Reconciliation Judgments in Real Estate Appraisal

Instructor: Traci Cull
The final judgment value of an appraised property lies with the appraiser. A final value estimate uses multiple techniques and values to reconcile them into one single opinion of value.

Reconciliation Process

Jane is a real estate appraiser and has been practicing for fifteen years. She has recently been questioned about a final value on a piece of property that she appraised this year. She is panicking and questioning herself and wondering if she gave enough information to support her value. She knows that lenders are a lot stricter when it comes to loaning money after the housing crisis, so she knows her work is under scrutiny. She sits down to go back through her appraisal process to make sure she has taken all the necessary steps to support her final value estimate.

Final Value Estimates

Jane knows that Fannie Mae only requires an appraiser to use the sales comparison approach when appraising a property. However, the cost approach or income approach may also be necessary if the appraiser wants to give credible results. Jane knows that appraisers need to have appropriate, reliable, and defendable final value estimates.

Reconciliation is a phase in the appraisal process that occurs when an appraiser uses multiple methods of calculating a value, and then assesses which one of those approaches is the best fit for this particular property. Jane used all three approaches for this particular property and noticed that they each came up with a slightly different value. She knows that the final value estimate is not just an average of the different approaches and that she needs to look closer at each one and weigh them based on specifics to her property.

Jane must use her knowledge and experience to choose a supportable and final value estimate. She needs to look at any market-driven adjustments at this point. These adjustments reflect the differences in the properties. Did one have a specific difference over her property? Was one in a slightly more desirable neighborhood? These market-driven adjustments help to validate her final value. The reconciliation process helps her to provide justification for the value, and support to back it up.

Adjustments

During the reconciliation process, Jane researched comparable property sales. Using those comparable properties, she then made certain adjustments to compensate for any differences. Once the adjustments are completed, she had a range of values to use for the property's final value estimate. It is important to note that a final value is not an average of the numbers from the different processes, it is her opinion after using the different valuation methods and making specific adjustments that can be documented. This final value estimate is supposed to be an alternative substitute for the appraised property if it were not available.

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