When buying or refinancing a property, the appraisal report is a foundational document, and its reconciliation of appraised value section is where all the valuation analysis culminates. This critical stage involves the appraiser integrating insights from different valuation methods to deliver a single, well-reasoned opinion of property worth.
Think of an appraiser as a careful investigator who collects data from multiple perspectives: recent sales of comparable homes, the cost to replace the building minus depreciation, and potential income generation for investment properties. Rather than averaging these figures, the appraiser weighs each method’s reliability and relevance for the specific property type and market conditions.
How Does Reconciliation Work?
Reconciliation is more analytical judgment than simple calculation. For example, if the sales comparison method values a home at $400,000 and the cost approach suggests $420,000, the reconciled value isn’t necessarily the average of $410,000. The appraiser considers market data quality, property condition, and the approach most reflective of buyer behavior.
The Three Primary Valuation Approaches
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Sales Comparison Approach: The most common method, especially for residential properties, analyzes recent sales of similar properties (“comps”) in the area, adjusting for differences like size and condition. This approach usually carries the most weight in reconciliation for typical homes. Learn more about Sales Comparison Approach.
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Cost Approach: Calculates the current cost to rebuild the property (land plus construction) minus depreciation. It’s particularly useful for new builds or unique properties without many comps. See details in Cost Approach (Appraisal Method).
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Income Approach: Estimates value based on the property’s income-generating potential, primarily for investment or rental properties such as apartments or commercial spaces. More on this can be found under Income Approach (Appraisal).
Example of Reconciliation
Consider a 15-year-old single-family home:
- Sales Comparison Approach suggests $510,000
- Cost Approach estimates $535,000 (due to depreciation uncertainties)
- Income Approach values $480,000 (less applicable for owner-occupied residences)
The appraiser determines the sales comparison approach is most reliable here, weighting it heavily and reconciling to a final value near $515,000, factoring in property-specific traits like a new roof.
Common Myths about Reconciliation
- Appraisers do not simply average numbers; they apply professional judgment based on market data.
- They are independent, following the Uniform Standards of Professional Appraisal Practice (USPAP), not influenced by lenders or buyers.
- The final value is an informed opinion that may not exactly match any single approach but falls within the reasonable range.
What if You Disagree with the Appraisal?
If you believe significant facts were overlooked or data errors exist, you can pursue a Reconsideration of Value request through your lender with supporting evidence.
Additional Resources
For more on appraisal standards and valuation methods, see Professional Appraisal Standards and Fair Market Value Appraisal.
References
- Uniform Standards of Professional Appraisal Practice (USPAP): https://www.appraisalfoundation.org/imis/TAF/Standards/Appraisal_Standards/Uniform_Standards_of_Professional_Appraisal_Practice/TAF/USPAP.aspx
- Investopedia: Reconciliation in Real Estate Appraisals https://www.investopedia.com/terms/r/reconciliation.asp
- Forbes Advisor: Real Estate Appraisal Overview https://www.forbes.com/advisor/mortgages/real-estate-appraisal/
This explanation ensures homeowners, buyers, and lenders understand how appraisers synthesize multiple analyses to provide trustworthy property valuations.
