step when the final value estimate is made. The appraiser need not give equal weight to approaches just because they were developed.
Why the Other Options Are Wrong
Option A: Using only the approach that produces the highest value
Option A, using only the approach that produces the highest value, is wrong because the size of an indication is not a measure of its reliability. Choosing the highest figure would bias the opinion upward.
Option C: Averaging together the three approaches to value
Option C, averaging together the three approaches, is wrong because reconciliation is not a simple average. Approaches are weighed by their relevance and the quality of their data, which often differ.
Option D: Discarding approaches that miss the desired value
Option D, discarding approaches that miss the desired value, is wrong because it describes working toward a predetermined result, which undermines the credibility and impartiality of the appraisal.
Reconcile means weigh, not average
Reconciliation is weighing each indication by how reliable and relevant it is, not averaging the numbers.
How to use: Use this when a question asks what the reconciliation step involves.
Exam Tip
Pick the answer that describes judging reliability and applicability. Options built on highest value, averaging or a desired value are classic distractors.
Common Mistakes to Avoid
- -Describing reconciliation as averaging the approaches
- -Picking the highest indication as the final value
- -Believing every developed approach must get equal weight
Concept Deep Dive
Analysis
This question tests the basic definition of reconciliation. Reconciliation is the step where the appraiser evaluates the reliability and applicability of each value indication and arrives at a final opinion. It is a reasoned judgment, not selection of the highest number, a simple average or a search for a desired result.
Background Knowledge
Reconciliation follows the development of the approaches to value. The appraiser considers the appropriateness of each approach, the quality and quantity of data, and the consistency of the analysis, then explains how these led to the final opinion of value.
Real-World Application
For a newer home with abundant comparable sales, an appraiser develops sales comparison and cost approaches. In reconciliation the appraiser explains that the sales evidence best reflects buyer behavior and gives it primary weight, using the cost approach as support.
More Reconciliation Questions
Which stated cause of supported value loss is external?
Improvement cost new is $450,000. Separately supported improvement depreciation deductions of $45,000, $25,000, $15,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $125,000, already reflecting any site losses. What total indicated value results?
Which two depreciation categories may each be classified as curable or incurable by comparing the cost to remedy a deficiency with the value gained?
Improvement cost new is $800,000. Separately supported improvement depreciation deductions of $120,000, $80,000, $40,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
The principle of anticipation in real estate valuation states that:
Which highest-and-best-use criterion addresses whether a proposed use is allowed by zoning and applicable legal restrictions?
Three comparables produce adjusted indications of $312,000, $309,000 and $315,000, requiring gross adjustments of 9%, 14% and 22% respectively. Verification also establishes that the first sale is the closest competitive substitute and its adjustments are better supported than the other two. Which indication deserves the most weight on those facts?
When reconciling value indications from the three approaches to value, an appraiser should:
A property sold at a cash-equivalent price of $1,062,500. Its stabilized annual NOI is $85,000. What is the indicated overall rate?
In reconciliation, an appraiser should:
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Previous Question
An appraiser estimates the current cost new of the improvements at $2,500,000. Depreciation is measured as a 15% deduction from cost new, followed by a further deduction of 8% of the remaining amount. No other loss applies, and land is not included. What is the depreciated cost of the improvements?
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Market evidence supports a 2% upward market-conditions adjustment based on the comparable’s cash-equivalent $450,000 price. Apply only that supported difference. What adjusted price results?