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
A) Investigate the sale conditions and reconsider its use or weight
Verify whether the foreclosure sale had atypical exposure, conditions or concessions and analyze its market relevance. A distressed label alone does not dictate removal or a standard adjustment; support any use, adjustment or exclusion with facts.
Why This Is the Correct Answer
Option A is correct because USPAP requires diligence to identify and analyze factors and data that would significantly affect the credibility of the results. The appraiser should verify whether the foreclosure sale had atypical exposure, conditions or concessions and then reconsider its use or weight. Any decision to use, adjust or exclude the sale should be supported by facts.
Why the Other Options Are Wrong
Option B: Keep the sale unchanged and record the foreclosure only in the workfile
Option B says to keep the sale unchanged and note the foreclosure only in the workfile. Recording it without analyzing its effect ignores information that could significantly affect credibility.
Option C: Keep the sale and apply a standard foreclosure discount to its price
Option C says to keep the sale and apply a standard foreclosure discount. A distressed label alone does not dictate a standard adjustment; any adjustment must be supported by market evidence.
Option D: Continue to use it unchanged, because it seemed reasonable at first
Option D says to keep using it unchanged because it seemed reasonable at first. New information that could affect credibility must be analyzed, not ignored because the earlier judgment seemed reasonable.
Verify before you weigh
When a comparable turns out to be distressed, check its facts first, then decide its use or weight.
How to use: Use this when new information changes what you know about a comparable sale.
Exam Tip
Choose the answer that calls for investigation and supported judgment. Answers that ignore new facts or apply a fixed formula are typically wrong.
Common Mistakes to Avoid
- -Applying a fixed foreclosure discount without market support
- -Dropping a distressed sale without first analyzing it
- -Noting new information in the workfile without reconsidering the analysis
Concept Deep Dive
Analysis
This question tests the diligence required when new facts affect a comparable sale. Learning that a comparable was a foreclosure means the appraiser must investigate its conditions and decide how relevant it is. The key idea is analysis supported by facts, not ignoring the issue or applying a formula.
Background Knowledge
Comparable sales should reflect market conditions consistent with the value definition. Foreclosure and other distressed sales may involve atypical motivation, exposure or condition, so appraisers verify the circumstances before deciding how much weight they deserve.
Real-World Application
After drafting a report, an appraiser learns one comparable was a bank-owned sale sold as-is with limited marketing. She verifies the condition and exposure, finds the price was affected, and either adjusts it with market support or gives it less weight.
More USPAP Questions
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The certification required by Standards Rule 2-3 must be signed by:
Under 2024 USPAP, which statement correctly combines the requirements for an oral real property appraisal report and its workfile?
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Under 2024 USPAP Standard 1, which listed assignment element must be identified in developing a real property appraisal?
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According to USPAP, what is the primary purpose of the Ethics Rule?
An appraiser is asked to determine 'fair market value' for an assignment. According to USPAP, the appraiser should:
Which list gives the sections of the 2024 USPAP Ethics Rule?
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