Reconciling Value Indications in CRE Appraisal Reports: A Guide for Lender Reviewers

4 Star Mid-Rise Apartments, Suburban

Introduction

In commercial real estate (CRE) appraisals, the final opinion of value is rarely derived from a single number in isolation. Instead, appraisers consider multiple approaches to value – typically the Income, Sales Comparison, and Cost approaches – each yielding its own value indication. The process of reconciling these indications into one well-supported conclusion is a critical step in appraisal analysis and reporting. A credible reconciliation provides the rationale behind the final value, instilling confidence for lenders who rely on the appraisal. According to professional standards like USPAP, an appraiser must reconcile the quality and quantity of data in each approach and the relevance of the approaches to arrive at a credible value conclusion. For internal lender reviewers, understanding how a proper reconciliation is performed – and what it should include – is key to assessing appraisal quality.

This article provides an in-depth look at best practices for reconciling multiple value indications in CRE appraisals. We’ll explain the purpose and mechanics of reconciling the three approaches to value, discuss quantitative vs. qualitative weighting of conclusions, examine how to identify and handle outliers, and outline what reviewers should expect in terms of transparency, logic, and justification. Along the way, we include illustrative examples (such as value weighting matrices and outlier scenarios) to demonstrate concepts. The goal is to enhance appraisal review quality and decision-making confidence through a clearer understanding of the reconciliation process.

USPAP Standards and the Role of Reconciliation

USPAP (Uniform Standards of Professional Appraisal Practice) provides clear guidance on reconciliation that appraisers (and reviewers) should heed. In the development phase of an appraisal, Standards Rule 1-6 requires the appraiser to “reconcile the quality and quantity of data available and analyzed within the approaches used” and “reconcile the applicability and relevance of the approaches, methods and techniques used to arrive at the value conclusion(s)”. In simpler terms, the appraiser must analyze how good the data is in each approach and how appropriate each approach is for the assignment, then synthesize those findings into a final value. This reconciliation step is not optional – it is essential for ensuring the value opinion is well-founded and credible.

In the reporting phase, USPAP also expects transparency about the reconciliation. For example, in an Appraisal Report under Standards Rule 2-2(a)(viii), the appraiser must “summarize the information analyzed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions and conclusions”. This means the report’s reconciliation section should clearly lay out how the appraiser weighed the evidence from each approach and why the final conclusion was reached. For lender reviewers, these USPAP directives translate into concrete expectations: the appraisal report should contain a coherent narrative or analysis that ties together the different value indications and explains the final opinion of value in light of the evidence.

It’s worth noting that USPAP does not prescribe a specific formula or technique for reconciliation – it is largely an analytic and judgment-based process. One helpful definition of reconcile is “to bring into agreement or harmony; make compatible or consistent”. The reconciliation section of a report is exactly where the appraiser must bring the various analyses into harmony. USPAP’s emphasis on quality, quantity, applicability, and relevance of data highlights that reconciliation is about weighing the strength of evidence, not just averaging numbers. As we’ll discuss, simply averaging the results of different approaches is not considered proper reconciliation. Instead, the appraiser should communicate how each approach contributed to the final conclusion, using appropriate appraisal terminology (e.g. “most weight,” “secondary support,” “minimal reliance”) to describe their thought process.

The Three Approaches to Value and Their Indications

Before diving deeper into reconciliation mechanics, let’s briefly recap the three approaches to value commonly employed in CRE appraisals and why they might yield differing indications:

• Sales Comparison Approach: This approach derives value from comparison with recent sales of similar properties. The appraiser analyzes comparable sales transactions, adjusts for differences, and arrives at an indicated value for the subject. This approach reflects actual prices paid in the market and is often persuasive when ample comparable data exists. However, sales data may be limited for unique commercial properties or rapidly changing markets, and adjustments for differences can introduce subjectivity.

• Income Approach: This approach values the property based on its income-generating potential. For commercial properties (like offices, apartments, shopping centers), this is often done via direct capitalization (converting net operating income into value using a market-derived capitalization rate) or via a discounted cash flow analysis. The income approach is highly relevant when buyers primarily base value on expected income and returns (as is true for most income-producing CRE). Its accuracy depends on reliable income/expense information and market rates. In some cases (e.g., owner-occupied properties or those without stable income), the income approach may be less applicable.

