Determine which valuation conflicts need resolution before approval.
When an income analysis and comparable sales suggest different values, the financing team should identify the source of the disagreement before choosing a number. The conflict may concern the property interest, effective date, income definition, occupancy, condition or evidence quality. Averaging two incompatible indications produces a precise answer without resolving the underlying problem.
The interagency appraisal guidance, section IX calls for reconciliation of applicable valuation approaches. The lender-facing register below organizes factual questions for that process. It does not substitute for an appraiser’s reconciliation or authorize a borrower to rewrite an appraisal.
Establish a common basis
Consider a hypothetical 50,000-square-foot industrial property. The financing model capitalizes $500,000 of annual income at 6.25%, producing $8 million, or $160 per square foot. A sale summary appears to support $200 per square foot, producing $10 million. At an assumed 65% LTV, the apparent loan difference is $1.3 million.
Before treating the $10 million figure as stronger collateral support, inspect what the comparable sold. Suppose its $10 million recorded consideration included $600,000 of separately identified equipment and $400,000 of adjacent excess land. Removing those components leaves $9 million associated with the building and its necessary site, or $180 per square foot. This allocation itself needs reliable support; the borrower should not simply select deductions that produce a preferred result.
The remaining $1 million difference from the income model is still meaningful. The corrected sale indication would correspond to a 5.5556% capitalization rate on $500,000 of income. Alternatively, a $9 million value at 6.25% would require $562,500 of income. These reverse calculations identify the disputed assumption: approximately $62,500 of annual income, a different return assumption, or some combination.
Create an evidence-conflict register
| Conflict | Evidence to request | What would resolve it | What would not resolve it |
|---|---|---|---|
| Sale includes other assets | Purchase allocation and transaction support | Supported real-property component | Dividing total price by building area |
| Different occupancy | Rent roll at each effective date | Comparable treatment of vacant space | Today’s occupancy applied to an older sale |
| Different income basis | Expense and reimbursement detail | Consistent cash-flow definitions | Matching the NOI labels only |
| Different condition | Capital work and inspection records | Supported adjustment or explanation | Assuming new and older roofs are equivalent |
| Different property interest | Leases and ownership description | Same interest or explicit adjustment | Treating leased fee and vacant fee simple as identical |
| Different market timing | Sale date and relevant evidence | Supported time analysis | Applying an arbitrary annual appreciation rate |
Assign each issue a document source and decision owner. Some are factual corrections; others require valuation judgment. Keep that distinction visible so a missing survey does not become a debate about capitalization rates.
Test whether the conflict changes the credit decision
Assume a requested $5 million loan and cash flow of $500,000. At a hypothetical 1.25 DSCR and 8% debt constant, cash-flow capacity is $5 million. The $8 million income indication supports $5.2 million at 65% LTV. The corrected $9 million sales indication supports $5.85 million. Either value indication exceeds the request under these simplified tests.
The conflict still deserves proper resolution, but it does not automatically change the requested proceeds. If the request instead is $5.6 million, the $8 million indication supports only $5.2 million and the cash-flow test still caps proceeds at $5 million. Raising the value conclusion alone would not solve that request.
This is why the register should include “credit consequence.” An unresolved fact may affect proceeds, reserves, future collateral monitoring or the credibility of the entire report. A low immediate proceeds impact does not make unreliable evidence acceptable; it helps the team focus the decision without overselling what a revised value could accomplish.
Keep underwriting income and appraisal income separate
Suppose the lender deducts a $30,000 reserve allowance that is not included in the appraiser’s capitalized income. Accepted lending cash flow would be $470,000 even if the appraiser’s income remains $500,000. At the same assumed DSCR and debt constant, loan capacity becomes $4.7 million.
That difference is not necessarily an error in either analysis. The two measures may serve different purposes. Ask for the definition and treatment of each line, then preserve a bridge from property operations to each conclusion. Do not change the appraisal’s income merely to make it match the loan worksheet.
Submit questions rather than a target
A useful review package contains the exact report page, the factual issue, the supporting record, the date of that record and the requested clarification. It can show the financing consequence in a separate lender worksheet without demanding an appraisal value that produces a desired loan.
If new evidence supports a different conclusion, retain both the original and revised versions and explain what changed. If the appraiser concludes that the original treatment remains appropriate, preserve that explanation as well. The objective is an intelligible chain from evidence to valuation judgment to lending constraint. The strongest submission makes disagreements testable rather than presenting the highest available number as the answer.
Sources and evidence
- Federal Reserve — Interagency Appraisal and Evaluation GuidelinesVIII Minimum Appraisal Standards; IX Appraisal Development; XIV Validity; XV Review; Appendix D · Checked 2026-10-21 · Valuation principles in bank supervisory context only; historical numerical appraisal exemptions in this document are not relied upon as current law.
Source dates and applicability matter. Report an error or a changed source.