Unit 15: Reconciliation and the Appraisal Report
- What is the purpose of reconciliation in the appraisal process?
- Why is reconciliation not just a mathematical averaging of values?
- What factors does an appraiser consider when deciding which approach (Cost, Sales Comparison, or Income) carries the most weight in reconciliation?
- What are the differences between a form report and a narrative report?
- What is a restricted appraisal report, and when is it used?
- Below are different styles of written appraisal reports. Choose one and explain how it is structured:
- Uniform Residential Appraisal Report (URAR – Form 1004)
- Uniform Residential Appraisal Report (URAR – Form 1070)
- Uniform Residential Appraisal Report (URAR – Form 1025)
- Narrative Report
- Case Study Weighing Appraisal Approaches
An appraiser has used all three valuation approaches to determine the value of a single-family home:- Sales Comparison Approach: $520,000
- Cost Approach: $500,000
- Income Approach: $510,000
- The property is in a subdivision where most homes are owner-occupied, and rental income is uncommon.
Tasks:
- Which approach should the appraiser give the most weight in reconciliation? Why?
- Should any approach be given little or no consideration? Explain your reasoning.
Student Calculation Grid for Reconciliation Process
| Step | Formula / Consideration | Student Answer | Hint |
|---|---|---|---|
| Sales Comparison Approach Value | Given: $520,000 | __________ | This value is provided |
| Cost Approach Value | Given: $500,000 | __________ | This value is provided |
| Income Approach Value | Given: $510,000 | __________ | This value is provided |
| Market Conditions & Property Type | Consider market data and owner-occupancy trends | __________ | Is rental income a major factor? |
| Most Reliable Approach Selection | Choose which approach to weigh most heavily | __________ | Consider strengths & weaknesses of each method |
| Final Value Conclusion | Determine an appropriate final value estimate | __________ | Does it reflect market behavior? |
Quick Reference Guide
Key Definitions:
- Reconciliation: The process of analyzing multiple valuation approaches to determine a final opinion of value.
- Appraisal Report: A document that communicates the appraisers final value estimate and reasoning.
- Form Report (URAR – Form 1004, 1073, 1025): A standardized appraisal report used for mortgage lending purposes.
- Narrative Report: A detailed report with supporting data and conclusions, often used for commercial properties.
- Restricted Appraisal Report: A report prepared for a specific client with minimal supporting data included.
Helpful Tips:
- Reconciliation is NOT an average of values from different approaches.
- The Sales Comparison Approach is often the most reliable for residential properties.
- The Income Approach is best for rental properties and investment real estate.
- The Cost Approach is useful when valuing new construction or special-use properties.
Concept Overview:
The reconciliation process is the final step in an appraisal, where the appraiser reviews and weighs the reliability of each valuation approach before forming a final value conclusion. The appraiser does not simply average the values but considers the strengths and weaknesses of each method based on the subject property and market conditions.
The appraisal report is the official document communicating the appraisers findings and conclusion of value. It can be presented in form reports or narrative reports, each serving different purposes.
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