What is an extraordinary assumption in an appraisal?

What is an extraordinary assumption in an appraisal?

An extraordinary assumption in an appraisal is a assumption made by the appraiser about a physical, legal, or economic aspect of a property that is crucial to the appraisal process but cannot be proven or verified. This is done when the appraiser lacks the necessary information to confirm the condition or legal status of the property.

What are some examples of extraordinary assumptions in an appraisal?

1. Assuming that the property does not have any hidden defects or environmental hazards.
2. Assuming that all necessary permits and approvals for the property have been obtained.
3. Assuming that the property is not in violation of any zoning laws or regulations.

How does an appraiser determine when to make an extraordinary assumption?

An appraiser makes an extraordinary assumption when there is insufficient information available to confirm a critical aspect of the property. This decision is based on the appraiser’s professional judgment and experience.

What are the risks associated with using extraordinary assumptions in an appraisal?

1. The appraisal report may be inaccurate if the extraordinary assumption turns out to be false.
2. The lender or client may question the validity of the appraisal if the extraordinary assumption is not clearly documented and explained.

Are extraordinary assumptions common in the appraisal industry?

While extraordinary assumptions are not used frequently in the appraisal process, they are sometimes necessary when essential information about a property is missing or unavailable.

Can an appraiser make multiple extraordinary assumptions in a single appraisal?

Yes, an appraiser may have to make several extraordinary assumptions in a single appraisal if multiple critical aspects of the property cannot be verified.

How can an appraiser protect themselves when making extraordinary assumptions?

Appraisers should clearly document all extraordinary assumptions made in the appraisal report and explain the rationale behind each assumption. This helps protect the appraiser in case of any disputes or challenges to the appraisal.

Can an appraiser be held liable for using extraordinary assumptions?

Appraisers can be held liable for using extraordinary assumptions if they are found to be negligent in making these assumptions or if they do not accurately document and explain them in the appraisal report.

What is the difference between an extraordinary assumption and an hypothetical condition in an appraisal?

An extraordinary assumption is used when there is a lack of information about a property, while a hypothetical condition is used when the appraiser is asked to consider a condition that is known to be contrary to fact.

How do lenders view extraordinary assumptions in an appraisal report?

Lenders may be cautious about relying on an appraisal that includes extraordinary assumptions, as they introduce an element of uncertainty into the valuation of the property.

Can an appraiser refuse to make an extraordinary assumption?

Yes, an appraiser has the right to refuse to make an extraordinary assumption if they believe it will compromise the accuracy and reliability of the appraisal report.

Are extraordinary assumptions typically disclosed to the client or lender?

Yes, extraordinary assumptions should be clearly disclosed to the client or lender in the appraisal report to ensure transparency and provide a complete picture of the appraisal process.

How can a borrower or property owner verify the extraordinary assumptions made in an appraisal?

Borrowers or property owners can request a copy of the appraisal report from the lender and review the disclosures made by the appraiser regarding any extraordinary assumptions. They can also consult with the appraiser directly for more information.

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