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  #1  
Old 02-24-2006, 12:37 PM
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Steve Owen Steve Owen is offline
 
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Default When is it really Extraordinary?

Extraordinary Assumption or Ordinary Assumption:

When doing a retrospective appraisal, it is normal procedure to use an extraordinary assumption that the property, on the date of appraisal inspection, is similar to what it was like on the date of appraisal, unless there is information to the contrary. It seems almost axiomatic that this would be an extraordinary assumption, defined in USPAP as:

“an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.” (Uniform Standards of Professional Appraisal Practice, 2005 Edition, The Appraisal Foundation, Definitions, Lines 85-86, p. 3.)

However, the question is when to draw the line between in “extraordinary” assumption and one that is quite ordinary. In the normal course of business, we make any number of assumptions, that could change our opinion if they were found to be erroneous. Some examples include the adequacy of utilities, legal use after cursory examination of zoning, and lack of adverse easement or encroachment based on visual inspection of the property and plat maps. I don’t believe most appraisers write EA’s to cover each of these conditions under normal circumstances; only when there is some doubt about one of these conditions would it be the usual procedure to write an EA.

In the course of doing a retrospective appraisal, the assumption would seem to almost automatically seem to be “extraordinary.” The appraiser cannot go back in time to see the property on the date of appraisal and if that property was found to be in significantly different condition than it is on the date of inspection, it would almost certainly change the appraiser’s opinion of value. But, the question is where to draw the line... if the retrospective date is one year ago, many changes in condition could have happened and an EA would seem to be necessary. But, what if the property was unimproved land? Then, significant changes would seem to be less likely. And how significant is the amount of time that has passed? If the retrospective date is six months ago, three months ago, or even last month would you still write an EA? If the retrospective date was yesterday an EA would seem to be foolish... you can look at the property today and make a very ordinary assumption that it is like it was yesterday. What if it was last week or a couple of weeks ago?

What do you say? Where would you draw the line on making an EA for a retrospective appraisal?
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  #2  
Old 02-24-2006, 12:45 PM
leelansford leelansford is offline
 
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The assumption (re: condition of Subject "back when") is an EA because it is not affirmatively stated within the usual assumptions to which your appraisals are subject to.

There's nothing "automatic" about it...it has to be stated. And, because it not an "ordinary" assumption, it has to be "extra"...

Just my $.02
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Old 02-24-2006, 03:55 PM
Hal Mann Hal Mann is offline
 
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I agree with what Lee said. To elaborate a little further: assumptions which apply to virtually every appraisal one does are ordinary and those that only apply to particular, specific assignments are extraordinary.
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Old 02-24-2006, 04:27 PM
Fred Fred is offline
 
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The “if found to be false could alter the appraiser’s opinion” is true of all assumptions; nothing extraordinary about that. The key criterion in my reading of it is “…directly related to a specific assignment.” If an assumption is common to an entire class of appraisals, rather than applicable to a “specific assignment;” it is ordinary. Assumed physical conditions are on every appraisal.

Also, I don’t think Uspap is explicit about the use of the term “extraordinary” per se. As long as the report meets the standard of being clear and makes assumptions obvious from the intended user(s)', the report should pass.

  #5  
Old 02-24-2006, 11:52 PM
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Isn't it essentially a "get out of jail free" card for specific items in specific assignments?

I think it was abused by many appraisers and that's why we have a 4th checkbox on the new fannie mae forms.
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Old 02-25-2006, 08:39 AM
Fred Fred is offline
 
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And another thing...

There is an additional reference. I am not comforable with this standards in part, because it is too specific. I read this to mean:
when the assumed property conditions derive from a "relaible" third party source, the assumption is not "extraordinary,"
when there is no reliable thrid party the assumption is extraordinary.

"If the necessary subject property information is not available because of assignment conditions that limit research opportunity (such as conditions that preclude an onsite inspection or the gathering of information from reliable third-party sources), an appraiser must:
  • obtain the necessary information before proceeding, or
  • where possible, in compliance with Standards Rule 1-2(g), use an extraordinary assumption about such information."
  #7  
Old 02-26-2006, 10:39 AM
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Thanks everyone. That's exactly the kind of feedback I was looking for. S. Santora found the logic I was trying to find... guess I had a case of oldtimers disease.
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  #8  
Old 03-01-2006, 10:40 AM
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Webbed Feet Webbed Feet is offline
 
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Mr. Owen,

One other small consideration too all in one word, "Liability" If a need to contain it is seen, use an EA for the unknown factor if no information on it can be, or will be, available.

Barry Dayton
  #9  
Old 03-01-2006, 01:46 PM
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Alan Simmons Alan Simmons is offline
 
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“When doing a retrospective appraisal it is normal procedure to use an extraordinary assumption”

Would not this be a HC? The date is a known condition of the value not an assumption.
  #10  
Old 03-02-2006, 03:00 PM
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Alan, the date is known, but the condition of the property on that date is not because the appraiser could not be there on the date of value to view the condition. It is condition that is an EA. I could not see that property on that date, but I believe the condition to be like it was on the date I did see it. That's an EA.

No HC is involved unless you are doing the appraisal subject to some other condition, such as subject to completion; these retrospective appraisals are normally not done subject to any such condition, although I have had a few where an HC was necessary.
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