What is correlation in appraising?

In appraising, the act of correlation is most accurately described as:

  1.  a rough estimate of the value of the property
  2.  an average of the values calculated by the 3 techniques of cost, market, and income approaches.
  3.  an average of the values of the comparable sales
  4.  a weighted analysis of the various values.

The answer is D.  In the process of appraisal, the data is run through three methods/techniques of analysis known as the market (also known as comparable sales), cost, and income approaches.

Each of those 3 methods gives us a separate value, and then those 3 values are correlated, or reconciled.

Remember and note that reconciliation is a synonym for correlation.

Once we get those 3 values, we go through the reconciliation process and then one final estimate of value is given to the client.

Note that reconciliation is not the averaging of the results from the three approaches, but rather each value is given an appropriate weight based on what is most appropriate for the property.

When reconciling the three values, the appraiser gives full consideration to each of the 3 approaches. But, based on the judgment and experience of the appraiser, he/she comes up with one value/price.

The reason that the values are not averaged is that for any given property, one of the 3 approaches to valuation is better and should be given more weight.