At a prospective effective date, rezoning approval is uncertain. A reasonable supported extraordinary assumption is appropriately used that it will be approved by that date. What reporting statement is required?
Correct Answer
A) Clear disclosure of the assumption and that it may have affected results
The effective date and known facts determine whether the premise is an extraordinary assumption or hypothetical condition. For an expressly uncertain fact at a prospective effective date, a supported extraordinary assumption must satisfy the use conditions and be clearly disclosed with a statement that its use might have affected results.
Why This Is the Correct Answer
Option A is correct because USPAP requires the report to clearly and conspicuously state all extraordinary assumptions and hypothetical conditions and state that their use might have affected the assignment results. Here the uncertain rezoning approval is a supported extraordinary assumption, so both statements are required.
Why the Other Options Are Wrong
Option B: The rezoning application number, provided in place of any assumption disclosure
Option B is wrong because providing the rezoning application number in place of the assumption disclosure does not meet the requirement. An application number may be useful detail, but it does not state the assumption or that its use might have affected results.
Option C: A written endorsement of the assumption from the zoning authority
Option C is wrong because a written endorsement from the zoning authority is not a USPAP reporting requirement. The appraiser needs a reasonable basis for the assumption and must disclose it, not obtain official approval of the premise.
Option D: A second appraisal under the current zoning, attached as an addendum
Option D is wrong because a second appraisal under the current zoning attached as an addendum is not required to report an extraordinary assumption. The required step is clear disclosure of the assumption and its possible effect on results.
State it, state its effect
For an extraordinary assumption or hypothetical condition, the report needs two statements: what it is, and that it might have affected results.
How to use: Use this to choose the answer containing both parts of the disclosure.
Exam Tip
Answers that swap the disclosure for a document, endorsement or second appraisal are distractors; the requirement is the two-part statement.
Common Mistakes to Avoid
- -Labeling an uncertain future approval as a hypothetical condition
- -Disclosing the assumption but omitting that it might have affected results
- -Believing official documentation replaces the required disclosure
Concept Deep Dive
Analysis
This question tests the reporting requirement for an extraordinary assumption. Because rezoning approval is uncertain as of a prospective effective date, assuming approval is an extraordinary assumption, not a hypothetical condition. Once its use is proper, the report must clearly and conspicuously state it and state that its use might have affected the results.
Background Knowledge
An extraordinary assumption concerns uncertain information that, if false, could change the conclusions; a hypothetical condition is contrary to known facts. The classification depends on what is known as of the effective date. Either way, USPAP requires clear and conspicuous disclosure and a statement that use of the premise might have affected the results.
Real-World Application
A developer orders a prospective market value of land as of next spring, when a pending rezoning is expected to be decided. The appraiser has a reasonable basis to assume approval and uses it as an extraordinary assumption. The report clearly states the assumption and that its use might have affected the value conclusion.
More USPAP Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
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Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
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