Assumption Vs. Extraordinary Assumption

[Austin]

The best way to address this question is with examples.

• The appraiser assumes the property is in average condition.
• The appraiser assumes there no unrecorded easements, leases, or deeds and that the owner has a fee simple interest in the property as the present tenant is in a carry over status.
• The appraiser assumes there are no unusual conditions affecting the economic characteristics of the property such as special assessments or other unusual and unapparent features that would significantly affect potential income or expenses.
• The appraiser assumes normal market conditions unaffected by external conditions such as a change or shifts in interest rates, more liberal conditions of sale, special incentive financing programs, etc.
• The appraiser relied on physical characteristics and measurements of the subject and comparable property from public records, published data sources, and local brokers. The appraiser assumes the data is essentially correct because it was not possible to verify by other means.

If any of these items are found to be false the error could alter the appraiser’s opinions and conclusions. All of these items are related to a specific assignment conditions and there is generally a reason for stating the assumption. For example, in a drive-by some condition must be assumed. Sometimes there is a question about the legal status that needs to be clarified like a holdover tenant or a question about the lease. Sometimes there are off site conditions that must be addressed. For example, in our local economically depressed area there are huge incentives to industrial and commercial development and there are enterprise zones that will pay up to 30% of the development cost of buildings. When appraising this type property the appraiser has to made big assumptions regarding these conditions and incentives and the integrity of sale data clouded because you are never sure what exactly was involved or what was promised.
You have to carefully frame the conditions of the assignment with extraordinary assumptions. In my view the greatest thing that ever happened to the appraisal profession was the new scope of work rule and the significance given to extraordinary assumptions and hypothetical conditions. These conditions were always there and in play, but they never were put in the spot light and on center stage where they belonged.

 

[moh malekpour]

I must then assume that the normal assumption is one that, if found to be false, would not change the appraiser's opinion.

Brad,
Let me ask you a question about your assumption of the assumption. Suppose I inspected the interior of a property and looked at eveything on the surface that was accessible and found nothing wrong and I had no reason to belive that there was any damage inside the walls as there were no signs or indication and I mentioned it on the limited conditions and assumptions that I assumed there was nothing wrong inside the walls because I didn't inspect inside the wall as I was not qualified to do so but later on a physical inspector found out that there were some damages inside the wall that were hidden from me.and the homeowner or inspector or the lender notified me about the hidden damage and then it became apparent to me that my assumtion was false. Should I change my opinion of value based on that discovery or not?

 

[Mike Garrett RAA]

Back to USPAP 101....

Extraordinary Assumption..."thought to be true, but if it isn't, I have the right to change my value opinion'.

Often confused by a Hypothetical Condition..."something that is known to be false but assumed for purposes of the appraisal".

My words...but they work ... for me.

 

[Atlanta CG]

Believing all blonds are fun is an assumption.
Marying one still believing they are fun is an extraordinary assumption.

 

[Webbed Feet]

Mr. Zappia and Mr. Andrade,

Ever since the inception of USPAP there has been a lot of scrambling going on to explain clearly what should have been explained in USPAP's very first version. In attempting to teach others I feel many people have tried to boil down the complex to a simple 60 second answer. Only I personally do not view some of these answers as correct just because the powers that be want to agree on them as the answers.

Assumption: that which is taken to be true.

Now everyone is adding words to this definition in a struggle to communcate. We now have "Standard Assumptions", "Ordinary Assumptions", "Average Assumptions", "Normal Assumptions" "Simple Assumptions", and "Typical Assumptions." .. I would like to put forth that none of these new assumption types are defined in the USPAP manual. People are making up terminology that, at this point, does not exist.

We have normally well informed appraisers and instructors stammering for an answer to this. But until it appears "preprinted" in the USPAP manual I do not accept their answers. When an act falls perfectly under a written definition within USPAP it falls under that definition regardless of the fact it was mislabeled and used on some preprinted form. Declaring preprinted forms, provided by anyone, to be what is used virtually in all appraisals is completely misleading to facts. It seems to me a great many appraisers accept private work they do not report on a preprinted form. This is where the term "Narrative" generally came from in the first place. Additionally, suggesting that a form's preprinted language in some manner does NOT apply to the specific assignment at hand is just very myopic thinking in my mind. I say it certainly does apply to ONLY the specific assignment undertaken. Once a form appraisal report is signed I wish other people luck attempting to claim the preprinted language in it applied to something else, other than that specific assignment completed, and not to that assignment. So much for "Assumptions" being "Standard", because they are preprinted. As if preprinting somehow means the assumptions do not address the specific assignment as per the definition of Extraordinary Assumption within USPAP.

My viewpoint is these preprinted forms are in fact including assumptions that are Extraordinary because they match the definition of that in USPAP. Only the forms are failing to recognize them as that and state they are. After my grandmother passed away the estate obtained three appraisals and it was later found that at the time of all three effective dates there was a cloud on title that completely prevented the real estate from being able to be sold. It took months and thousands of dollars in legal costs to clear it up. When real estate cannot be sold I would say there is a definite affect on it's market value as of any appraisal's effective date that assumed what is said in assumption #1 on the Fannie preprinted forms. This event just happened to perfectly match the definition in USPAP of a Extraordinary Assumption in my opinion. Statement of Assumptions #1 was later found to be false, it affected all of the specific assignments, and undoubtedly would have changed every one of those appraisers opinion of value, as of their effective dates, if they had known. In fact, all of the appraisers would have been forced to invoke Hypothetical Conditions to have completed their assignments at all if they had been knowlegable of that cloud on title. Because, just exactly what is the market value of real estate that legally cannot be sold as of a certain effective date that market value is to be opined?

The above makes a good example that an "Assumption", as defined in USPAP, is very hard to find indeed. An example of one could be a client informing you at engagement the purpose of the appraisal is for a refinance of the property. Based on the assumption this information is true you prepare the report for a refinance. A week later the client comes back and informs you the appraisal is now for a purchase transaction and demands your analysis of the purchase contract they never gave you. This situation, in theory, should not change your opinion of market value on the effective date one iota. You took it to be true the purpose was for a refinance. Nothing should alter your opinions or conclusions in this case. Perhaps an assumption that "Exterior colors rarely effect value or marketability in this market." might be a good one. Most appraisers do not have massive market studies proving this one way or the other, and those rare contrary cases are normally just that, rare. So this could be taken to be true, and "rarely" proven otherwise.

Maybe if our industry stops trying to label preprinted form assumptions, that happen to perfectly match the USPAP definition of "Extraordinary Assumption" as it is written, to be "Standard", "Ordinary", "Average", "Normal", "Simple", and "Typical"; acknowleges them to in fact be "Extraordinary Assumptions" that are preprinted on the forms; .... then maybe it would not be so confusing when people read them and note they absolutely match the definition of "Extraordinary Assumption" and now these people have no idea what a "assumption" is then.

Barry Dayton

P.S. Either the above or get busy and change the written definition of "Assumption" in the USPAP manual to mean virtually any preprinted assumption made in any preprinted form and state they all can also be called "Standard", "Ordinary", "Average", "Normal", "Simple", and "Typical." .. Only this may leave a issue when an appraisal is not reported using a preprinted form huh?