• Cost Approach: This approach calculates value as the cost to build the property new, minus depreciation, plus land value. It’s often used as a check or for newer properties and special-use properties. In theory, a buyer wouldn’t pay more for a property than it would cost to buy the land and construct a similar building. The cost approach can be highly useful for new or proposed construction, where depreciation is minimal. However, for older properties or in markets where construction cost does not equate to value, this approach can diverge significantly from market value. Estimating depreciation (physical wear, functional obsolescence, external factors) is a key challenge in the cost approach and can lead to a wide value variance.

Each approach above could legitimately produce a different value estimate due to the differing perspectives and data used. For instance, it’s common in CRE appraisals to see the income approach yield one value, perhaps based on prevailing investor yield requirements, while the sales comparison yields another based on historical sale prices that might reflect different assumptions or buyer motivations. The purpose of reconciliation is to examine these multiple value indications and arrive at one final opinion of market value that is most supported. In essence, reconciliation asks: given all the evidence from these approaches, what number (or range) best represents the market value of the subject property? This final step ensures the appraiser doesn’t simply take the approaches at face value, but rather considers which approach (or approaches) provides the most credible indication for the subject and why.

Purpose and Mechanics of Reconciliation

The reconciliation process operates on two levels: first within each approach, and second across the approaches. At the intra-approach level, the appraiser reconciles data to reach a single value indication from each method. For example, within the sales comparison approach, there might be multiple adjusted sale prices from different comps – the appraiser must analyze these and reconcile them into one indicated value (often by giving more weight to the most comparable sales and explaining why). Similarly, an income approach might involve reconciling multiple valuation methods (say, direct cap and a multi-year discounted cash flow) or multiple market indications (different cap rate sources) into one concluded value for that approach. USPAP explicitly requires reconciliation at this level, instructing appraisers to “reconcile the quality and quantity of data available and analyzed within the approaches used” – in practice, that means discussing the strengths and weaknesses of the data inside each approach and how that influenced the intermediate value conclusion. For example, if three sales were used, are some sales considered more reliable than others? If so, the sales comparison reconciliation should say so and lean towards the best comparables. If the cost approach was developed, is the cost data from a reliable source and is depreciation estimated with confidence? These factors are part of the logic an appraiser should convey in the report.

At the broader level, final reconciliation is where the appraiser examines all approach indications together. Here, USPAP says the appraiser must “reconcile the applicability and relevance of the approaches, methods, and techniques used to arrive at the value conclusion(s)”. In other words, the appraiser considers which approaches were most meaningful and how much reliance each deserves in the final analysis. The mechanics of final reconciliation typically involve:

• Reviewing the Indicated Values: The appraiser lays out the value indication from each approach (e.g., “Sales Comparison indicates $5,000,000; Income Approach indicates $4,800,000; Cost Approach indicates $5,250,000”). It’s useful to also note the conditions or quality of each result – for instance, perhaps the sales comparison approach had plenty of recent data, whereas the cost approach had to rely on generalized cost data and heavy depreciation adjustments.

• Assessing Reliability: Next, the appraiser evaluates which approach produced the most reliable and relevant result for this property type. If, for example, the property is an older multi-tenant retail building with stable rent, the income and sales approaches might both be applicable. However, if sales of similar properties are scarce or vary widely, the sales comparison might be less reliable, whereas the income approach (grounded in the property’s actual income stream and investor expectations) might be more convincing. The appraiser would explain something to that effect. Conversely, for a new single-tenant building with a build-to-suit lease, the cost approach might closely mirror the sales and income values; but if the building is specialized or the cost approach yields an outlier value, the appraiser should state whether that approach is less indicative of market behavior. Key point: The reconciliation commentary should address each approach – either noting its contribution or why it was not used/not reliable. Simply ignoring an approach that was developed is a red flag; even if an approach is given minimal weight, the report should say so and justify it.

• Considering Approaches Omitted: If the appraiser chose to omit one of the standard approaches (which can happen in commercial assignments – e.g., omitting the cost approach for an older income property, or omitting the income approach for a unique owner-user property), the reconciliation (or earlier sections) should clearly state that and explain why. For instance: “The income approach was not developed because the property is a public school building leased at a nominal rate, making an income analysis not meaningful to market value.” Reviewer expectation is that any exclusion of an approach is disclosed and supported by reasoning, since USPAP requires all approaches necessary for credible results to be used (or their omission explained).

