Definition of "Reconciliation"

Stephen Dunbar real estate agent

Written by

Stephen Dunbarelite badge icon

Keller Williams

What is reconciliation in real estate?

Both aspiring appraisers and wannabe real estate agents know the definition of reconciliation in real estate. In appraisal, it refers to the process of assessing the three major approaches - the market comparison, the cost approach, and the income approach - to arrive at an estimate of the value of the subject property being appraised. 

Many may mistake reconciliation for the process of calculating an average price at the end of the appraisal. Reconciliation is indeed the final step in a real estate appraisal, but it focuses on the approach most suitable for the type of property involved. So, the sales comparison will be taken into consideration if the price of a single-family house has to be established. The cost approach is more suitable for unique properties such as churches and stadiums, while the income approach is generally used for investment properties such as malls and office buildings. 

Each approach will generate a slightly different number, so the appraiser must rely on his/her experience, intuition and judgment to explain the differences and choose the final value of the property. While most home prices are estimated as a single dollar amount, there are cases when a range is also acceptable, which means that a property’s value is somewhere within that range. 

The appraisal is not complete without the report of defined value. This can be presented as a form report or a narrative report. The form is also known as the Uniform Residential Appraisal Report Form (URAR) or the Fannie Mae form - as preferred by most mortgagees. The narrative report is usually used in commercial real estate and contains more details than the form report. 

So, reconciliation is just a phase of the appraisal process. Of course, it is included in the total cost of the appraisal. According to the Appraisal Institute, the valuation process consists of eight steps. This means that reconciliation takes only 12.5% of the whole procedure. 

Example of reconciliation

In the city of Scottsdale Arizona, the real estate appraisal cost is lower for residential properties and higher for commercial properties. An appraiser may charge anywhere between $250 - $500 for dwellings, while the valuation of commercial properties costs between $2,000 and $10,000. Through reduction to absurdity, the cost of reconciliation alone would be in the $31.25 - $62.5 range for a residential property. However, it’s very unlikely that this cost will ever be included separately in the appraiser’s invoice. 

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

What’s the definition of real estate collateral? Could we say it’s like keeping a hostage? No, that would be relatively insensitive. But the idea is similar. In real estate, ...

Tax deduction for interest paid or accrued within the taxable year with respect to mortgage indebtedness. Interest is deductible on mortgages secured by principal and second homes. A ...

Directly enhancing the physical nature of the property such as renovating the building, installing a new driveway and parking lot, and gardening. ...

It is intended to stimulate private investment in distressed cities and urban counties by providing federal "seed money' to attract private funds for such projects as industrial parks and ...

Suppose you wish to become a legit professional in a specific domain. In that case, you have to get a license, an official permit, or a document. A license acknowledges your studies and ...

Trying to resolve a problem between two individuals up with some compromise or common ground. It occurs more often during times of poor economic conditions. An example is a creditor ...

Business that transforms an underdeveloped tract of land into plots ready for construction. ...

Charges billed for services rendered. They may be on a flat basis or on an hourly rate. ...

Process of developing an area by planning and building homes, shopping centers, schools or churches. The development process includes the construction of streets, sewers, utilities, parks, ...

Popular Real Estate Questions