Value Indicators in Reconciliation

Instructor: Traci Cull
Reconciliation is the last step an appraiser uses to select a final value from multiple indications of value. This lesson will cover the importance of the amount of data available, the level of accuracy of that data, and the relevance to the subject property.

Adam the Appraiser

Let's talk about Adam, an appraiser. Adam has been asked to do an appraisal for a beautiful home in a nice suburban area. The home is a brick two-story with 2,800 square feet, four bedrooms, and three bathrooms. It has a finished basement and a two-car garage as well as a fenced-in yard. What steps must he use to come up with an accurate value?

Adam will start his appraisal by gathering comparable properties. The higher the number of comparable properties available, the better the result. He should consider many things when he is picking comparable properties: the number of rooms, size of property, location, neighborhood, age, style, and pricing range. If Adam can find a good number of comparable homes with the same number of bedrooms/baths as well as roughly the same square footage, he will have better results. Adam will also need to find out if there were extenuating circumstances for any of the sales that may skew the results. This would be especially important if there were only a few properties available.

Once Adam has found comparable properties, he can begin valuing the subject property. It is almost impossible to find properties that are exactly the same (unless they are identical condominiums, patio homes, etc.), so this is where the comparable property would be adjusted upward or downward based on the specific differences between the subject property.

Reconciliation

The final step in the entire valuation process of the appraisal is to reconcile the value indications into one single value. Reconciliation is the final resolution and merging of all the valuation methods used. This is when it is important to analyze the amount of data, the level of accuracy of the data, and the relevance of the data to the subject property. When all three methods of valuation are used (the cost approach, the income approach, and the sales comparison approach), the appraiser must then look at the range of the values from those methods. A wide range may be an indicator that a particular method of valuation is not applicable.

Adam must look at the values from the methods and determine if they are relevant to the subject property, and if they are accurate. Determining relevancy might include making sure the properties compared have the same intended use as the subject property. If a piece of property is used for commercial purposes or rental, then it might not be a good comparison for a residential property. The relevance in those instances would be very low.

Accuracy

To determine if a comparable property is accurate, Adam may have to do some research to find out if the sale was recent, local, in the same financial economy, etc. All of these factors have a bearing on whether the properties are accurate and good examples to use for comparison. Were the comparable property values derived from Adam's actual inspection, from MLA reports, public records, or somewhere else? If the answer is no to most of these questions, then it is most likely not an accurate comparison. For example, Adam would not want simply to look at listing prices as a comparison. Many factors can cause adjustments to the actual listing price.

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