The jurisdictional exception rule is one of the most widely used appraisal techniques. It is also a very common topic in appraisal courses. The rule is designed to ensure that each party in the transaction has the same knowledge, skills, and experience when evaluating assets.
By excluding such information from an appraisal report, you can ensure that every party has access to the same data when making decisions about the appraised property.
So, what exactly is the jurisdictional exception rule in appraisals? The rule is basically a legal principle that says an appraisal can be performed based on a professional opinion or judgment without facts and information that would otherwise be necessary. The rule allows an appraiser to make decisions on the client’s behalf without relying on any particular data.
The concept of the exception rule is important for two reasons. First, it gives appraisers some latitude when making their assessments. Second, it enables them to avoid being held liable for errors in their opinions if they are not basing those opinions on anything other than what they know about their client’s financial situations. This article’s purpose is to explain the exception rule and its application in appraisals.
Application of the Jurisdictional Rule
The jurisdictional exception rule applies to the appraisal of a sale of real estate in which there is a transfer of title, meaning that the seller and buyer are both present at the closing table. The exception protects buyers from paying excessive amounts for their homes because their sellers did not fully inform them about certain aspects of the sale.
The purpose of the rule is to avoid situations where buyers are sold homes that are more expensive than expected based on information provided during negotiations or disclosures made at an earlier stage in their purchase process. For example, suppose a buyer had told his agent that he wanted a home with two bedrooms and one bathroom but later found out through disclosures made by the seller that this was not possible because of structural issues with the basement walls. In that case, he could be required to pay more for the home than originally agreed upon.
For this exception to apply, there must be a written disclosure made by one party (the seller) informing another party (the buyer) about an aspect of his property that may affect its value or quality. If this disclosure does not occur before closing on an agreement to purchase residential real
Different Applications to the Jurisdictional Rule
- An entity is located outside the state where it was created. For example, if a company was formed in California and then moved to Texas, its income would be subject to Texas income tax. However, no further taxation would be required if it moved again to another state within the United States.
- An entity does not have sufficient contact with the state where it does business. For example, if an Illinois corporation has no offices or employees in Illinois but sells only products manufactured in Indiana and shipped from outside of Illinois into Illinois, then its income would be subject to Indiana income taxes only.
- An entity has sufficient contact with the state where it does business but chooses not to pay taxes as required by law or regulation. For example, if an Indiana corporation has sales offices in both Illinois and Michigan.
Purpose of Jurisdictional Exception Rule
The rule is one of the most common exceptions in appraisal. The purpose of this rule is to allow an appraiser to use information normally prohibited by the IFMA Standards.
The IFMA Standards allow appraisers to conduct certain types of research when there are no other sources of information available. The exceptions are:
- The property market in which the sale occurred (i.e., local or regional market)
- Property sales within a reasonable period from the sale date (i.e., six months)
- Property sales with similar characteristics (i.e., similar age, size, location, and condition)
Jurisdictional Exception Rule Requirements
The rule is a concept in appraisal practice. It states that statutory and common law rules do not apply to real estate transactions and actions. The purpose of this concept is to protect the appraiser from being bound by rules outside his area of expertise.
The rule also protects the client from having to deal with a court when they may not be able to afford it.
The requirements for the rule are as follows:
- Determine the legal requirement that makes it impossible to follow USPAP
- Abide by that requirement
- Disclose in the report clearly and noticeably the portion of USPAP that is nullified by that rule or statute
- Cite the law or rule that calls for this exemption from USPAP compliance in the report
- The appraisal has to be presented in writing, either by fax or email
- If an appraisal is needed for a transaction, then it must be done within 30 days after the transaction takes place
- Certificates of value must be issued only if they are required by law, such as when selling property at auction or through an estate sale (in this case, they cannot just be issued by someone without any legal training)
Benefits of the Jurisdictional Rule to A Real Estate Owner
The benefits of the jurisdictional exception rule are numerous:
- First and foremost, it gives the real estate owners peace of mind that they will not be held liable for any of their neighbors’ debts.
- Secondly, it allows them to keep their property in good condition without worrying about being sued by a bad neighbor who may default on their loan or damage their property.
- Thirdly, it incentivizes good neighbors to stay in their neighborhood rather than move out because they know they will not be held liable if someone defaults on their loan or damages their property.
- Another benefit of the rule is that it helps an appraiser accurately determine a property’s fair market value. It also helps to protect the client in cases where a discrepancy exists. This could be discrepancies listed on the MLS and what was sold for by an agent or broker.
Other benefits include:
- It protects the value of your property by allowing you to make improvements without paying taxes on them.
- It protects you from liens and legal judgments that may be filed against you.
- You can take advantage of tax exemptions only offered by certain types of property owners, depending on their location and other factors related to their real estate.
Benefits of the Jurisdictional Rule for Other Residents
The other residents in the neighborhood also benefit greatly from this law because they know they will not be held liable if someone defaults on their loan or damages their property. They also do not have to worry about getting sued by a bad neighbor who may default on their loan or damage their property.
Now that you understand, what is the jurisdictional exception rule in appraisals? It is important to note that proving the value assigned to property was reasonable under the circumstances can be difficult. The exception rule is one way to establish that your valuations were reasonable.
In a nutshell, the exception rule says that if you use an appraisal method and the value assigned to your property is within 5 percent of the market value, you have satisfied the reasonable-value requirement for proving title disputes.
The exception rule only applies when multiple properties with similar characteristics and values are assessed.
Learn More About the Jurisdictional Rule
If you still want to learn more about the jurisdictional rule, call one of our professional appraisers at ExcelAppraise. We’re happy to walk you through it as well as offer a free quote to an appraisal if needed.