A residential property is located in a subdivision governed by covenants, conditions, and restrictions (CC&Rs) recorded in 1985. One CC&R prohibits detached accessory structures over 12 feet in height. The property currently has a 14-foot-tall detached garage built in 2012. No enforcement action has been taken. How should the appraiser reflect this violation in the appraisal report?
Correct Answer
D) Investigate the actual covenant status and report relevant condition and market effects
Describe the garage and potential conflict, verify applicability and current legal information, and analyze relevant market effects. Neither the covenant's age (recorded 1985) nor the absence of enforcement since 2012 proves the restriction expired or remains enforceable. A height covenant conflict is not by itself a physical boundary encroachment or a quantified depreciation allowance.
Why This Is the Correct Answer
Option D is correct because the appraiser should describe the garage and the potential conflict, verify the covenant's applicability and current status, and analyze any market effect. Neither the 1985 recording date nor the lack of enforcement since 2012 proves the restriction has expired or is still enforceable. Fannie Mae guidance calls for commenting on adverse site conditions and assessing their effect, if any, on value and marketability.
Why the Other Options Are Wrong
Option A: Deduct functional obsolescence for the garage height
Option A is wrong because it deducts functional obsolescence for the garage height without any market evidence of a loss. A covenant conflict is a legal issue whose effect, if any, must be supported by analysis, not assumed as a depreciation deduction.
Option B: Ignore it because of the covenant’s age
Option B is wrong because it ignores the violation due to the covenant's age. An older recorded covenant may still be in force, and the appraiser should investigate rather than disregard it.
Option C: Classify the structure as a property boundary crossing, without any survey or boundary evidence
Option C is wrong because it classifies the garage as a property boundary crossing without any survey or boundary evidence. A height restriction conflict is not an encroachment across a property line.
Verify, describe, measure the market
For a covenant conflict, verify its status, describe what you see, and let market evidence show any effect.
How to use: Use this when a question describes an improvement that may violate a recorded restriction.
Exam Tip
Avoid options that dismiss an issue because of age or that assign a loss without evidence.
Common Mistakes to Avoid
- -Ignoring an old covenant as automatically expired
- -Deducting depreciation without market support
- -Confusing a covenant violation with a boundary encroachment
Concept Deep Dive
Analysis
This question tests how an appraiser handles a possible CC&R violation. The appraiser should not assume the covenant is void because of its age or lack of enforcement, and should not invent a depreciation figure. The supportable approach is to investigate the covenant's status and report the condition and any market effect.
Background Knowledge
CC&Rs are private restrictions recorded against properties in a subdivision, and appraisers should be aware of them. Whether a covenant remains enforceable depends on its terms and applicable law, which is outside the appraiser's role to decide. The appraiser reports known conflicts and analyzes whether the market reacts to them.
Real-World Application
An appraiser notices a detached garage taller than the subdivision's CC&Rs allow. The appraiser notes the possible violation, asks the client for HOA or title information about enforcement, and checks whether comparable sales show any market reaction.
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