It may be said that all three appraisal approaches to value (Cost, Sales Comparison, and Income Capitalization) should be considered and used when appropriate to the property type. The results are reconciled into one final estimate of value. As independent approaches, the sales comparison method is the most widely used. Investment property is frequently appraised by the income capitalization method, while the replacement cost method best lends itself to special purpose properties or newer properties.
The purpose of the appraisal will have a definite bearing in determining the method of valuation. For example, if the purpose is sale, purchase, exchange or condemnation, the value concept sought is current market value.
Reconciliation of the three indications of value derived through the market data, cost and income approaches leads to the final estimate of value or final value conclusion, which is the final step in the appraisal process. Reconciliation is a method of interpreting the data which have been gathered throughout the entire appraisal process into one final value conclusion. The primary facts which are analyzed and brought together are the estimates of value arrived at by reason of the three approaches to value.
Each approach to value results in only a preliminary estimate or an indicated value of the property. The indications resulting from each of the approaches give a range within which the final value conclusion lies. The result obtained by each of the methods of valuation will not be the same due to the many variables which are encountered, but they generally are within range of each other.
A thorough review of each of the approaches is made in order to narrow the range of preliminary answers. If the results from one particular approach appear to be at a great divergence from the other two, each phase of this approach should be reconsidered to account for the difference.
Greater weight, however, is generally given to one of the approaches over the other two, based on the quality of data in each.
The final conclusion of value is not an average of the three approaches to value. After giving full consideration to each approach, the appraiser uses judgment and reasoning to arrive at one conclusion. The greatest confidence is placed in the approach which seems to produce the most reliable solution to the specific appraisal problem, realizing that it must be reasonable and capable of being supported convincingly.
The final value conclusion should not be reported in odd dollars and cents. If the final answer approximates $1,000, the answer could be rounded to the nearest $100; if $10,000, to the nearest $500; if $50,000, to the nearest $1,000 or more.