Ch. 11 Reconciliation

An appraiser discovers that the indicated values of her comparable sales, after adjustment, have a range of over 20%. What should the appraiser do? A) revise the indications so they all come out to the same number B) revise the indications so that they have a spread of no more than 10% C) average the indications and use that as the final value conclusion D) leave the indications as they are and explain it

D) leave the indications as they are and explain it

In _________________, the process of reconciliation occurs at various points throughout the appraisal process. We make many choices along the way. We may reconcile one indication of value from various possible choices in arriving at estimates of: --Site value --Replacement costs --Depreciation --Vacancy rates --Market rents --GRM --Operating expenses --Taxes --Insurance

actuality

We need to round to _________ the perception that our final value opinion is a ____________ number. We do not wish to imply a precision that we do not possess.

avoid, precise

Remember that the most _____________ definition of ___________ value defines it as "the most probable price that a property should bring..."

common, market

The ________ weighting in our value judgments will hinge somewhat on the appropriateness of our methodology. We need to ask ourselves: Did we use the right techniques for that type of property? Did we use techniques that mimic the perceptions of the marketplace? Did we use techniques that our peers would use? Did we employ those techniques properly? Did we employ the proper methods of analyzing the data collected? If there is an active market, did we employ a sales comparison approach? If the property is fairly new and of standard construction, did we employ a cost approach? If there is an active rental market, did we utilize an income capitalization approach?

final

We need to undertake an _______________ review when we get to this stage of the appraisal. We need to do some soul-searching. This is the last chance to check our conclusions before they leave our hands. We need to review the entire process including our scope of work. Was the scope of work adequate, given the intended use and intended users? Did we correctly employ the scope of work that we said we would perform? Were any changes in the scope of work necessary along the way? Were the steps logical? Were our data sources and methods of collection and verification adequate? Did we review the math and double check the calculations? Did we explain formulas and calculations in an appropriate manner?

internal

In the 2018-2019 edition of USPAP, on page U-3, the Comment to the definition of Appraisal says: "Comment: An appraisal must be ________________ expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value)."1

numerically

Reconciliation is defined as: "A phase of a valuation assignment in which two or more value indications are processed into a value opinion, which may be a range of value, a single point estimate, or a reference to a benchmark value."

phase

USPAP says that an appraiser must correctly complete research and analyses necessary to produce a ________ appraisal. A) credible B) good C) cost-effective D) all of these

A) credible

In reconciliation, an appraiser needs to address both the ________ and the _________ of the data. A) quality, quantity B) amount, quantity C) age, size D) accuracy, portability

A) quality, quantity

True or False? A lengthy appraisal report is always more credible than a shorter one.

False

True or False? Reconciliation involves taking the indicated values of the comparable sales and averaging them.

False

True or False? The indicated values in the sales comparison approach should ideally be within 10% of each other.

False

The final reconciliation process consists of various items: --______________ --Appropriateness --____________________ --Accuracy --Relevance --Quality of data --Quantity of data

Review, Consistency, Quality, Quantity

Is the final opinion of value ____________________ rounded? This means appropriately rounded for that magnitude of numbers. It might be acceptable to leave a final opinion at $54,500; but a figure of $554,500 or $1,234,000 might be rounded to the closest thousand or closest five thousand dollars. You go along with the way the market thinks. In negotiating, would someone typically offer to pay $554,500, or would they make a bid of $550,000 or $555,000? The same practice goes for rents. Tenants don't usually pay rents of $888 per month; they pay $850, $875, or $900.

appropriately

The _________ reconciliation ______________ consists of various items: --Review --Appropriateness --Consistency --Accuracy --Relevance --Quality of data --Quantity of data

final, process

One further note about ___________________: The appraiser can use the level of rounding to indicate the level of confidence the appraiser has in the data and analysis available and used in the appraisal. This applies most appropriately to the reconciliation process within the approaches where different comparables might have different levels of support and verification making their use more or less reliable. But it can also apply to the final value reconciliation. For more on this, see page 647 of The Appraisal of Real Estate, 14th edition, Appraisal Institute, Chicago, 2013.

rounding

We embark on a process _______________ to the one we used when reconciling at the end of the sales comparison approach. Only here, we are analyzing the strengths and weaknesses of each approach instead of each comparable sale. Which approach is strongest for that type of property? Which approach is weakest? If more than one approach is used, do they support each other? If they differ, why do they differ? Do the approaches used make sense in light of the Scope of work? Intended use? Intended user? Definition of market value?

similar

Your final reconciliation is an important part of the appraisal process. It is the _______________ up of all you did. Lawyers make a final summation to the jury. The reconciliation is your summation to the jury. You have to sell your case to the client and intended users of your report. In many cases you will not have a conversation with your client. He or she will only read your report. This is your only chance to make yourself heard. In the reconciliation you need to reinforce your scope of work. You need to convince the reader that you did everything that was necessary to solve the problem. You need to take your reader by the hand and walk him/her down the same path you traveled on the way to your conclusion.

summing

Now it is time to make that final judgment and arrive at a final opinion of value. Every assignment is ___________. There is not just one way to arrive at this final reconciliation of value. There is no magic formula. We need to apply logic, reasoning, and a good deal of common sense. We might employ some limited statistical analysis, depending on the quantity of the data.

unique