Extraordinary Assumption
An Extraordinary Assumption is a presumption made during the appraisal of a property when a critical factor or condition is uncertain. This assumption is fundamental because the value estimate provided by the appraisal would be substantially incorrect if the assumption were found to be wrong. It allows appraisers to move forward with their valuation despite uncertainties about the accurate state or conditions of the property.
Examples
Environmental Cleanup: If a property’s site assessment is pending, an appraiser might assume that the site will meet environmental cleanup standards. If the actual assessment later shows contamination, the initial appraisal would be significantly off.
Building Compliance: When there’s pending information about a building’s compliance with zoning laws, an appraiser might assume it complies. If it later turns out the building does not conform to zoning laws, its value could be much lower.
Frequently Asked Questions
Q1: When is an Extraordinary Assumption used? An Extraordinary Assumption is used during an appraisal when there is uncertainty about a critical factor. It allows the appraiser to provide a valuation while acknowledging the uncertainty.
Q2: What happens if the assumption proves false? If the assumption proves false, the estimated value of the property would be incorrect. The valuation should be revisited once accurate information is available.
Q3: How is an Extraordinary Assumption different from a Hypothetical Condition? An Extraordinary Assumption pertains to uncertain conditions that are assumed to be factual for the purpose of appraisal. A Hypothetical Condition involves an assumption known to be false but used for appraisal to portray a scenario that does not exist.
Related Terms
Hypothetical Condition: A condition that is contrary to what exists but is assumed for the sake of analysis.
Appraisal: A professional assessment to determine the value of a property.
Market Value: The price at which a property would sell under normal conditions in the market.
Online References
Suggested Books
“The Appraisal of Real Estate” by The Appraisal Institute For comprehensive understanding on principles and procedures of real estate valuation.
“Fundamentals of Real Estate Appraisal” by William L. Ventolo Jr. and Martha R. Williams This book covers the basics and practical approaches in real estate appraisal.
“Real Estate Valuation Theory” by Ken Parker Provides insights into various appraisal theories and methodologies.
Fundamentals of Extraordinary Assumption: Real Estate Basics Quiz
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