An appraisal assumes an uncertain, material fact to be true. Another appraisal assumes a condition contrary to a fact the appraiser knows. Which classification is correct?
Correct Answer
A) The first is an extraordinary assumption; the second is a hypothetical condition.
An extraordinary assumption treats uncertain information as fact; a hypothetical condition assumes something contrary to a known fact. Their use must satisfy the applicable development requirements and be clearly disclosed with the statement that use might have affected the results. Client preference alone does not establish appropriate use.
Why This Is the Correct Answer
Option A is correct because USPAP defines an extraordinary assumption as an assumption regarding uncertain information that could alter the opinions if false, and a hypothetical condition as a condition contrary to what is known to exist on the effective date. The first appraisal fits the first definition and the second fits the second.
Why the Other Options Are Wrong
Option B: Both are extraordinary assumptions because both affect value.
Option B, calling both extraordinary assumptions because both affect value, is wrong because classification depends on whether the fact is uncertain or known, not on whether the premise affects value.
Option C: Both are hypothetical conditions whenever the client requests them in writing.
Option C, calling both hypothetical conditions whenever the client requests them in writing, is wrong because a client's written request does not change the classification, which turns on what the appraiser knows.
Option D: Neither requires an assignment-condition analysis or disclosure.
Option D, saying neither requires assignment-condition analysis or disclosure, is wrong because both are assignment conditions that must satisfy use requirements and be clearly disclosed.
Unknown versus known-false
Unknown fact assumed true is extraordinary; known fact assumed false is hypothetical.
How to use: Use this to classify paired premises in comparison questions.
Exam Tip
Read each premise for the words uncertain or known; that one word usually decides the classification.
Common Mistakes to Avoid
- -Classifying by effect on value instead of by what the appraiser knows
- -Thinking a client's written request changes the classification
- -Assuming these conditions need no disclosure
Concept Deep Dive
Analysis
This question tests classification of two premises. An uncertain material fact assumed true is an extraordinary assumption; a condition contrary to a known fact is a hypothetical condition.
Background Knowledge
Both extraordinary assumptions and hypothetical conditions must meet their development requirements and be clearly and conspicuously disclosed, with a statement that their use might have affected the assignment results. Client preference alone does not establish appropriate use.
Real-World Application
One appraisal assumes a well provides adequate water because testing is pending, which is an extraordinary assumption. Another values a house as if its known leaking roof were already replaced, which is a hypothetical condition.
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