A house has sales, cost and income indications of $492,000, $538,000 and $455,000. Recent competitive sales are verified and well supported; depreciation and rental inputs are uncertain. Which should receive most weight?
Correct Answer
C) Sales comparison, as its evidence is strongest.
The stronger verified sales evidence supports greater weight to sales comparison in this assignment. Neither the highest nor the lowest figure is inherently the most credible. A house does not automatically require the same weighting in every market.
Why This Is the Correct Answer
Option C is correct because the sales comparison indication rests on recent, verified and well-supported competitive sales, while the cost and income approaches depend on uncertain depreciation and rental inputs. USPAP calls for reconciling the quality and quantity of data within the approaches. Stronger evidence supports greater reliance on the $492,000 sales comparison indication here.
Why the Other Options Are Wrong
Option A: Cost, because it produces the highest indication.
Option A, cost because it produces the highest indication ($538,000), is wrong because magnitude is not reliability. The cost approach here depends on uncertain depreciation, which weakens its support.
Option B: Income, because it produces the lowest indication.
Option B, income because it produces the lowest indication ($455,000), is wrong because the lowest figure is not more credible for being lowest. The income approach here depends on uncertain rental inputs.
Option D: All three equally, since each was developed.
Option D, all three equally since each was developed, is wrong because the approaches do not have equal support. Developing an approach does not entitle it to equal weight when its inputs are uncertain.
Weight follows the evidence
Give the most weight to the approach whose inputs are best verified and supported.
How to use: Use this when a question describes which approaches have strong or weak data.
Exam Tip
Match the answer to the data quality described in the facts. Highest, lowest and equal-weight answers are common distractors.
Common Mistakes to Avoid
- -Weighting the highest or lowest indication by default
- -Giving equal weight to approaches with uncertain inputs
- -Assuming a house needs the same weighting in every market
Concept Deep Dive
Analysis
This question tests weighting approaches by the quality of the evidence behind them. The facts state that sales are verified and well supported while depreciation and rental inputs are uncertain. The approach with the strongest evidence deserves the most weight, regardless of where its figure falls in the range.
Background Knowledge
When the appraiser has adequate and reliable data, the greatest reliance goes to the indicator that best measures the benefits the property provides. For a house with strong sales evidence, sales comparison typically best reflects market behavior, though the weighting depends on the evidence in each assignment.
Real-World Application
For a 1990s ranch home, an appraiser has four recent nearby sales confirmed with agents, but little rental data and an uncertain estimate of functional obsolescence. The appraiser gives primary weight to sales comparison and explains the weaknesses in the other approaches.
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?
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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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In the cost approach, market extraction from three improved sales indicates total depreciation of 31%, 42% and 44%. The sale indicating 31% is closest to the subject in age, design and condition; the other two are older and less similar. How should the appraiser select the depreciation rate for the subject?