USPAP USPAP Appraisal Development Standards 2 — Questions and Answers
Question 1: Under USPAP, an 'extraordinary assumption' is defined as an assumption that:
- Is always true and widely accepted in the market
- If found to be false, could alter the appraiser's opinions or conclusions (Correct answer)
- Is required by federal regulations in all appraisals
- Applies only to commercial property appraisals
Correct answer: If found to be false, could alter the appraiser's opinions or conclusions
An extraordinary assumption is one that assumes a condition as true that, if found to be false, could materially change the appraisal's conclusions.
Question 2: Under USPAP, a 'hypothetical condition' differs from an extraordinary assumption in that it:
- Is always accepted as true by all parties
- Is contrary to what exists but is used for the purposes of analysis (Correct answer)
- Does not need to be disclosed in the appraisal report
- Applies only to retrospective appraisals
Correct answer: Is contrary to what exists but is used for the purposes of analysis
A hypothetical condition is one that is contrary to known fact but is assumed for analysis purposes — for example, assuming a property is already built when it has not yet been constructed.
Question 3: Which USPAP standard specifically addresses the development of a real property appraisal?
- Standards Rule 2
- Standards Rule 1 (Correct answer)
- Standards Rule 3
- Standards Rule 5
Correct answer: Standards Rule 1
Standards Rule 1 governs the development of real property appraisals, establishing what the appraiser must do to produce a credible value opinion.
Question 4: Under USPAP, an appraiser must clearly disclose extraordinary assumptions and hypothetical conditions because:
- They are required by the IRS
- Their use might affect the assignment results, and intended users must understand this (Correct answer)
- They always increase the value conclusion
- The state licensing board requires their disclosure
Correct answer: Their use might affect the assignment results, and intended users must understand this
Disclosure is required because extraordinary assumptions and hypothetical conditions could affect the value conclusion, and intended users need this information to properly rely on the appraisal.
Question 5: Under USPAP Standards Rule 1-4(c), the income approach to value is developed by:
- Estimating gross rent and applying a standard multiplier
- Analyzing the subject's income potential through market-derived income and expense data and appropriate capitalization methods (Correct answer)
- Using the assessed value and applying a local tax factor
- Using only the actual income reported by the owner
Correct answer: Analyzing the subject's income potential through market-derived income and expense data and appropriate capitalization methods
SR 1-4(c) requires the income approach to be developed using market-derived income, expense data, and appropriate capitalization or discounting techniques.
Question 6: Under USPAP, the cost approach requires the appraiser to:
- Use only the contractor's bid for construction
- Estimate the value of the land separately and estimate the depreciated cost of improvements (Correct answer)
- Apply only the Marshall Valuation Service schedules
- Use the assessed building value provided by the county
Correct answer: Estimate the value of the land separately and estimate the depreciated cost of improvements
The cost approach requires a separate land value estimate and an estimate of the cost of improvements less all forms of depreciation.
USPAP USPAP Appraisal Development Standards 2
Under USPAP, an 'extraordinary assumption' is defined as an assumption that: