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
A discrepancy may reflect different property rights or income assumptions, such as leased-fee cash flow under an existing lease versus fee-simple market rent. Align the interest appraised, dates and assumptions before reconciliation. Sales comparison is not inherently fee simple, and income capitalization is not inherently leased fee.
Why This Is the Correct Answer
Option B is correct because income data may reflect a leased fee position, the lessor's right to receive contract rent and the reversion. If contract rent differs from market rent, a capitalization of that income values the leased fee rather than the fee simple. The appraiser should align the property rights and assumptions across approaches before reconciliation.
Why the Other Options Are Wrong
Option A: Because the approaches use different effective dates
Option A says the approaches use different effective dates, but the approaches in one assignment should share the same effective date. A date mismatch would be an error, not a reason the interests differ.
Option C: Because the cost approach excludes the land value
Option C says the cost approach excludes land value, but the cost approach adds site value to the depreciated cost of improvements. It does not leave land out.
Option D: Because sales comparison ignores property rights
Option D says sales comparison ignores property rights, but sales comparison considers the property rights conveyed and adjusts for differences. Sales comparison is not inherently fee simple either.
Same rights before reconciling
Make sure each approach values the same property rights before you compare the indications.
How to use: Use this when indications differ and a lease is involved.
Exam Tip
When a stem mentions different interests, think about leases and contract rent versus market rent.
Common Mistakes to Avoid
- -Assuming the income approach values the leased fee in all cases
- -Forgetting to adjust comparable sales for differences in rights conveyed
- -Believing the cost approach leaves out land value
Concept Deep Dive
Analysis
This question tests why approaches can value different property interests. Income data under an existing lease reflect the landlord's leased fee position, which may differ from a fee simple valued at market rent. The appraiser should align the interest appraised before reconciling.
Background Knowledge
The fee simple estate is ownership free of other interests, while the leased fee estate is the landlord's interest subject to a lease. When contract rent differs from market rent, the two interests can have different values. Sales of leased properties may also need adjustment to match the interest appraised.
Real-World Application
A retail building is leased at rent well below market for several more years. The income approach based on the lease gives a lower figure than fee simple sales of similar buildings. The appraiser identifies the interest each indication reflects and adjusts so that both value the interest defined in the assignment.
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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Previous Question
Indications are sales comparison $612,000, cost $648,000 and income $590,000, weighted 60%, 25% and 15%. After review, the appraiser moves 10 percentage points of weight from cost to sales comparison (70%, 15%, 15%). What is the change in the reconciled value?
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