When reconciling value indications from the three approaches to value, an appraiser should:
Correct Answer
D) Weigh each approach's reliability for this assignment
The reliability and applicability of each developed approach determine its weight. Evaluate data quality, quantity and relevance and explain the result. Neither equal weights based on count nor selection of the highest figure demonstrates that the final opinion is supported.
Why This Is the Correct Answer
Option D is correct because the reliability and applicability of each developed approach determine its weight. USPAP directs the appraiser to reconcile the quality and quantity of data and the applicability and relevance of the approaches used. The appraiser then explains how that evaluation produced the final opinion.
Why the Other Options Are Wrong
Option A: Give most weight to whichever yields the highest value
Option A, giving most weight to whichever approach yields the highest value, picks a number instead of evaluating evidence. The highest figure is not evidence that an approach is the most reliable.
Option B: Use sales comparison and disregard the others for homes
Option B, using sales comparison and disregarding the others for homes, is too rigid. Sales comparison is often the most reliable for homes, but other applicable approaches are evaluated, not ignored by rule.
Option C: Average the three value indications to reach the final value
Option C, averaging the three value indications, gives equal weight based on count rather than reliability. A simple average does not demonstrate that the final opinion is supported.
Weigh, don't average
Reconciliation is a balance scale, not a calculator. Each approach goes on the scale with its own reliability.
How to use: Use this reminder when an option suggests averaging or picking a figure by its size.
Exam Tip
Reliability and applicability for this assignment are the key words. Options that use a formula or a fixed rule usually miss the point.
Common Mistakes to Avoid
- -Averaging all approaches without considering reliability
- -Ignoring the cost or income approach by habit when it is applicable
- -Favoring whichever approach yields the highest number
Concept Deep Dive
Analysis
This question tests what determines the weight given to each approach. The correct process evaluates the reliability and applicability of each developed approach in the context of the specific assignment. Mechanical rules such as averaging or picking the highest figure do not show support.
Background Knowledge
Reconciliation considers data availability, data quality and the fit of each method to the property and the intended use. The appraiser explains which approaches were most persuasive and why.
Real-World Application
For a 1950s single-family home with several close sales but a hard-to-measure depreciation estimate, the appraiser places primary weight on sales comparison and little on cost, and explains that the cost approach is less reliable because of the depreciation uncertainty.
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?
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:
The bundle of rights concept in real estate includes all of the following EXCEPT:
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Cost Approach
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