Within the income approach, an appraiser holds indications from direct capitalization and from a gross rent multiplier. What should follow?
Correct Answer
D) Weighing them by the data supporting each
Why this is correct: Reconciliation involves professional judgment about the reliability and applicability of each value indication. The appraiser should assign weight based on the quality and quantity of the data supporting each method and how well each method reflects market behavior for the subject property. Why the other choices are wrong: 'Averaging them into one income indication' is arbitrary and ignores the strength of the underlying data. 'Reporting whichever figure is the higher one' is biased and not supported by analysis. 'Discarding the multiplier as always unreliable' is incorrect; GRMs can be reliable when supported by good data. Exam tip: Weighting is not averaging. Give more credence to the method with the most credible, market-relevant data.
Why This Is the Correct Answer
Why this is correct: Reconciliation involves professional judgment about the reliability and applicability of each value indication. The appraiser should assign weight based on the quality and quantity of the data supporting each method and how well each method reflects market behavior for the subject property. Why the other choices are wrong: 'Averaging them into one income indication' is arbitrary and ignores the strength of the underlying data. 'Reporting whichever figure is the higher one' is biased and not supported by analysis. 'Discarding the multiplier as always unreliable' is incorrect; GRMs can be reliable when supported by good data. Exam tip: Weighting is not averaging. Give more credence to the method with the most credible, market-relevant data.
More reconciliation Questions
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Reconciliation of the approaches to value is best described as which activity?
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Which of the following is a written report option named in the current edition of USPAP?
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Why should the reconciliation address the quantity of evidence as well as its quality?
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