When the sales comparison approach and the income approach diverge sharply on an investment property, the appraiser should:
Correct Answer
C) Examine both approaches, then explain reliance on the evidence
Investigate both approaches’ data, assumptions and market applicability before reconciliation. An investment-property label alone does not prove income deserves greater reliance, and unexplained divergence is not resolved by an automatic average. A supported weighted result can be appropriate after analysis.
Why This Is the Correct Answer
Option C is correct because a sharp divergence calls for examining both approaches, for example checking that location and physical adjustments were applied consistently in each. After that review, the appraiser explains the reliance placed on each approach based on the relevant evidence. A supported weighted result can be appropriate once the analysis is done.
Why the Other Options Are Wrong
Option A: Average the two indications without investigating the divergence
Option A is wrong because it averages the two indications without investigating the divergence. An unexplained gap is not resolved by a mechanical average; the cause should be found and addressed first.
Option B: Use the income approach, since the property is held as an investment
Option B is wrong because it picks the income approach just because the property is held as an investment. The investment label does not by itself prove the income approach deserves more reliance; the quality of each approach's evidence matters.
Option D: Report sales comparison alone, since sales are direct evidence
Option D is wrong because it reports sales comparison alone on the ground that sales are direct evidence. Dropping the income approach without examining why the two differ skips the required analysis and may ignore relevant evidence.
Gap means go back
When two approaches disagree sharply, go back and check the data and assumptions in each before weighing them.
How to use: Use this when a question describes conflicting value indications.
Exam Tip
Prefer answers that investigate and explain the divergence over answers that average, discard or pick an approach by label.
Common Mistakes to Avoid
- -Averaging divergent indications without explaining the gap
- -Choosing the income approach based only on property type
- -Discarding an approach without analyzing why it differs
Concept Deep Dive
Analysis
This question tests how an appraiser handles a large gap between two value indications in reconciliation. A sharp divergence is a reason to review both approaches' data, assumptions and consistency before deciding how much to rely on each. The answer favors analysis and explanation over shortcuts.
Background Knowledge
In reconciliation, the appraiser evaluates the quality and quantity of data, the reliability of the techniques and the applicability of each approach to the property and market. When approaches disagree sharply, the gap often points to an inconsistency, such as different assumptions about location or condition.
Real-World Application
An appraiser valuing a fourplex finds the income approach well below the sales comparison result. On review, she sees her rent comparables came from a weaker location than her sales, corrects the inconsistency and explains her reliance in the report.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
In a neighborhood with declining values and marketing times over six months, what must Fannie Mae lenders confirm about the sales comparison analysis?
A house is a 4,000 square foot home in an area of 2,000 square foot homes. How must the appraiser treat this over-improvement in the sales comparison grid?
According to the Interagency Appraisal and Evaluation Guidelines, which items should an appraisal’s market conditions discussion include?
A comparable listed at $420,000 and sold for $399,000. What sale-to-list price ratio (sale price ÷ list price) does this indicate?
An appraiser wants to describe the neighborhood boundaries in a Fannie Mae report. Which approach is acceptable?
Which of these is listed by Fannie Mae as a sales or financing concession?
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