How do you reconcile between the value indications of the three approaches, or even between the range of value indication in even one approach? How you answer this is important since SR1-6 calls for us to answer both of these questions as part of our reconciliation.
USPAP has no specific requirements telling us how to reconcile these differences. It does require that we engage in such a reconciliation, as well as explain why. This blog will help your reach those goals.
One way to reconcile the separate value indication of the three approaches is to weight each one as a component of the final value opinion. If, for example, you felt the sales comparison was the best way to value the subject, you might give it 90% of the weight, with the other two at just 5% each. If there were relatively few sales, you might give the Cost approach the majority of the weight, with the other one or two approaches getting proportionately less. However you choose to weight them (as well as your explanation of why) is part of your scope of work.
Some appraisers object to “painting themselves into a corner” by attaching a specific weight to a single approach or a single comparable sale. That’s OK, too, since it’s OK to say that sale-X received the greatest weight, with sale-Z receiving the least, but with no more quantification that that. As with any reconciliation, it is also necessary to explain what market evidence persuaded you to take this step (i.e., explain why you took it).
Really, though, there is a lot more to a proper and persuasive reconciliation than what you read here.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 165 – How Do You Reconcile that Appraisal Report? You’ll be really glad you did!