When the sales comparison approach and the income approach diverge sharply on an investment property, the appraiser should:
Correct Answer
C) Examine the inputs to both before concluding
Why this is correct: The core principle is that a significant divergence between value indications is a diagnostic signal, not a computational problem to be averaged away. The correct action is to investigate the specific inputs and assumptions in each approach to identify the source of the discrepancy, such as an incorrect rent, expense, or comparable sale adjustment, before forming a final conclusion. Why the other choices are wrong: Averaging the two indications together is wrong because it mechanically combines potentially flawed data without diagnosing the cause of the divergence. Always weighting the income approach more heavily is wrong because the appropriate weight depends on the property type, market, and quality of the data for that specific assignment. Reporting the sales comparison figure alone is wrong because it ignores potentially valid information from the income approach and fails to reconcile the conflicting evidence as required by professional standards. Exam tip: When approaches diverge, your first step is always to audit the data and assumptions; reconciliation comes after analysis, not before.
Why This Is the Correct Answer
Why this is correct: The core principle is that a significant divergence between value indications is a diagnostic signal, not a computational problem to be averaged away. The correct action is to investigate the specific inputs and assumptions in each approach to identify the source of the discrepancy, such as an incorrect rent, expense, or comparable sale adjustment, before forming a final conclusion. Why the other choices are wrong: Averaging the two indications together is wrong because it mechanically combines potentially flawed data without diagnosing the cause of the divergence. Always weighting the income approach more heavily is wrong because the appropriate weight depends on the property type, market, and quality of the data for that specific assignment. Reporting the sales comparison figure alone is wrong because it ignores potentially valid information from the income approach and fails to reconcile the conflicting evidence as required by professional standards. Exam tip: When approaches diverge, your first step is always to audit the data and assumptions; reconciliation comes after analysis, not before.
More Sales Comparison Questions
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