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Reconciliation and Appraisal Reporting: From Value Indicators to the Final Report
Reconciliation and Appraisal report❓ing: From Value Indicators to the Final Report
I. Introduction
This chapter delves into the critical stages of the appraisal process: reconciliation and report writing. We will explore how to synthesize various value indicators into a cohesive and well-supported final value opinion, and how to effectively communicate this opinion in a comprehensive appraisal report. Mastering these skills is essential for any professional appraiser.
II. Reconciliation: Synthesizing Value Indicators
Reconciliation is not a simple averaging of numbers. It’s a complex process that requires critical thinking, sound judgment, and a deep understanding of the market. This process aims to arrive at a single, well-supported opinion of value.
A. Definition of Reconciliation
Reconciliation is the process by which an appraiser analyzes the results from the approaches to value (cost, sales comparison, and income) to arrive at a final, single value opinion. It’s a qualitative process that relies heavily on the appraiser’s professional judgment.
B. Importance of Reviewing Data and Calculations
Before reconciling the various value indicators, it is crucial to rigorously review all data, calculations, and reasoning that led to those indicators. This ensures accuracy and consistency.
1. Verification of Calculations: All calculations from the cost, sales comparison, and income approaches must be meticulously checked for errors. Any mistakes must be corrected.
2. Consistency of Application: Appraisal techniques need to be applied consistently to the subject property❓ and all comparables. Ensure that adjustments are made uniformly and logically.
3. Reliability Assessment: The reliability of each value indicator needs to be carefully evaluated. Consider the quantity of data, the accuracy of the data, and the relevance to the appraisal problem.
C. Factors Influencing the Reliability of Value Indicators
- Amount of Data: Value indicators derived from a larger statistical sampling, more detailed data, or supported by several independent sources are generally more reliable. For example, a sales comparison approach based on 10 verified sales is typically more reliable than one based on only 3.
- Accuracy of Data: The accuracy of the underlying data is paramount. This depends on how well the data has been verified and the accuracy of the techniques used to derive the indicator.
- Relevance to the Appraisal Problem:
a. Consistency with Assignment Terms: The value indicator must align with the terms of the appraisal assignment (e.g., market value, fair market value).
b. Appropriateness of Technique: The appraisal technique used must be appropriate for the property type and the available data. For example, the income capitalization approach is less relevant for a single-family residence than for an office building.
D. The Role of Appraiser Judgment
The appraiser’s judgment is the determining factor in reconciliation. While data and calculations provide a foundation, it is the appraiser who weighs the various factors and arrives at the final value opinion.
Mathematical formulas or techniques such as averaging are not used in reconciliation.
E. Example of Reconciliation
Imagine an appraisal of a small apartment building where the three approaches yield the following indications:
* Sales Comparison Approach: \$950,000
* Cost Approach: \$925,000
* Income Capitalization Approach: \$975,000
In this scenario, the appraiser might give the most weight to the income capitalization approach, as income is a primary driver of value for investment properties. The final reconciled value opinion might be \$970,000, slightly below the income approach indication, considering potential market uncertainties.
III. Appraisal Reporting: Communicating the Value Opinion
The appraisal report is the primary means of communicating the appraiser’s analysis, reasoning, and final value opinion to the client and other intended users. It is crucial that the report is clear, well-organized, and supported by evidence.
A. Essential Elements of an Appraisal Report
- Clear Identification of the Property: The report must clearly identify the subject property, including the legal description, address, and any relevant characteristics.
- Statement of Purpose and Intended Use: The report must state the purpose of the appraisal and how the client intends to use the appraisal results.
- Definition of Value: The report must define the specific type of value being estimated (e.g., market value, fair market value).
- Date of Valuation: The report must clearly state the effective date of the value opinion.
- Data and Analysis: The report must include all relevant data and analyses that support the appraiser’s value opinion. This includes descriptions of the neighborhood, site, and improvements, as well as analyses of the cost, sales comparison, and income approaches.
- Reconciliation: The report must clearly explain the reconciliation process and the factors that were considered in arriving at the final value opinion.
- Final Value Opinion: The report must state the appraiser’s final value opinion as a single dollar amount or a range of values.
- Assumptions and Limiting Conditions: The report must include any assumptions or limiting conditions that affect the appraisal.
- Appraiser Certification: The report must include a signed certification by the appraiser, attesting to the accuracy of the report and compliance with USPAP.
B. Uniform Residential Appraisal Report (URAR)
The Uniform Residential Appraisal Report (URAR) is a standardized form used for many residential appraisals.
Reconciliation Section of the URAR: 371.
C. Point Estimate vs. Range Value
- Point Estimate: A final value opinion that is stated as a single dollar amount.
- Range Value: An appraiser’s opinion of the range in which the property’s value is most likely to fall.
