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
Why this is correct: Explain the divergence rather than simply ignoring it. A significant divergence between approaches is analytical information. The appraiser should investigate and explain the likely cause (e.g., data issue, market anomaly) to strengthen the credibility of the final reconciled value. Why the other choices are wrong: Discard the divergent approach without comment fails USPAP's requirement for reasonable analysis. Adopt the divergent figure as the most informative is illogical without a specific reason. Average all three to split the difference is an unjustified mechanical averaging. Exam tip: An unexplained divergence weakens the report; an explained one can strengthen it.
Why This Is the Correct Answer
Why this is correct: Explain the divergence rather than simply ignoring it. A significant divergence between approaches is analytical information. The appraiser should investigate and explain the likely cause (e.g., data issue, market anomaly) to strengthen the credibility of the final reconciled value. Why the other choices are wrong: Discard the divergent approach without comment fails USPAP's requirement for reasonable analysis. Adopt the divergent figure as the most informative is illogical without a specific reason. Average all three to split the difference is an unjustified mechanical averaging. Exam tip: An unexplained divergence weakens the report; an explained one can strengthen it.
More Reconciliation Questions
Reconciliation of the approaches to value is best described as which activity?
Why should the reconciliation address the quantity of evidence as well as its quality?
How long must a report be retained compared with the workfile?
What distinguishes an appraisal review from an appraisal?
An appraiser reconciles to a value at the top of the indicated range because the client needs that figure. What has occurred?
What does it mean that a value opinion must be reasonable rather than merely arithmetically derived?
What should the reconciliation section explain to the reader?
How do the content obligations of the two report options differ with respect to the information analyzed?
The three approaches indicate $480,000, $495,000 and $610,000. What should the appraiser do first?
Three approaches indicate $1.02 million, $1.05 million and $1.04 million. How should this be reported?
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