• Arriving at the Final Value: After weighing all approaches, the appraiser selects a final value (often rounding to a logical figure). This selection should logically fall within the range of the values indicated by the approaches, unless there is a compelling reason otherwise. In fact, the Fannie Mae Selling Guide explicitly states: “The final reconciled indicated value must be within the range of the values indicated by the approaches used in the appraisal”. If an appraisal’s final value is outside the range of its own approach indications, that is a glaring issue for reviewers – it implies the analysis is inconsistent or one of the approaches has errors. Generally, a sound reconciliation narrows down to a number that makes sense given all the evidence. For example, if one approach is much higher than the others due to known data limitations, the final value will likely lean toward the lower cluster of indications that are better supported. The appraiser might explicitly note that one method yielded an outlier value and thus was given little weight in the final conclusion.

Throughout this process, common sense and logical reasoning are paramount. One veteran appraiser put it succinctly: “Reconciliation is rarely a one-sentence throwaway.” It demands “judgment, common sense, presentation and intelligent analysis of relevant data, and logical conclusions”. For lender reviewers, the absence of a thoughtful reconciliation discussion is a cause for concern. A report that merely states, for instance, “The sales comparison approach is given greatest weight as it best reflects market participants; the income and cost approaches are supportive,” without further analysis may meet a bare minimum, but it doesn’t truly enlighten the reader on how the final number was decided. A strong reconciliation will usually reference specific factors – e.g., “Sales #1 and #2 were most comparable to the subject in location and required the fewest adjustments, so they were emphasized in the sales approach conclusion” or “The income approach was very consistent with the sales approach (only 2% difference), reinforcing the final value choice of $X.” The reconciliation should tie up any loose ends, address any disparities, and ensure the value conclusion is defensible and not a mystery to the reader.

Weighting Value Conclusions: Quantitative vs. Qualitative Approaches

One of the central tasks in reconciliation is weighting the different value indications. Weighting can be done qualitatively (described in words) or quantitatively (using numbers or percentages), or a combination of both. Regardless of method, the goal is to convey which evidence had the most influence on the final value and why.

Qualitative Weighting (Analytical Narrative): In many appraisals, the weighting is expressed in a narrative form without explicit percentages. For example: “Given the subject’s nature as an income-producing asset, the Income Capitalization Approach provides the most reliable indication of value. The Sales Comparison Approach supports this conclusion, though fewer truly comparable sales were available, so it is given somewhat less weight. The Cost Approach is given only minimal consideration due to the age of the improvements and difficulty accurately estimating depreciation in this market.” In this manner, the appraiser explains the hierarchy of approaches. The language “most reliable,” “supports,” “minimal consideration,” etc., signals to the reviewer how the value was derived (mostly from income approach in this example). This qualitative reasoning is crucial – it shows that the appraiser thought critically about each approach’s merits. Often, qualitative comments will reference the data quality (e.g., number of comps, how much adjustment was needed, reliability of cost data, etc.) and the market behavior (e.g., how typical buyers for this property type make purchase decisions) to justify weighting. For instance, if typical buyers base decisions on income potential, that’s a strong reason to favor the income approach in reconciliation.

Quantitative Weighting (Weighted Value Calculation): Some appraisers choose to go a step further and assign explicit weights (percentages) to each approach, essentially performing a weighted average to compute the final value. This technique can add transparency, as long as it’s done thoughtfully and explained. A Weighted Mean reconciliation can be useful to “quantify the mental process” of weighting different indicators. For example, suppose an appraisal of a commercial property resulted in these indications: Sales Comparison = $1,050,000, Income Approach = $1,000,000, Cost Approach = $1,150,000. After analyzing these, an appraiser might conclude the sales and income approaches are the most relevant (perhaps each is based on solid data), whereas the cost approach is less reliable (perhaps due to heavy depreciation for an older building). The appraiser could decide to weight the final conclusion, say, 45% Sales, 45% Income, and 10% Cost. This yields a reconciled value of about $1,045,000 (weighing the two primary approaches heavily and the cost approach lightly). Expressing it this way, with percentages, allows a reviewer to literally replicate the calculation and see the logic: indeed the final value is closer to the two better indications and not an arbitrary average.

