Two adjusted indications come in at $298,000 and $342,000, and the appraiser cannot determine why they differ. What is the appropriate course?
Correct Answer
C) Investigate the discrepancy and assess support before concluding
Investigate comparability, verification, adjustment support and remaining uncertainty before reconciliation. The spread alone does not prove either sale wrong; do not mechanically average an unresolved discrepancy or select a conservative figure without evidence.
Why This Is the Correct Answer
Option C is correct because an unexplained $44,000 spread may signal an unverified sale, an unrecognized difference or an unsupported adjustment. Investigating the discrepancy and evaluating the support for each indication allows the appraiser to decide how much reliance each deserves.
Why the Other Options Are Wrong
Option A: Use the arithmetic midpoint of the two indications
Option A, using the arithmetic midpoint, averages two indications without understanding why they differ. That mechanical approach may give weight to an unreliable indication.
Option B: Choose the lower indication as the conservative value
Option B, choosing the lower indication as the conservative value, selects a figure without evidence that it is more reliable. A market value opinion should rest on analysis, not on a preference for a lower number.
Option D: Let the client choose the opinion that best fits the loan amount
Option D, letting the client choose the opinion that fits the loan amount, would compromise the appraiser's independence and impartiality. The value opinion must be the appraiser's own, based on the evidence.
Explain the gap first
Before you reconcile two indications that disagree, find out why they disagree.
How to use: Use this when a question describes conflicting indications with no known cause.
Exam Tip
Answers that average, pick the low number, or let someone else choose usually skip the analysis the appraiser is responsible for.
Common Mistakes to Avoid
- -Averaging indications without explaining the difference
- -Choosing the lowest figure as a conservative value
- -Letting the client's needs influence the value opinion
Concept Deep Dive
Analysis
This question tests how an appraiser should respond to an unexplained gap between adjusted indications. When the reason for a large difference is unknown, the appraiser needs to investigate comparability, verification and adjustment support before reconciling, rather than applying a mechanical shortcut.
Background Knowledge
Reconciliation weighs the quality and relevance of each indication rather than combining numbers mechanically. A wide spread does not by itself prove either sale wrong, but it calls for checking verification, comparability and the support for each adjustment. Appraisers must reach their own unbiased conclusions without regard to a desired outcome.
Real-World Application
An appraiser's two best comparables adjust to $298,000 and $342,000. On further checking, the appraiser learns from the listing agent that the higher sale included a recent kitchen remodel not shown in the MLS, adjusts for it, and then reconciles with the revised data.
More Sales Comparison 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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