Certified Residential Appraiser Practice Exam

What is an extraordinary assumption in appraisal practice?

1. A belief that is assumed to be true for appraisal purposes

2. An assumption that is always verified as true

3. A fact that is universally accepted

4. An assumption based on the appraiser's experience

The correct answer is: A belief that is assumed to be true for appraisal purposes

An extraordinary assumption in appraisal practice refers to a belief that is treated as true for the purpose of conducting the appraisal, even though it might not be verified or substantiated at the time of the appraisal. This type of assumption is typically made when the appraiser believes that the assumption is necessary to perform a credible appraisal, but there is uncertainty surrounding its validity. In many instances, extraordinary assumptions can impact the value conclusion of the appraisal significantly. For example, an appraiser might assume that a property is free of certain environmental hazards based on preliminary information, knowing that comprehensive testing has not yet been completed. This assumption allows the appraiser to proceed with the analysis, but it is acknowledged that the final value may change if that assumption is proven to be false. This definition separates extraordinary assumptions from other concepts that carry different implications, such as verified assumptions or universally accepted facts. Understanding extraordinary assumptions is crucial because they can introduce a level of risk and uncertainty into an appraisal report, which must be clearly disclosed to all stakeholders involved in the valuation process.