A valuation approach has been excluded from an Appraisal Report. What should the report communicate?
Correct Answer
D) The reason for excluding the approach, consistent with the assignment’s scope.
Explain why the approach was excluded and communicate the scope and analyses sufficiently for the intended users. Exclusion does not automatically make the report a Restricted Appraisal Report. Neither using every approach nor substituting an average is a universal requirement.
Why This Is the Correct Answer
Option D is correct because an Appraisal Report must state the reasons for excluding the sales comparison, cost or income approach if any has not been developed. The explanation should be consistent with the scope of work and let intended users understand the analysis. This disclosure supports the credibility of the result.
Why the Other Options Are Wrong
Option A: That the omitted approach is prohibited by USPAP for this property.
Option A says the omitted approach is prohibited by USPAP for this property, but USPAP does not prohibit approaches by property. The appraiser decides which approaches are necessary and explains why any was excluded.
Option B: That a simple average replaced the excluded approach.
Option B says a simple average replaced the excluded approach, but no average substitutes for an approach that was not developed. The report should explain why the approach was excluded.
Option C: That the exclusion changes the report into a Restricted Appraisal Report.
Option C says the exclusion turns the report into a Restricted Appraisal Report, but report type depends on the intended users and reporting option chosen, not on how many approaches were used. Exclusion does not automatically change the report type.
Skip it, then say why
If an approach is skipped, the Appraisal Report says why it was skipped.
How to use: Use this when a question asks what a report must say about an omitted approach.
Exam Tip
Pick the answer that explains the reason for exclusion; reject answers that link exclusion to a change in report type or a substitute calculation.
Common Mistakes to Avoid
- -Believing omitting an approach creates a Restricted Appraisal Report
- -Omitting an approach without stating the reason
- -Thinking all three approaches are required in each assignment
Concept Deep Dive
Analysis
This question tests the reporting requirement when an approach is not developed. USPAP requires an Appraisal Report to state the reasons for excluding the sales comparison, cost or income approach if any was not developed. Leaving out an approach is a scope of work decision; it does not change the report type.
Background Knowledge
The scope of work determines which approaches are necessary for credible results. When an approach is not developed, an Appraisal Report states why. The choice between an Appraisal Report and a Restricted Appraisal Report is a separate reporting decision.
Real-World Application
An appraiser values an owner-occupied house in an area with almost no rentals. She does not develop the income approach and states in the report that there is not enough rental data and buyers do not purchase such homes for income. Her report remains an Appraisal Report.
More Reconciliation Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
Why must a report identify any real property interest that is being excluded from the value opinion?
Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
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Previous Question
An appraiser reconciles sales comparison ($450,000) and cost ($470,000) at 70% and 30%, for a final value of $456,000. Within the sales comparison approach, Comparable 2 carries 40% of the weight. The appraiser then finds a $12,000 adjustment error that overstated Comparable 2's adjusted price; nothing else changes. What is the corrected final value?
Next Question
An appraiser reconciles to a value at the top of the indicated range because the client needs that figure. What has occurred?