Reconciliation in Appraisal
Definition
Reconciliation is the final step in the appraisal process where the appraiser analyzes the value indications from all applicable approaches and arrives at a single final opinion of value. It is not a simple average of the three values.
Example
An appraiser valuing a single-family home obtains values of $320,000 from the sales comparison approach and $335,000 from the cost approach. The appraiser gives the most weight to sales comparison and concludes a final value of $322,000.
Exam Tip
Reconciliation is never a simple mathematical average. The appraiser uses judgment to weight the approaches. Know which approach typically gets the most weight: sales comparison for residential, income for investment properties, and cost for new or special-purpose buildings.
Related Valuation Terms
Depreciation of Investment Property
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
Income Approach
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Highest and Best Use
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
Comparable Sales Approach
The comparable sales approach estimates a property's value by comparing it to similar properties that have recently sold in the same market area. It is the most widely used and reliable approach for appraising residential properties.
Cost Approach
The cost approach estimates a property's value by calculating the current cost to rebuild the improvements, subtracting accumulated depreciation, and adding the land value. It is most reliable for new construction and special-purpose properties.
Property Tax Exemptions and Relief Programs
Various programs and exemptions exist to reduce the property tax burden for specific groups, such as seniors, homesteaders, or veterans.
Frequently Asked Questions
Test Your Valuation Knowledge
Practice with exam-style questions to make sure you can apply Reconciliation in Appraisal and other valuation concepts.