An extraordinary assumption is an assumption which if found to be false could alter the opinion or conclusion of an appraiser’s opinion of value. An example of an extraordinary assumption is that a home’s well and septic system are permitted, operational, and not in need of immediate repair. It is beyond the scope of an appraisal assignment for an appraiser to uncover such hidden defects since they are not home inspectors nor well and septic inspectors. In other words, the assumption is that all homes are free of material defects unless there are obvious observable issues with the home, such as foundation cracks, holes in the roof, etc. In this case, the appraiser would make a notation in the appraisal report and make a condition adjustment.
As you may recall from my blog post Willful Seller Omission that we found out that a home had a non-permitted septic system after having it inspected. The appraisal was completed before this material fact was uncovered and was not reflected in the appraiser’s opinion of value. Had the appraiser been aware of this at the time, it would have adversely impacted their opinion of value since the home was not marketable for owner occupancy without a valid permit.
The seller’s agent argued that since no mention of it was made in the appraisal report that the home was financeable and that they had talked to another lender who said they would make the loan on it. There are two major problems with this Realtor’s and Seller’s line of thinking. First, if our buyer would have purchased the home, there was no guarantee that a new permit would be issued leaving our buyer with a financial burden when it came time for her to sell this home at a later date. Second, if the buyer’s agent knowingly lets a buyer purchase a home when financing is involved, they could be complicit in participating in mortgage loan fraud. If the buyer were to lose their job, and default on their mortgage, then the lien holder could uncover this defect when they foreclosed on the property and pursue legal action against the Realtor and mortgage lender, if the lender was aware of it too.