A narrative appraisal report must include a detailed explanation of which valuation approach when it is not used?
Correct Answer
A) Any approach not used must be explained why it was excluded
Why this is correct: USPAP Standards Rule 2-2(a)(viii) requires that if a valuation approach is not used, the appraiser must explain the reason for its exclusion. This applies to narrative and other report types. Why the other choices are wrong: "Only the sales comparison approach" is too narrow; the rule applies to any approach (cost, income, sales comparison). "No explanation is required for unused approaches" violates USPAP. "All three approaches must always be explained in detail" is incorrect; they need only be explained if used, or an explanation given if excluded. Exam tip: For any report, if you don't use an approach, you must say why.
Why This Is the Correct Answer
Option C is correct because USPAP Standard Rule 2-2(a)(viii) specifically requires that when any of the three approaches to value is not developed, the appraiser must explain why it was excluded from the analysis. This requirement applies to narrative appraisal reports and ensures that the appraiser has considered all relevant valuation methods. The explanation demonstrates professional competence and provides transparency to the client and users of the report about the appraiser's decision-making process. This rule prevents appraisers from arbitrarily dismissing approaches without proper justification.
Why the Other Options Are Wrong
The EEE Rule - Explain Excluded Approaches
Remember 'EEE' - Every Excluded approach needs an Explanation. Think of it as 'No approach left behind without explanation' - just like you wouldn't leave a friend behind without explaining why, you can't leave an approach behind without explaining why it wasn't used.
How to use: When you see questions about reporting requirements and unused approaches, think 'EEE' and remember that USPAP requires explanation for any approach that is excluded from the analysis, not just development of the approaches that are used.
Exam Tip
Look for keywords like 'not used,' 'excluded,' or 'omitted' in questions about approaches - these signal that explanation requirements are being tested, and remember that USPAP always requires justification for exclusions.
Common Mistakes to Avoid
- -Thinking only certain approaches require explanation when excluded
- -Believing that if an approach isn't applicable, no explanation is needed
- -Confusing the requirement to explain unused approaches with the requirement to use all approaches
Concept Deep Dive
Analysis
This question tests understanding of USPAP reporting requirements for narrative appraisal reports, specifically the obligation to address all three approaches to value. The Uniform Standards of Professional Appraisal Practice (USPAP) requires appraisers to consider all three approaches - sales comparison, cost, and income - and provide justification when any approach is excluded. This requirement ensures transparency in the appraisal process and demonstrates the appraiser's professional competence in evaluating all relevant valuation methodologies. The standard recognizes that not all approaches may be applicable or reliable for every property type, but the appraiser must explain their reasoning for exclusion.
Background Knowledge
USPAP (Uniform Standards of Professional Appraisal Practice) establishes the reporting requirements for real estate appraisals, including specific standards for narrative reports. Standard Rule 2-2 outlines what must be included in appraisal reports, including the requirement to address all three approaches to value: sales comparison, cost, and income approaches.
Real-World Application
In practice, an appraiser valuing a single-family residence might exclude the income approach because the property is not typically purchased for investment purposes. The appraiser must explain this reasoning in the report, stating something like 'The income approach was not developed because single-family residences in this market are typically purchased for owner-occupancy rather than investment purposes, and reliable rental data is not available.'
More USPAP Questions
An appraiser is analyzing three comparable sales with the following data: Sale 1: $350,000 with +$10,000 adjustments; Sale 2: $340,000 with -$5,000 adjustments; Sale 3: $360,000 with -$15,000 adjustments. What are the adjusted sale prices?
A lender orders an appraisal for a $300,000 residential loan. After receiving the appraisal, the loan officer contacts the appraiser requesting that certain language be changed to better support the loan approval. This scenario represents a violation of:
How often must appraisers complete continuing education to maintain their license or certification?
Under FIRREA, which federal agency was given the authority to set minimum standards for real estate appraisers performing appraisals in federally related transactions?
How often must licensed and certified appraisers complete continuing education to maintain their credentials according to AQB requirements?
FIRREA was enacted primarily in response to which financial crisis?
In a narrative appraisal report, which section would typically contain the appraiser's analysis of highest and best use?
A narrative appraisal report for a commercial property must include detailed analysis of income, expenses, and capitalization rates. This level of detail is primarily required because:
Under the Dodd-Frank Act, which entity is responsible for establishing appraisal standards for federally related transactions?
In the URAR form, what does the appraiser indicate in the 'Subject' column for site size?
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