Why can two approaches applied to the same property produce indications of different interests?
Correct Answer
B) Because income data may reflect a leased fee position
Why this is correct: The income approach often uses actual contract rents from existing leases, which reflect the leased fee estate (landlord's interest). The sales comparison approach typically uses sales of unencumbered properties, reflecting fee simple value. Failing to align the property interests can cause inconsistent indications. Why the other choices are wrong: "Because the approaches use different effective dates" is a separate issue. "Because the cost approach excludes the land value" is false; the cost approach includes land value. "Because sales comparison ignores property rights" is false; sales comparison must consider property rights conveyed. Exam tip: Always check that each approach is valuing the same property interest.
Why This Is the Correct Answer
Why this is correct: The income approach often uses actual contract rents from existing leases, which reflect the leased fee estate (landlord's interest). The sales comparison approach typically uses sales of unencumbered properties, reflecting fee simple value. Failing to align the property interests can cause inconsistent indications. Why the other choices are wrong: "Because the approaches use different effective dates" is a separate issue. "Because the cost approach excludes the land value" is false; the cost approach includes land value. "Because sales comparison ignores property rights" is false; sales comparison must consider property rights conveyed. Exam tip: Always check that each approach is valuing the same property interest.
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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