Reconciliation

The process of reconciliation by definition is a final resolution. This process is the next to last component of the valuation process, bringing various techniques and values into a single opinion of value. Reconciliation can encompass an array of valuation processes and is used when there is no clear cut way to determine the exact method appropriate to estimate the value of a particular piece of property.
The sales comparison approach, the cost approach, and income capitalization approach are the most common combined approaching when doing a reconciliation. These three approaches will have different weighted values depending on the different variables associated with a piece of property. For example, the income capitalization approach is less significant in the valuation of one-unit homes, but will be weighted the most when you are valuating multi-tenant office buildings. The cost approach has little effect when appraising a 60 year old house, but will be weighted more when considering the value of opening up a new business as opposed to purchasing an existing site. Lastly, the sales comparison approach is the only exception because it is usually applicable in all markets, but might suffer a bit in markets where data is hard to find for comparisons.
The emphasize of any appraisal report should be tailored to the market characteristics. The emphasis of different approaches should mirror the behavior of the current market participants. If a market relies heavily on comparable listings as the determinable value, then naturally the comparable sales would become the most heavily weighted approach. If the market happens to rely on cash flows, then the income capitalization approach is best served. If the market place compares existing properties to the cost of new construction, then the cost approach is undoubtedly the most significantly weighted approach. The reconciliation approach is used when the three approaches are not completely accurate in their own entirety.
The reconciliation approach helps with accuracy when it would be difficult to value using only one of the three approaches. The final estimate is not required to have a single point estimate, but clients prefer to have an exact number. Reconciliation allows for a more precise estimate because of the additional information provided by using all three approaches. Reconciliation is a valuable tool in real estate appraisal and should be used when data is not definitive or abundant in any one individual valuation approach.