The three approaches indicate $412,000 by sales comparison, $438,000 by cost and $401,000 by income. The appraiser weights them 60%, 15% and 25% respectively. What value is indicated?
Correct Answer
B) $413,150
Why this is correct: each indication is multiplied by its weight and the products summed. Calculation: ($412,000 x 0.60) + ($438,000 x 0.15) + ($401,000 x 0.25) = $247,200 + $65,700 + $100,250 = $413,150. Why the other choices are wrong: $417,000 is the unweighted mean, which is what weighting was chosen to avoid; $409,300 applies the weights in reverse order, giving the income approach the 60%; $412,000 takes the sales comparison indication alone and discards the other two.
Why This Is the Correct Answer
Why this is correct: each indication is multiplied by its weight and the products summed. Calculation: ($412,000 x 0.60) + ($438,000 x 0.15) + ($401,000 x 0.25) = $247,200 + $65,700 + $100,250 = $413,150. Why the other choices are wrong: $417,000 is the unweighted mean, which is what weighting was chosen to avoid; $409,300 applies the weights in reverse order, giving the income approach the 60%; $412,000 takes the sales comparison indication alone and discards the other two.
More Reconciliation Questions
Reconciliation of the approaches to value is best described as which activity?
Why should the reconciliation address the quantity of evidence as well as its quality?
How long must a report be retained compared with the workfile?
What distinguishes an appraisal review from an appraisal?
An appraiser reconciles to a value at the top of the indicated range because the client needs that figure. What has occurred?
What does it mean that a value opinion must be reasonable rather than merely arithmetically derived?
What should the reconciliation section explain to the reader?
How do the content obligations of the two report options differ with respect to the information analyzed?
The three approaches indicate $480,000, $495,000 and $610,000. What should the appraiser do first?
Three approaches indicate $1.02 million, $1.05 million and $1.04 million. How should this be reported?
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