Appraisers' Free Forum

**Jim Plante** · Posted: Tue Aug 14, 2007 10:56 am Post subject: Extraordinary assumptions

We use them regularly, but how should one be described? Of course, it depends on the situation. Here's an example scenario:

Subject is a 50-year old SFR with a basement. You've done tons of them in the past, and have seen all kinds of conditions in them, ranging from obvious structural failure (wall bulging inward on the uphill side) to minor cracks. Our subject has a long crack in the wall, running from top to bottom, and it's a little wider at the top (1/4" or so) than at the bottom (hairline). There's no evidence of water intrusion.

You just can't be sure about that crack, and decide to check CB4. You comment that the opinion of value is subject to inspection of the cracked wall in the basement. This is a good time to use additional comments, because inquiring investors want to know about this stuff. Of course, before using one of the "subject to" boxes, you should talk it over with your client and get his/her agreement in writing. (Sometimes their policy requires "As-is," and they'll have to decline the loan if you have to make it "subject to." Here's how I'd handle it, after getting the client's agreement:

"I observed a long vertical crack in the north wall of the basement. It is about 1/4" wide at the top, and tapers to a hairline at the bottom. (See photo). I saw no evidence of current or past water intrusion, nor did I see any readily apparent visual evidence of structural failure such as sticking doors or windows on the level above the basement. I have seen many different basements in this area, but I am not qualified to determine issues of structural integrity. I advise you to have this cracked wall inspected by a qualified engineer or contractor to determine whether it indicates an existing or impending structural failure. This appraisal is developed under the extraordinary assumption that the crack in the north wall of the basement does not indicate existing or future structural failure. I base this assumption on experience gained from many years of appraisal practice in the local market. If this assumption is later proven to be incorrect, the opinion of value expressed in this report will be adversely affected."

_________________
Jim Plante

**Mr. Knowitall** · Posted: Thu Aug 16, 2007 1:18 am Post subject:

The appraiser felt it was an uphill climb from the living room into the kitchen. None of the doors closed properly and the corners of the doorway were not at 90 degrees. However the appraiser is not a structural engineer to actually determine if there was anything physically wrong with the home.

(The LO called me up on an Easter Sunday to bitch at me about my report)

**Steve Owen** · Posted: Fri Aug 17, 2007 8:44 pm Post subject:

I like to quote USPAP on anything unusual. For example, with an EA, I will start with the following:

Appraisal of the subject property is contingent upon the following extraordinary assumption in addition to the normal Contingent and Limiting Conditions. Extraordinary assumption is defined in the Uniform Standards of Professional Appraisal Practice (USPAP) as:

“an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.”

Specifically, ???

Then, I just describe what it is. In the case of possible structural defects, I might say something like:

A crack was observed at the corner of the southeast wall. It appears to be a one time settling and the owner indicates that it has been there for several years. Therefore, the extraordinary assumption for this appraisal is that the crack does not indicate structural deficiency that would lower the value of the property.

Then, I might include a photo, if appropriate. Keep in mind that I have boilerplate in other portions of the report stating that I am not a home inspector nor an engineer, etc., etc.

The deal with EA's is that you believe it is not a problem. I would not write an EA in a situation like Mr. Kowitall's example, where floors are not level and doors do not close. In such a case, you already know that it is going to have an effect on value... IMHO, EA's work best in situations where you don't think there will be any effect.
_________________
I haven't a particle of confidence in a man who has no redeeming petty vices.
- Mark Twain, a Biography

**Edd Gillespie** · Certified General Joined: 13 Aug 2007 Posts: 2282

Steve's way or Jim's way is OK by me and I think those peers that hang out in the shadows. Just great for appraisers. But how many appraisers are reading your reports?

I would suggest for ease of reading and interpretation at a third grade level, you both do this.

"There is a crack in the basement wall big enough to stick your pencil in. Somebody who fixes cracks in basement walls should look at it to tell you how serious it is. Until we can see that report, I'm pretending the crack doesn't matter. If the report says the crack matters then this report is no good."
_________________
Edd “In the real estate economy, there are no guarantees that reason will prevail in a market where emotions run high and the amount of misinformation runs deep.” Jonathan Miller in The Matrix. So what’s an appraiser to do?

**Jim Plante** · Posted: Sat Aug 18, 2007 9:26 am Post subject:

I'd refine that a little, Edd.
"...I'm assuming that the crack is the product of early settlement and that it has stabilized. I'm making that assumption because I've seen such cracks in many different basements. In my experience, the crack is harmless. But since such cracks can indicate structural damage, it would be prudent to have it checked by an expert. If it is later proven that the crack is the result of structural failure endangering the subject's house, then the opinion of value expressed in this report should not be relied upon."
_________________
Jim Plante

**Edd Gillespie** · Certified General Joined: 13 Aug 2007 Posts: 2282

**Jim Plante** · Posted: Sat Aug 18, 2007 10:23 am Post subject:

Man, Edd, you hit a nerve with that one.

The problem all of us have is that we write like damned appraisers. This was pointedly evident in the Demo Alternative course. It's a hard habit to get out of.

But I think a certain level of formal style is necessary, not to lend credibility by slathering on the BS with a trowel, but to be sure we've covered the points that need to be covered.

The advance writing instructors all quote some ancient writer who apologized to a friend, saying, "I'm sorry this letter is so long; I didn't have time to make it shorter." Editing is a painful process sometimes, and it can take as much time as the report did if you do it right. Dig out one of your old narratives (2+ years old) and you'll immediately see places where you dropped the ball. (Damn, I hate doing that.)
_________________
Jim Plante

**benluby** · Certified Residential Joined: 12 Aug 2007 Posts: 1576

Here's the main problem: We have to write the report so an eighth grade drop out can understand it, but so that a lawyer cannot rip our throats out over it.
Talk about a slight difference in potential readers. Oh, and we also have to make sure if it goes to the board, they will acknowledge that it was written well and is clear.
_________________
Whoever thinks herding cats is impossible, has never walked with an open can of Tuna.

**Jim Plante** · Posted: Sat Aug 18, 2007 10:51 am Post subject:

Okay, I think Edds is too loose, and mine's to tight-assed. Somebody take a stab at refinement.
_________________
Jim Plante

**Edd Gillespie** · Certified General Joined: 13 Aug 2007 Posts: 2282

**Jim Plante** · Posted: Sat Aug 18, 2007 11:50 am Post subject:

**Steve Owen** · Posted: Sat Aug 18, 2007 1:43 pm Post subject:

**Edd Gillespie** · Certified General Joined: 13 Aug 2007 Posts: 2282

I once heard from someone who is now lost in my memory that you need to be able to explain things so your grandmother can understand them wthout being offended or bored silly.
_________________
Edd “In the real estate economy, there are no guarantees that reason will prevail in a market where emotions run high and the amount of misinformation runs deep.” Jonathan Miller in The Matrix. So what’s an appraiser to do?