Best practices for quantitative weighting include: (1) Only use it when it genuinely reflects your reasoning – the percentages should not be chosen at random, but based on relative confidence in each approach; (2) Always explain why each weight is assigned (“e.g., 40% weight to Approach A and B each, because those approaches had equally robust data, and 20% to Approach C which was less reliable”); and (3) Ensure the weights sum to 100% and the math is correct. If done correctly, this technique is allowed by major appraisal guidelines – for instance, Fannie Mae explicitly notes that while simple averaging is not acceptable, a weighted average with proper explanation is permissible in reconciliation. The emphasis is that the appraiser must include the “proper explanation” alongside any weighted math, so the numbers don’t appear arbitrary.

It’s important to stress that whether qualitative or quantitative (or both), simply averaging values without justification is a big no-no. As one appraisal article cautioned, “Reconciliations should not be an average of adjusted comparables – the average, the mean, [is] a dangerous weapon... certainly not with the small samples typically used in appraisals.” The reason is that blind averaging gives equal credibility to all data points, which is rarely true in practice. In most appraisals, some comps are better than others, and some approaches are more applicable than others. A conscientious appraiser will identify and highlight those differences rather than treating all inputs as equal. To quote another source: “All too often appraisers average these sales data rather than reconcile as to which sale has the most meaning relative to the subject and why.” So, the core best practice in weighting is: weight by merit, not by convenience. Use the weight to reflect the relative reliability, relevance, and quantity/quality of evidence behind each value indication.

In practice, many experienced appraisers use a hybrid approach: they qualitatively discuss the strengths of each approach and indicate which one(s) dominate the analysis, and they may also present a simple table or calculation as supporting evidence. For example, an appraiser might write that two approaches were equally convincing and the third lagged, and show a quick weighted calculation giving 50%/45%/5% weights, resulting in the final value (rounded). The commentary would then say, in effect, “Approaches 1 and 2 were given the vast majority of weight, which led to a reconciled value of approximately $X”. The reviewer reading this should feel the process was transparent and logical – they could follow the appraiser’s reasoning or even recalc the weighted average to verify the outcome.

Example: Weighting Multiple Approaches in Practice

Consider an appraisal of an office building that yielded the following value indications from the three approaches:

• Sales Comparison Approach: $10,500,000 (based on several comparable office building sales with adjustments). The data included three recent sales in the same sub-market, though one sale required large adjustments due to an inferior condition.

• Income Approach: $10,000,000 (based on capitalizing the property’s net income at a market cap rate). This approach was well supported by actual rent rolls, a stable occupancy, and multiple market sources for cap rates.

• Cost Approach: $11,500,000 (based on land value plus replacement cost new less depreciation). The replacement cost was derived from a cost manual, and the building is 20 years old, requiring significant depreciation adjustments which were somewhat subjective.

In the report’s reconciliation, the appraiser might reason as follows: The income approach is very reflective of how typical investors value an office property (by income and return on investment), and in this case the income data is strong; thus, it’s a highly reliable indicator. The sales comparison approach also provides a reliable value, coming in slightly higher; the sales data is generally good, though one comparable sale was in superior condition (leading to a higher adjusted value). The cost approach resulted in the highest value, but the appraiser notes it is “less reliable due to the difficulty of estimating accrued depreciation for a 20-year-old building and the use of generic cost data”. Consequently, the appraiser gives the cost approach only minimal weight – treating it more as a check. The sales and income approaches, by contrast, are given primary weight. Quantitatively, the appraiser might assign, say, 50% weight to the Income Approach, 40% to Sales Comparison, and 10% to Cost, to reflect their confidence in each. The weighted reconciliation would compute to roughly $10.3 million, which the appraiser rounds to a final value conclusion of $10,300,000. This final value lies between the sales and income indications (within the range, not exceeding the highest or dropping below the lowest) and closer to the two approaches deemed most reliable. In the narrative, the appraiser explains: “Greater emphasis was placed on the Income and Sales Comparison Approaches, given the abundant market evidence from leases and sales. The Cost Approach, while considered, was less indicative of market value for this older property and was accorded only supportive weight.” This kind of reconciliation not only yields a defensible number but clearly communicates to the reviewer how and why that number was chosen.

