When two approaches produce nearly identical indications and a third diverges sharply, the reconciliation should:
Correct Answer
B) Explain the divergence rather than simply ignoring it
Agreement of two indications does not explain a third divergent result. Investigate the outlier’s data, calculations, assumptions and applicability, and explain the reconciliation. Neither automatically discarding the outlier nor choosing the highest figure establishes a supported conclusion.
Why This Is the Correct Answer
Option B is correct because the report must summarize the information analyzed and the reasoning that supports the conclusions, including reconciliation of the data and approaches. A sharply divergent indication should be investigated for data, calculation, assumption or applicability problems and the result explained. Ignoring it leaves the reconciliation unsupported.
Why the Other Options Are Wrong
Option A: Discard the divergent approach without comment
Option A, discarding the divergent approach without comment, skips both the investigation and the required explanation of the reconciliation.
Option C: Adopt the divergent figure as the most informative
Option C, adopting the divergent figure as the most informative, assumes it is right without checking. Being different does not make an indication more informative.
Option D: Average all three to split the difference evenly
Option D, averaging all three to split the difference evenly, blends an unexplained outlier into the result. Averaging does not explain why the indication diverges.
Explain the odd one out
When one indication is the odd one out, explain why before you weight it.
How to use: Use this when a question describes one indication far from the others.
Exam Tip
Answers that explain or investigate the difference beat answers that discard, adopt or average it.
Common Mistakes to Avoid
- -Dropping the outlier with no explanation
- -Assuming agreement between two approaches proves them right
- -Averaging to make the difference disappear
Concept Deep Dive
Analysis
This question tests how to handle an indication that diverges from two others that agree. Agreement between two indications does not explain the third. USPAP requires the report to summarize the reasoning, including reconciliation of the data and approaches, so the divergence must be explained.
Background Knowledge
In reconciliation, the appraiser evaluates why indications differ and how much weight each deserves. A divergent indication may reflect an error, different property rights or a method that does not fit the property. The report should summarize this reasoning.
Real-World Application
An appraiser's sales and income indications are within 1% of each other, but her cost approach is 20% higher. She finds the house has functional problems she had not depreciated fully. She explains this in the report and gives the cost indication little weight.
More Reconciliation Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
Why must a report identify any real property interest that is being excluded from the value opinion?
Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
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