RECONCILING THE VALUE ESTIMATES

Chapter 15

Consistency

Evaluate the approaches

Evaluate the data

Range of values

Reconciliation

Rounding the answer

Significant digits

Technical review

Value conclusion

Value indication

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CHAPTER TERMS AND CONCEPTS

LEARNING OUTCOMES

1. Define the term reconciliation.

2. Explain why the appraiser must first review each value approach that has been used.

3. Explain why the appraiser reviews the data used in each approach.

4. Show how to round the final answer.

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GENERAL APPRAISAL REVIEW

1. Review the overall appraisal process.2. Review for technical accuracy.

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Reviewing the Data Collected

(1) The type of property being appraised

(2) The agreed scope of work

(3) The intended user(s) of the appraisal

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Reviewing the Appraisal Process

(1) Precisely located and identified the property

(2) Clearly defined the property rights to be appraised

(3) Pinpointed the date when the value estimate applies

(4) Given a formal definition of the type of value stated

(5) Clearly defined the intended use and user of the appraisal and report

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Technical Review

• All calculations should be checked for accuracy.

• All data should be checked for completeness and accuracy.

• The appraiser should check for consistency.• Reconsider any assumptions made during the

appraisal.

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Technical Review

• All calculations should be checked for accuracy.

• All data should be checked for completeness and accuracy.

• The appraiser should check for consistency.• Reconsider any assumptions made during the

appraisal.

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Technical Review

• All calculations should be checked for accuracy.

• All data should be checked for completeness and accuracy.

• The appraiser should check for consistency.

• Reconsider any assumptions made during the appraisal.

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Technical Review

• All calculations should be checked for accuracy.

• All data should be checked for completeness and accuracy.

• The appraiser should check for consistency.

• Reconsider any assumptions made during the appraisal.

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TECHNICAL REVIEW CHECKLIST

Correct Calculations?Data Complete & Accurate?Consistent Adjustments?Reasonable Assumptions?

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ARRIVING AT A VALUE CONCLUSION

Review of the Appraisal

Reconciling the Value Approaches

Rounding the Answer

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≥ $750,000

$725,000

$775,000

$765,000

That’s It!

RECONCILING THE VALUE APPROACHES

Test For: Applicability Data (Quality and Quantity) Range of Indicated Value

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EVALUATION OF THE THREE APPROACHES

Approach Best Application Weakness

Sales Comparison Approach Residential (Direct Comparison Comparisons Not Always Available

Cost Approach New BuildingsPublic BuildingsSpecial Use Property

Hard to Estimate:Current CostsIndirect CostsAccrued Depreciation

Income Approach Investment Property Hard to find:Economic rentTypical expensesRate of return

The Value Range

• After a review of the value indication reached by each of the approaches, you will see an indication of what may be the highest number and the lowest number. This suggests the probable range of minimum-maximum value.

• The reliability of each approach influences the reliability of this range.

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Reconciliation and Final Value Estimates

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Reconciling the Value Indications on the URAR Form

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Figure 15-2

ROUNDING THE ANSWER

The answer to any mathematical step should not be reported with any more significant digits than the smallest number of significant digits occurring in any number used.

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SUMMARY

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After a value indication has been reached for each of the relevant approaches, the appraiser usually must then reduce these separate value indications to a single estimate. This process is called reconciliation.

At the end of this process, a final value conclusion is normally reached. Arriving at a final conclusion involves many considerations. Once your conclusion has been reached, you will then want to consider rounding your answer.