Identifying and Managing Outliers in Data

In reconciling value indications, appraisers and reviewers must pay special attention to outliers – data points that deviate significantly from the rest of the evidence. Outliers can arise within a set of comparables or even among the different approach results. If not properly addressed, outliers can mislead the analysis or result in an unsupported value opinion.

Outliers in Comparable Sales Data: When analyzing sales for the sales comparison approach, it’s common to find one sale that, after adjustments, stands out as much higher or lower than the others. This could be due to any number of reasons: an atypical buyer or seller motivation, a unique property feature, a transaction that wasn’t arm’s-length, or simply an error in data. Best practice is to scrutinize such outliers to determine if they truly represent market value. An appraiser might find, for example, that the highest sale was to a buyer with a special interest (perhaps a neighboring owner willing to pay a premium – the “I just gotta have it” scenario), or conversely a low sale was a distressed sale. If a sale doesn’t meet the definition of market value (which assumes a typical, well-informed, arm’s-length transaction), it may not be a reliable indicator of value. In a forum of appraisers discussing outlier comps, one appraiser put it this way: “The market value definition is our friend – it references the most probable price a typical buyer would pay. Why would a typically motivated buyer pay considerably more for one property if similar ones are available for less? Either the property is truly superior or that buyer is atypical… If the buyer is not typically motivated, that sale is not a reliable market value indicator.”

In practice, if an outlier sale is truly not comparable or indicative of the broader market, the appraiser has a couple of options:

• Exclude it from analysis: If it’s clear the sale is an apples-to-oranges situation, some appraisers will omit it entirely. However, they should still disclose it if it’s a recent sale of the subject or a very similar property – explaining why it’s not used. For example: “Sale X, although very similar physically, sold for a price far above the range of other sales due to an unusual buyer motivation (developer assemblage). It has been excluded from the primary analysis as it does not reflect typical market behavior.” Not mentioning a known outlier at all can be a mistake, especially if the client or reviewer is aware of it. Transparency is key.

• Include but down-weight it: Alternatively, the appraiser might include the sale in the grid for transparency, but then clearly state in reconciliation that it’s given minimal weight. For instance: “Comparable 5 yielded a much higher adjusted price ($220/SF) than the other sales (which ranged from $180–$200/SF). Upon investigation, Comp 5 involved a buyer paying a premium for strategic reasons. Therefore, while it is presented, it is not considered a primary indicator of value for the subject.” This approach shows the reviewer that the appraiser didn’t ignore the sale (which could be important if the sale is well-known in the market), but also that they recognized its anomaly.

Outliers in Value Approaches: Outliers can also appear when comparing the value indications from different approaches. It’s not unusual for one approach to diverge significantly. For example, the cost approach might produce a notably high value compared to the income and sales approaches for an older property (often because reproduction cost new is high, but true market value is dragged down by obsolescence that’s hard to quantify). Conversely, in some cases a poorly supported income approach (perhaps using optimistic rent or cap rate assumptions) could overshoot what sales indicate. When one approach is an outlier, the appraiser should acknowledge that and usually will rely more on the other approaches. The reconciliation should address it directly: e.g. “The cost approach result of $15 million exceeds the indications by other approaches. This is attributed to the subject’s significant functional obsolescence which the cost approach cannot adequately capture. As such, the cost approach is given little weight in the final analysis.” By doing so, the appraiser demonstrates critical thinking and prevents the outlier from skewing the conclusion. The final reconciled value should not be unduly influenced by anomalous results. Instead, it should be grounded in the weight of evidence from the approaches that best reflect market behavior for the asset type.

From a reviewer’s perspective, you should check that the appraiser has identified any apparent outliers and dealt with them rationally. Red flags include: an extremely wide adjusted sale price range that is never commented on, a final value that hugs an outlier approach value with no explanation, or the use of a comp that seems fundamentally different (e.g., a sale in a different market or with unusual terms) without justification. On the other hand, positive signs are comments such as “Comparable 3 is an outlier due to… [reason] …and was treated accordingly,” or “Approach B yielded a much lower value because [explanation]; therefore greater reliance was placed on approaches A and C.” Effective appraisal reports often include a table or analysis in an addendum that shows the distribution of indicators (like a summary of each comp’s adjusted value, perhaps highlighting which one is highest/lowest) to illustrate how the range was handled. If formal statistical tools were used to detect outliers in a larger dataset, those could be mentioned as well (though in most single-property appraisals, data sets are small, so statistical outlier tests are less common – it’s usually a judgment call).

