Before a redevelopment announcement that was not anticipated by market participants, the effective-date evidence isolates a 12% external penalty. What applies to that earlier-date appraisal?
Correct Answer
D) Use the effect supported at that date, without later events.
Use the supported market conditions and expectations applicable to the effective date. A later announcement not anticipated on that date does not automatically remove the earlier verified penalty. Temporary external loss still can affect value; do not halve it or postpone recognition without support.
Why This Is the Correct Answer
Option D is correct because the effective date is the date to which the appraiser's analyses, opinions and conclusions apply. The evidence isolates a 12% external penalty at that date, and the later redevelopment announcement was not anticipated by market participants. The appraiser therefore uses the effect supported at the effective date without importing later events.
Why the Other Options Are Wrong
Option A: Ignore temporary external influences on value at that date.
Option A says to ignore temporary external influences on value at that date. A temporary external influence can still affect value on the effective date, and the evidence here isolates a 12% penalty that should be recognized.
Option B: Halve the measured loss, without any market support for doing so.
Option B says to halve the measured loss without any market support. Changing a verified 12% penalty with no supporting evidence is arbitrary and departs from the market data for that date.
Option C: Recognize no loss until the redevelopment is physically complete.
Option C says to recognize no loss until the redevelopment is physically complete. The redevelopment was announced after the effective date and was not anticipated, so it does not postpone recognition of a loss that existed at the effective date.
Freeze the market date
Picture the market frozen on the effective date. Only what buyers and sellers knew or expected then goes into value.
How to use: Use this when a question mixes later events with a retrospective or earlier-date appraisal.
Exam Tip
For retrospective questions, ask whether market participants could have anticipated the later event on the effective date.
Common Mistakes to Avoid
- -Using events announced after the effective date
- -Ignoring temporary external influences
- -Adjusting a measured loss without market support
Concept Deep Dive
Analysis
This question tests the effective date concept applied to external obsolescence. The effective date is the date to which the appraiser's analyses and conclusions apply, so market conditions and expectations as of that date govern. A later announcement that market participants did not anticipate does not erase a loss the evidence supports at the earlier date.
Background Knowledge
Every appraisal has an effective date, also called the date of value, which fixes the market conditions considered. For retrospective appraisals, the appraiser relies on information and expectations that market participants had as of that date. External obsolescence is generally beyond any single owner's control and is measured from market evidence.
Real-World Application
An appraiser values a property for an estate as of a date two years ago, when a nearby vacant factory depressed prices. A redevelopment plan announced a year later has since raised values, but the appraiser reports the external loss supported at the date of value.
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