Overview
After applying the three approaches to value, an appraiser will have more than one indicator of the subject property's value.
To arrive at a final estimate of value, the appraiser must consider all of the evidence supporting the different value indicators
*Reconciliation
An appraiser develops several different indicators of the subject property's value.
Those indicators may be derived by analyzing data from different comparable properties, or by using different units of comparison or different appraisal techniques.
Differ
Definition of Reconciliation
In appraisal practice, the term reconciliation has two similar but slightly different meanings.
In its more limited sense, reconciliation refers to the particular step in the appraisal process when the appraiser arrives at a final value estimate.
The appr
Use of Reconciliation in Appraisals
Reconciliation may be required for 3 different appraisal purposes:
1. To reconcile values indicated by different comparable properties
2. To reconcile values indicated by different units of comparison
3. To reconcile values indicated by different appraisa
Reconciling Values From Different Comparables
Reconciling values indicated by different comparable properties is very common in appraisals.
The sales comparison method is considered reliable only if data are available from a number of comparable properties.
Consequently, reconciliation is required vi
Reconciling Values From Different Units os Comparison
Reconciliation may also be required when different units of comparison are used.
This occurs most often in the sales comparison approach.
Example:
In appraising an apartment building, an appraiser used the sales comparison approach to derive the following
Reconciling Values From Different Appraisal Techniques
The 3rd situation that may require reconciliation occurs when different appraisal techniques generate different value indicators.
An obvious example of this situation is the final value estimate, where the appraiser must reconcile the value indicators fro
Situations Requiring Reconciliation
1. Different comparable properties
2. Different units of comparison
3. Different appraisal techiques
*The Reconciliation Process
Reconciliation is not a mathematical process.
No formulas are involved, and appraisers should never attempt to reconcile value indicators by averaging or by using other similar mathematical techniques.
Reconciliation calls for judgement and experience on
Reviewing the Appraisal
In the 1st step in the reconciliation process, the appraiser reviews all of the data, calculations, and reasoning that led to the various value indicators.
This review helps to ensure that no mistakes were made.
Each mathematical calculation is double-che
Assessing the Reliability of Value Indicators
The reliability of a particular value indicator is a critical factor in the reconciliation process.
The greater the reliability, the more weight that indicators receives.
The reliability of a value indicator depends on 3 factors:
1. The amount of data sup
Value Indicator Criteria
1. Amount of data
2. Level of accuracy
3. Relevance
Amount of Data
All other things being equal, a value indicator is considered more reliable when it is supported by more data.
In the sales comparison approach to value, a value indicator supported by data from sales of twenty comparable properties is more reliable than
Level of Accuracy
The reliability of a value indicator also depends on its accuracy.
In assessing the level of accuracy, the appraiser must consider both:
1. The accuracy of the original data
2. The accuracy of the resulting value indicator
The accuracy of the original dat
Relevance
The 3rd factor that influences the reliability of a value indicator is its relevance to the particular appraisal problem.
In assessing the relevance of a value indicator, the appraiser first checks to see that the indicator itself is consistent with the t
Making the Reconciliation Judgement
After reviewing the data, calculations, and reasoning that support the different value indicators, and correcting any errors or deficiencies that may have been discovered, the appraiser can determine a reconciled value.
This process relies heavily on the
*Final Value Estimate
The process of reaching a final value estimate is essentially the same as the reconciliation process.
The appraiser reviews all of the data, calculations, and reasoning contained in the entire appraisal and considers them in light of the terms of the spec
USPAP Credible Appraisal Requirement
The appraiser's work must satisfy the requirement of a "credible appraisal" in Standard 1 of the Uniform Standards of Professional Appraisal Practice:
In developing a real property appraisal, an appraiser must identify the problem to be solved, determine
Use of Automated Valuation Models
Automated valuation models play a substantial role in the appraisal process.
An automated valuation model, or AVM, is a computer program that analyzes appraisal data for a property, including market data, economic data, and demographic data.
It may be use
Point Estimates and Range Values
An appraisal is an estimate or opinion of value and thus is inherently uncertain.
The majority of appraisals state the final value estimate as a single dollar amount, known as a point estimate.
A point estimate is required by the terms of the appraisal as
Point Estimate
A value estimate stated as a single dollar amount.
Range Value
...
Rounding
Whether a final value estimate is stated as a point estimate or range value, it is customary to round the figures to reflect the degree of certainty that the appraiser has in the value estimate.
The figure(s) for the final value estimate will contain no m
Appraisal
The act or process of developing an opinion of value; an opinion of value (USPAP definition).
A form of appraisal practice.
Automated Valuation Model
A computer program that estimates the market value of property based on market data, economic data, and demographic data.
Capitalization Rate
The percentage rate used to convert an amount of outcome to value in direct capitalization.
Caomparable
A property that has been sold in the same market that currently includes the subject property, and that appeals to the same sort of buyers.
Comparables are used in many different appraisal techniques.
Cost
The actual amount of expenditure necessary to acquire or produce something.
Cost Approach
One of the 3 approaches to value in the appraisal process.
In the cost approach, the value of the subject property is indicated by the cost to build the subject improvements, plus the value of the site, and minus any depreciation that affect the subject i
Direct Captialization
The process of estimating value on the basis of income from a single period, usually one year.
The formula for direct capitalization is:
Income � Capitalization Rate = Value
or
Income x Multiplier = Value
Discounting
The process of calculating the present value of an expected future amount.
Income Approach
(Income Capitalization Approach)
One of the 3 approaches to value in the appraisal process.
In the income approach, the value of the subject property is indicated by the amount of net income that the property can generate.
Reconciliations
The process by which an appraiser reduces two or more value indicators to a single indicator or estimate of value.
Sales Comparison Approach
One of the 3 approaches to value in the appraisal process.
In the sales comparison approach, the value of the subject property is indicated by the adjusted sales prices of similar properties (comparables) in the market.
Uniform Standards of Professional Appraisal Practice
(USPAP)
Appraisal standards issued by the Appraisal Standards Board of the Appraisal Foundation and adopted as minimum standards by Title XI of FERREA.
Unit of Comparison
A unit in which price is stated for comparison purposes, such as price per square foot of living area.
When comparing different properties, the price of each property must be stated in the same unit of comparison.
Value
The monetary relationship between properties and those who buy, sell, or use those properties (USPAP definition).
The theoretical worth of something, expressed in terms of something else, usually money.
Value Indicator
A piece of data or a derived conclusion (such as the adjusted sales price of a comparable) that is relevant to the value of the subject property in an appraisal.
Yield Capitalization
The process of estimating value on the basis of all the anticipated cash flows (the total income) over the life of an investment.