Example: Outlier Comparable Sale Scenario

Imagine an appraiser is valuing a vacant commercial site intended for development. They find five recent land sales in the area. Four of the sales cluster tightly in price, ranging from $8.00 to $9.50 per square foot after adjustment for minor differences. However, the fifth sale stands out – it transacted at $15.00 per square foot, much higher than the rest. Upon investigation, the appraiser discovers this outlier sale was bought by a national fast-food chain for a flagship store, and the buyer paid a significant premium for a prime corner location (far above what local developers typically would). Moreover, it turns out this sale involved the buyer assembling multiple parcels, suggesting an atypical motivation.

In the appraisal analysis, the appraiser includes this sale to be thorough, but makes note of its special circumstances. The sales comparison grid shows its adjusted unit price is nearly 60% higher than any other comp. In the reconciliation of the sales approach, the appraiser writes: “Sale #5 (adjusted $15.00/SF) is significantly higher than the rest of the market data. This sale involved an out-of-market buyer (national chain) paying a premium for a strategic location, and thus is not reflective of what a typical buyer would pay for the subject. Therefore, primary emphasis is placed on Sales #1–#4, which indicate a value in the mid $8/SF range for the subject. Sale #5 is considered an outlier and given little weight in the final analysis.” The appraiser’s final reconciled land value per SF might be around $8.75, well supported by the four normal sales.

For a lender’s reviewer, this treatment is appropriate: the appraiser identified why the one sale was abnormal relative to market value, and explicitly managed that outlier by not letting it inflate the value conclusion. In contrast, had the appraiser simply averaged all five sales, the result might have been around $10/SF – a value clearly skewed by the one outlier. That would be a less defensible conclusion, and a reviewer would likely question it. This example underscores the importance of a thoughtful reconciliation: by addressing outliers head-on, the appraiser arrives at a value that reflects the “most probable price” in the market (which is the essence of market value), not a naive average of data points.

Reviewer Expectations for a Credible Reconciliation

An appraisal report’s credibility often hinges on the clarity and logic of its reconciliation. As an internal lender reviewer, you should look for certain qualities in this section that indicate the appraiser has done a thorough, professional job:

• Clarity and Specificity: The reconciliation should be more than boilerplate. Phrases like “all approaches were considered” or “the approaches are in agreement” alone are not sufficient. Look for specific commentary about the data and approaches. For example, does the appraiser mention which comps were strongest or why one approach is more applicable? A good reconciliation “paints a picture” of how the evidence leads to the final value, rather than leaving the reader to infer it. Each approach used should be discussed, and any approach not used should be noted. If the report simply states a conclusion with no discussion, that’s a red flag; it deprives the reader of understanding the appraiser’s logic.

• Logical Consistency: The final value should make sense in context of all that has come before. This means two things: (1) Numerically, the final value should lie within the range of the approach indications (as previously noted, going outside that range without explanation violates fundamental guidelines). And (2) qualitatively, the final value should align with the appraiser’s own analysis. For instance, if throughout the report the appraiser emphasizes how strong the income approach data is, but then the final value completely disregards the income approach indication, something is off (unless explained). Or if the appraiser noted one comparable sale as superior to all others and even higher in price, but then concludes a value above that comp with no rationale, that would break logical continuity. As a reviewer, cross-check the reconciliation against earlier sections: do the points raised in the reconciliation align with the detailed analysis of comps, income, cost, etc.? A well-done report will not introduce brand-new assertions in the reconciliation that weren’t hinted at before. Rather, it concludes and synthesizes the evidence already presented.

