An appraiser discovers that a comparable sale used in the analysis was actually a foreclosure sale, but this information was not initially available. Under USPAP, the appraiser should:
Correct Answer
B) Remove the sale and reconsider the analysis if it affects credibility
When an appraiser discovers information that could affect the credibility of the analysis, they must reconsider their analysis and conclusions. If the foreclosure status affects the sale's reliability as a market indicator, it should be addressed or removed.
Why This Is the Correct Answer
Option B correctly reflects USPAP's requirement that appraisers must reconsider their analysis when discovering information that could affect credibility. Foreclosure sales often involve distressed circumstances that may not represent typical market conditions, potentially compromising their reliability as market indicators. The appraiser has a professional duty to reassess whether this sale should continue to be used in the analysis. If the foreclosure status materially affects the sale's credibility as a market indicator, the ethical response is to remove it and reconsider the overall analysis.
Why the Other Options Are Wrong
Option A: Continue using the sale since it was reasonable at the time
This approach violates USPAP's requirement for ongoing credibility assessment and could result in a flawed valuation based on non-representative market data.
Option C: Keep the sale but note it in the workfile only
Simply noting the information in the workfile without addressing its impact on the analysis fails to meet USPAP's credibility standards and professional responsibility requirements.
Option D: Use the sale but apply a standard foreclosure adjustment
Applying a standard foreclosure adjustment assumes the sale can still be reliably used, but there is no universal standard adjustment, and the sale may be too distressed to be credible regardless of adjustments.
CREDIBLE Analysis Rule
C-R-E-D-I-B-L-E: 'Credibility Requires Eliminating Doubtful Information Before Logical Evaluation' - When you discover information that makes a comparable sale doubtful (like foreclosure status), you must eliminate or reconsider it to maintain credible analysis.
How to use: When you see questions about discovering new information about comparables, think 'CREDIBLE' and remember that maintaining credibility requires removing or reconsidering doubtful sales rather than just noting them or applying standard adjustments.
Exam Tip
Look for keywords like 'discovers,' 'credibility,' and 'foreclosure' - these signal USPAP credibility requirements. The correct answer will typically involve reassessing or removing questionable data rather than simply noting it or applying generic adjustments.
Common Mistakes to Avoid
- -Thinking that reasonable initial research protects against later discoveries
- -Believing that simply noting problematic information in the workfile is sufficient
- -Assuming there are standard adjustments that can fix any comparable sale issue
Concept Deep Dive
Analysis
This question tests understanding of USPAP's requirement for ongoing analysis credibility and the appraiser's duty to reconsider conclusions when new material information becomes available. USPAP emphasizes that appraisers must maintain the credibility of their analysis throughout the assignment, which includes addressing information discovered after initial research that could materially affect the valuation. Foreclosure sales often involve distressed circumstances that may not reflect typical market conditions, potentially making them unreliable indicators of market value. The key principle is that professional responsibility requires reassessing and potentially revising analysis when credibility-affecting information emerges.
Background Knowledge
USPAP requires appraisers to develop credible assignment results and to reconsider their analysis when new information becomes available that could affect the reliability of their conclusions. Foreclosure sales often involve distressed circumstances, time pressures, or below-market pricing that may not reflect typical buyer-seller motivations required for market value estimates.
Real-World Application
In practice, appraisers often discover additional information about sales after initial research through MLS updates, broker conversations, or public records. When learning a sale was a foreclosure, short sale, or involved other distressed circumstances, the appraiser must evaluate whether it still represents typical market conditions and either remove it or clearly justify its continued use with appropriate analysis.
More USPAP Questions
An extraordinary assumption must be:
Under the USPAP Competency Rule, which of the following is required before an appraiser may accept an assignment?
An appraiser is developing an appraisal for a bank loan and discovers that the property has environmental contamination that significantly affects value, but the lender specifically requests that this issue not be mentioned in the report. According to USPAP, the appraiser should:
A Summary Appraisal Report must contain enough information to:
According to USPAP's Ethics Rule, an appraiser must keep confidential information about the client and intended users confidential unless disclosure is required by:
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
Report Writing & Compliance
10% of exam