D. Rounding Value
Value opinions should be rounded.
C. Ensuring Clarity and Understandability
The appraisal report should be written in a clear and concise manner, using language that is easily understandable to a non-appraiser reader. Avoid jargon and technical terms, and explain any complex concepts in simple terms.
An appraiser should review their work to ensure that it is easily understandable to a non-appraiser reader.
IV. Reporting Requirements under USPAP
Real property appraisal reports are governed by Standard 2 of the Uniform Standards of Professional Appraisal Practice which requires the appraiser to “communicate each analysis, opinion, and conclusion in a manner that is NOT misleading.”
While Standard 2 of USPAP governs the content of an appraisal, it does not dictate the form, format or style of a report. These are determined by the appraiser and by the needs of the client.
SCOPE OF WORK RULE
The Scope of Work Rule was developed by the Appraisal Standards Board to replace the outdated concept of departure. It was designed to provide flexibility in developing and reporting an appraisal by recognizing that the amount and depth of research varies depending upon the needs of the client and the intended use of the report. The Appraisal Board emphasizes that the amount of research and depth of reporting must not be unduly influenced by the clients desires which could result in a misleading report.
The concept of SCOPE OF WORK refers to the depth of necessary research and reporting required to produce a credible report that not only meets the needs of the client but that would also be considered acceptable by the appraiser’s peers.
Oral and Written Appraisal Reports
Appraisal reports may be either oral or written.
All reports for federal loan transactions must be in writing.
Both written and oral reports may be in the form of an Appraisal Report or a Restricted
Report.
V. Conclusion
Reconciliation and appraisal reporting are essential skills for any appraiser. By mastering these skills, you can ensure that your appraisals are accurate, reliable, and effectively communicated to your clients.
Chapter Summary
Here’s a detailed scientific summary of the chapter “Reconciliation and Appraisal Reporting: From Value Indicators to the Final Report,” based on the provided content.
Scientific Summary:
This chapter addresses the crucial stages of appraisal following data collection and analysis, focusing on how appraisers synthesize various value indicators into a final, supportable value opinion and how that opinion is communicated in the appraisal report. The core concept explored is reconciliation, which is presented not as a mathematical averaging of value indicators, but as a process of critical judgment based on the reliability and relevance of each indicator.
Main Scientific Points:
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Reconciliation as a Judgment-Based Process: The chapter emphasizes that reconciliation is not a quantitative procedure like averaging, but a qualitative❓ analysis grounded in the appraiser’s expertise. The appraiser must critically evaluate the data, calculations, and reasoning that underpin each value indicator (e.g., from sales comparison, cost, or income approaches).
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Reliability Factors of Value Indicators: The reliability of a value indicator is determined by three key factors:
- Amount of Data: Indicators based on larger, more detailed, and independently sourced data sets are considered more reliable.
- accuracy❓: Accuracy depends on the verification of supporting data and the appropriateness of the valuation technique applied.
- Relevance: Indicators must be consistent with the appraisal assignment’s terms and derived using suitable appraisal techniques. The relevance of the indicator has the greatest impact on the reconciliaton process.
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Process of Reaching a final value opinion❓: The process of reaching a final opinion of value is portrayed as a parallel process to reconciliation. It involves reviewing all data, calculations, and reasoning throughout the entire appraisal, assessing the reliability of each value indicator, and collecting additional data and performing further analysis, if necessary.
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Reporting the Reconciled Value: The final value opinion is typically presented as a “point estimate” (a single dollar amount), though a “range value” is also mentioned as an alternative.
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Importance of Review and Clarity: Appraisers are instructed to review their work to ensure❓ it is easily understandable to a non-appraiser, indicating a focus on clear communication of complex information.
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Uniform Residential Appraisal Report’s Reconciliation Section: Provides the appraiser a dedicated section to complete to support the value opinion. This section provides areas to address: if the appraisal was made as is or subject to the property being altered, any conditioning factors, any appraisal approaches used, and the purpose of the appraisal.
Conclusions:
The chapter concludes that the appraiser’s judgment and experience are paramount in the reconciliation process. A well-supported, evidence-based opinion of value is the ultimate goal. The most important factors in the reconciliation process are the relevance of the appraisal techniques and the appraiser’s judgment and experience.
Implications:
- This chapter reinforces the idea that appraisal is a skill reliant on human judgement and understanding of market dynamics, and it is not a purely mechanical application of formulas.
- The emphasis on clear communication highlights the appraiser’s responsibility to convey complex analyses in a way that intended users (who may not be appraisal experts) can understand.
- The focus on reliability and relevance indicates that appraisers must carefully justify their weighting of different value indicators and provide transparency❓ in their reasoning.
- The opinion of market value is presented in a “point estimate” or “range value”. Value opinions should be rounded to present a clear determination of the value.