• Transparency in Weighting: If the appraiser used a weighting strategy, is it clearly explained or shown? The reconciliation section should explicitly state which approach was given most weight and which was secondary, etc., and provide reasons for those weightings. If a weighted average calculation was used, the appraiser should reveal the weights (or at least the outcome of such weighting) so the reader isn’t left guessing. A reviewer appreciates when an appraiser spells out, for example, “Approach A was given approximately 70% weight and Approach B 30% in arriving at the final value, due to the relative depth of data available for each.” This level of detail allows the reviewer to follow the appraiser’s methodology step by step. On the other hand, if an appraisal simply plucks the final value out of thin air (e.g., it doesn’t match any single approach and there’s no explanation of weighting), that’s problematic. It’s not the reviewer’s job to assume how the appraiser got there; the report should show its work.

• Dealing with Discrepancies and Outliers: As discussed in the prior section, the reconciliation should address any big discrepancies. Reviewers expect commentary on wide ranges or outlying data. For example, if one approach came in 20% higher than another, the appraiser should mention that and explain which one is more indicative and why. If there was a comp with a far different value, the reconciliation (or the sales analysis section) should note how it was treated. A lack of mention suggests the appraiser might have overlooked the issue or, worse, might be trying to obscure conflicting evidence. Transparency is the antidote: acknowledging issues and explaining them builds credibility.

• Justification of Final Opinion: Ultimately, the reconciliation must justify the final value opinion in a manner that a reader finds convincing. The appraiser’s stated reasoning is critical. Look for justifications that reference market behavior, data reliability, and the appraisal’s specific findings. For instance: “Investors in this market are currently most focused on cash flows; thus the income approach (direct capitalization) is given predominant weight, as it best reflects buyer sentiment. The sales comparison approach, producing a similar value, reinforces this conclusion. The final value of $5,000,000 is positioned slightly below the sales comparison indication, reflecting the subject’s slightly below-average condition relative to the sales.” A rationale like that ties together market logic with the analysis performed. By contrast, a weak justification might be something like, “Final value is mid-point of the three approaches” with no further explanation – that would be inadequate in the eyes of most reviewers, and indeed Fannie Mae and USPAP guidance caution against simple midpoint or averaging techniques.

• Compliance with Standards and Guidelines: Reviewers also must ensure the reconciliation meets any specific requirements from their institution or secondary market guidelines. For example, as noted, Fannie Mae expects the appraiser to “select and report the approach or approaches that were given the most weight” and to avoid undisclosed averaging. Many bank review departments have checklists that include items like “Does the appraisal report contain a reconciliation that addresses all approaches and supports the final value?” If the report is USPAP-compliant and follows common guidelines, the reconciliation should naturally satisfy these checkpoints. On the flip side, if a report’s reconciliation is scant or missing, it might not just be a stylistic issue – it could be a compliance issue (violating Standards Rule 1-6 or 2-2). In such cases, a reviewer might require the appraiser to provide an addendum or revision.

• Overall Professional Tone and Insight: A high-quality reconciliation often reads almost like the appraiser’s conclusion in a narrative – it should give the sense that the appraiser has surveyed all the evidence and is confidently guiding the client to the final answer. The tone should remain professional, analytical, and unbiased. Watch out for any signs of advocacy or manipulation (e.g., giving unwarranted weight to push a value toward a target). Most appraisers uphold neutrality, but a reviewer’s critical eye is meant to catch any lapse. Generally, if the reconciliation is well-reasoned, even if the value is not what the client “hoped” for, it will be respected because the logic is laid bare. A transparent reconciliation builds trust – it says to the user, “We’ve considered everything carefully, and here is how we reached this value.”

In summary, as a reviewer you should expect the reconciliation to be a logical finale of the appraisal report: tying together loose ends, highlighting key evidence, and clearly stating how multiple analyses merged into one conclusion. It should reinforce your confidence in the value opinion. If it does the opposite (raises new questions or seems to gloss over important issues), that’s a sign further clarification or critique may be needed.

Conclusion and Key Takeaways

Reconciling multiple value indications is both an art and a science, requiring the appraiser to blend quantitative analysis with qualitative judgment. For lender reviewers, understanding what a sound reconciliation looks like is vital for effective appraisal review. A well-executed reconciliation underpins the credibility of the entire appraisal by demonstrating that the final value is not arbitrary, but rather the product of careful consideration of all approaches and data.

