What is wrong with averaging three approach indications solely because all three were developed?
Correct Answer
C) It assigns equal weight without evaluating applicability and reliability.
Automatic equal averaging substitutes a method count for an assessment of evidence. A reasoned weighting, including a properly explained weighted average when appropriate, is different. Numerical closeness alone does not establish equal reliability, and no universal ten-percent threshold governs reconciliation.
Why This Is the Correct Answer
Option C is correct because averaging solely because three approaches were developed assigns equal weight without evaluating applicability and reliability. Reconciliation considers the reliability and applicability of each approach used. Fannie Mae guidance states that reconciliation must not be an averaging technique, except for a weighted average with proper explanation.
Why the Other Options Are Wrong
Option A: It violates a USPAP rule that prohibits weighted averages of the approaches.
Option A is wrong because there is no USPAP rule prohibiting weighted averages of the approaches. A properly explained weighted average can be acceptable; the problem is automatic equal averaging without analysis.
Option B: It is invalid when the indications differ by more than 10%.
Option B is wrong because no universal rule makes averaging invalid when indications differ by more than 10%. The issue is the lack of evaluation, not a numerical spread threshold.
Option D: It proves that the cost approach was calculated incorrectly.
Option D is wrong because averaging does not prove the cost approach was calculated incorrectly. The method of combining indications says nothing about the accuracy of any single approach.
Counting is not weighing
Having three approaches is a count; deciding how much each deserves is weighing. Reconciliation requires the weighing.
How to use: Use this to spot answers that confuse the number of approaches with their reliability.
Exam Tip
Be cautious of options that cite a specific rule or percentage threshold not found in standards. The core flaw in automatic averaging is the missing evaluation.
Common Mistakes to Avoid
- -Believing USPAP bans all weighted averages
- -Assuming a fixed percentage spread decides whether averaging is allowed
- -Thinking that developing an approach entitles it to equal weight
Concept Deep Dive
Analysis
This question asks what is wrong with averaging three approach indications simply because all three were developed. The flaw is that equal averaging substitutes a count of methods for an evaluation of evidence. Distractors invent rules, such as a ban on weighted averages or a ten-percent threshold.
Background Knowledge
Reconciliation is an analytical process in which the appraiser weighs each indication based on evidence. A weighted average with explained, supported weights differs from automatic equal averaging. Numerical closeness alone does not establish equal reliability.
Real-World Application
A reviewer flags an appraisal where the final value is the exact simple average of three indications with no discussion. The appraiser revises the reconciliation to explain the strength of each approach and adjusts the weighting accordingly.
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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