When reconciling value indications from the three approaches, an appraiser should:
Correct Answer
C) Weigh each approach's reliability for the assignment
Evaluate the reliability and applicability of each developed approach for the assignment. Equal weighting is not automatic and the highest indication does not control merely because it is highest. Explain the evidence-supported conclusion and the treatment of differing indications.
Why This Is the Correct Answer
Option C is correct because an appraiser should weigh each approach's reliability for the assignment. USPAP directs reconciling the quality and quantity of data within the approaches and the applicability and relevance of the approaches used. The availability and reliability of data for each approach should be evaluated and explained.
Why the Other Options Are Wrong
Option A: Give equal weight to each of the three approaches
Option A is wrong because giving equal weight to each of the three approaches is not automatic. Weights depend on how reliable and applicable each approach is for the assignment.
Option B: Average the three value indications to reach the value
Option B is wrong because averaging the three value indications to reach the value treats them as equally reliable without analysis. Reconciliation is an evaluation, not a simple average.
Option D: Use the approach yielding the highest value
Option D is wrong because using the approach yielding the highest value selects by size rather than evidence. The highest indication does not control merely because it is highest.
Reliability rules reconciliation
In reconciliation, reliability for the assignment, not a formula, decides how much each approach counts.
How to use: Use this to choose the evaluative answer on basic reconciliation questions.
Exam Tip
On basic reconciliation questions, the answer that mentions weighing reliability or applicability is usually correct. Averaging and highest-value options are classic distractors.
Common Mistakes to Avoid
- -Giving equal weight to every approach
- -Averaging the indications
- -Choosing the highest indication
Concept Deep Dive
Analysis
This question tests the basic reconciliation principle. The appraiser weighs each approach's reliability and applicability for the specific assignment rather than using a fixed formula. Choices that call for equal weights, averaging or the highest value replace judgment with a rule.
Background Knowledge
Reconciliation is the analysis of alternative value indications to reach a final opinion. Each approach's reliability depends on data availability, quality and its relevance to the property and market. The appraiser explains the treatment of differing indications.
Real-World Application
An appraiser values a vacant-land-rich farmstead where improved sales are scarce but land sales are plentiful. The appraiser weighs which approaches have the best data for this assignment and explains the resulting emphasis in the report.
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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Annual PGI for the subject is $150,000, with combined vacancy and collection loss of 7% of PGI and no other income. Operating expenses, excluding debt service, are 35% of EGI. Using a 9.5% overall rate, what is the indicated value, rounded to the nearest dollar?
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Sales comparison indicates $485,000, cost $510,000 and income $475,000 for a 15-year-old single-family home. Buyers primarily purchase for occupancy, and verified comparable sales provide stronger evidence than the cost and income inputs. Which approach deserves most weight?