Key takeaways for appraisal reviewers include:

• Ensure USPAP-Compliant Analysis: Check that the appraiser has reconciled each approach’s data internally and all approaches collectively to arrive at the value, as required by USPAP. The report should explicitly comment on the quality and relevance of the evidence in each approach and how that influenced the final outcome. Lack of such commentary may indicate a USPAP compliance issue or simply a weak analysis.

• Look for Logical Weighting (No Blind Averaging): The reconciliation must not be a blind average of values. Instead, the appraiser should weight the approaches based on their credibility – whether done in narrative form or with percentages. If a weighted average method is used, it needs to include a clear explanation. Qualitative statements about which approach was given more weight (and why) are essential if no numerical weighting is shown. The final value should logically fall within the range of the approach indications and be closest to the approach(s) deemed most reliable.

• Identify Treatment of Outliers: Outlier sales or approach results should be identified and addressed. A good appraisal will not simply include an outlier without commentary. Look for explanations such as why a certain sale was an anomaly and how it was weighted or excluded. If the report ignores an obvious outlier, that’s a point to question. An appraisal that handles outliers transparently (e.g., “Sale A was significantly higher than others due to unique buyer motivation and was therefore given minimal weight”) demonstrates due diligence and sound judgment.

• Expect Transparency and Justification: The reconciliation should read like a justification of the final value using facts and logic. It should reference data (e.g., comparables, cap rates, costs) and analysis results (e.g., adjusted ranges, indicated values) to support why the final value opinion is what it is. Phrases highlighting logic – “provides a benchmark for the lower end of the value range… logically the opinion of value would be greater than $X… therefore the appraised value would not exceed $Y” – are indicators that the appraiser is reasoning through the conclusion for the reader. As a reviewer, you should come away from the reconciliation with a clear understanding of the appraiser’s thought process and agreement that it is reasonable.

• Demand Consistency and Credibility: The reconciliation is a checkpoint for the appraisal’s overall consistency. The final value should not be a surprise or feel unsubstantiated given the rest of the report. If anything seems inconsistent (like suddenly discarding a value indication without explanation, or concluding outside the indicated range), it undermines credibility. A credible reconciliation, on the other hand, boosts confidence – it shows that the appraiser has cross-examined their own work and that the conclusion is well-grounded in the data and approaches presented.

By prioritizing thorough and well-reasoned reconciliations, appraisers provide greater clarity to their clients and lend confidence to users of their reports. For internal lender reviewers, sharpening your focus on this section of the appraisal will enhance your ability to detect both strengths and weaknesses in valuations. A strong reconciliation is often the mark of a diligent appraisal, one where the appraiser didn’t just mechanically fill out forms but truly thought about the value from multiple angles. In turn, reviewing with an eye for reconciliation quality will improve appraisal review effectiveness and help ensure lending decisions are based on solid valuation conclusions. In the end, transparency and analytical rigor in reconciliation benefit everyone – appraisers, reviewers, and lenders alike – by reducing uncertainty and fostering trust in the final value opinion.

October 15, 2025, by a collective authors of MMCG Invest, LLC, multifamily feasibility study consultants.

Sources:

• Uniform Standards of Professional Appraisal Practice (USPAP 2024 Edition) — The Appraisal FoundationStandards Rules 1-6 and 2-2(a)(viii): reconciliation requirements and reporting of reasoning.

• Appraisal Institute, The Appraisal of Real Estate, 15th Edition (2020)Chapters on reconciliation, weighting, and data reliability.

• Appraisal Institute, Review Theory and Procedures, 3rd Edition (2019)Reviewer framework for assessing credibility of reconciliations.

• Fannie Mae Selling Guide (B4-1.3-09: Reconciliation of the Three Approaches to Value)Guidance that final values must fall within the range of approach indications; no simple averaging.

• Interagency Appraisal and Evaluation Guidelines — Federal Financial Institutions Examination Council (FFIEC, 2010)Defines supervisory expectations for reconciliation and reviewer validation.

• The Appraisal Journal – Selected Articles:

  • “Weighting the Approaches to Value: A Quantitative Perspective.”

  • “Reconciliation: The Art of Judgment.”

• OCC Comptroller’s Handbook – Commercial Real Estate Appraisal and Evaluation (2021)Regulatory guidance on evaluating reconciliation logic and data consistency.