A client reports a past $500,000 subject price that remains uncertain as of the effective date. The appraiser proposes to assume it true, and falsity could change the conclusions. What premise would that be, without deciding whether its use is justified?
Correct Answer
D) An extraordinary assumption
If uncertain effective-date information is assumed true and its falsity could affect conclusions, it fits an extraordinary assumption. An unverified client statement does not automatically justify using it: necessary credible analysis and a reasonable basis, plus required disclosure, remain essential.
Why This Is the Correct Answer
Option D is correct because USPAP defines an extraordinary assumption as an assignment-specific assumption as of the effective date regarding uncertain information which, if found to be false, could alter the appraiser's opinions or conclusions. Assuming the uncertain $500,000 prior price is true matches each element. Whether its use is justified is a separate test that requires a reasonable basis, credible results and disclosure.
Why the Other Options Are Wrong
Option A: Verified market data
Option A calls it verified market data. The $500,000 price is uncertain and unverified, so it cannot be treated as verified data.
Option B: A jurisdictional exception
Option B calls it a jurisdictional exception. A jurisdictional exception applies when law or regulation precludes compliance with part of USPAP, which has nothing to do with assuming an uncertain sale price is true.
Option C: A hypothetical condition
Option C calls it a hypothetical condition. A hypothetical condition is contrary to what is known to exist on the effective date, while here the $500,000 price is uncertain, not known to be false.
Uncertain Equals Extraordinary
Uncertain but possibly true points to an extraordinary assumption; known to be false points to a hypothetical condition.
How to use: Use this test to classify any assumed fact in a scenario question.
Exam Tip
Ask whether the assumed fact is uncertain or known to be contrary to fact; that one question separates the two premises.
Common Mistakes to Avoid
- -Calling an uncertain fact a hypothetical condition
- -Assuming a client statement alone justifies an extraordinary assumption
- -Failing to disclose that the assumption could affect the results
Concept Deep Dive
Analysis
This question tests how to classify an assumption about uncertain information as of the effective date. An extraordinary assumption is an assignment-specific assumption about uncertain information that, if false, could alter the appraiser's opinions or conclusions. The reported $500,000 past price is uncertain, is assumed true, and could change results if false, which fits that definition.
Background Knowledge
USPAP permits an extraordinary assumption only if it is required to properly develop credible opinions and conclusions, the appraiser has a reasonable basis for it, its use results in a credible analysis, and the appraiser complies with the disclosure requirements. A client's statement alone may not supply a reasonable basis.
Real-World Application
A client says the home last sold for a certain price, but the sale cannot be confirmed in public records. If the appraiser decides to rely on it, she must have a reasonable basis and disclose it as an extraordinary assumption that could change the value if false.
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