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To use an extraordinary assumption or not to use an extraordinary assumption — that is the question. Do you find yourself confused when you receive a revision request asking for extraordinary assumptions to be removed from a desktop appraisal report? Extraordinary assumptions, defined as assumptions that could affect the appraisal’s validity if proven false, continue to prompt revision requests in desktop appraisals. In this month’s update, we will explain why extraordinary assumptions in the desktop appraisal are not permitted.
Why extraordinary assumptions are NOT permitted in desktop appraisals
- USPAP tells us that extraordinary assumptions are assignment-specific. By definition, extraordinary assumptions can be used to manage uncertain information that, if found to be false, could alter appraisal results. For example, when appraisers complete a 1004 using MLS and public records (third-party data sources) which are sometimes inconsistent but are assumed to be valid, the appraisers don’t typically use extraordinary assumptions. Because of this wide use and acceptance of third-party data, it is a common assumption not assignment-specific. Accordingly, relying on third-party data to complete a desktop appraisal does not qualify as assignment-specific and therefore is not permitted.
- Guidance from both Fannie Mae and Freddie Mac prohibits most uses of extraordinary assumptions in desktop appraisals. Desktop form guidance from Fannie Mae’s selling guide 12/14/2022 B4-1.2-02, indicates “Extraordinary Assumptions of the subject property’s condition, quality or physical characteristics are not permitted. The appraiser relies on data obtained from alternative methods or sources to identify characteristics and condition.”
- The desktop appraisal report form contains preprinted language for “The Statement of Assumptions and Limiting Conditions.” It explains the appraiser’s certification in the report is subject to the assumptions and limiting conditions outlined on the preprinted form. These preprinted assumptions and conditions address the use of third-party data. The assumptions and limiting conditions include, but are not limited to, outlining, and third-party data used by the appraisers, to develop the analysis and value, and is considered reliable; there are no material omissions or guarantees and unless otherwise stated, the appraiser has no knowledge of adverse conditions that would impact value.
Four easy tips to avoid revisions for extraordinary assumptions
1. Review the preprinted limiting conditions, the intended use and intended users, and certification to feel comfortable with the form and confirm it is USPAP compliant.
2. Do not include comments referencing assumptions. Using a comment like, “It is assumed…” is the same as making an “extraordinary assumption.”
3. Review and update template phrases or comments that might contain references to assumptions.
4. Prior to submitting your report, conduct a word search for “assum” to ensure there are no assumptions that were overlooked.
We hope that by understanding appraisal industry guidance for the exclusion of extraordinary assumptions in desktop appraisals and using the tips above to ensure they are not included in your reports, you’ll build confidence in the process, which will help you save time.
