As of today’s effective date, the appraiser knows specified repairs are incomplete. The assignment asks for value as if those repairs were complete today. How is that premise treated?
Correct Answer
A) As a hypothetical condition, subject to use and disclosure rules
The premise contradicts facts known as of the effective date, so it is a hypothetical condition. Its use must meet SR 1-2(g) requirements for legal purpose, reasonable analysis, or comparison, and credible analysis, with required clear and conspicuous disclosure and a might-have-affected statement. USPAP does not require that disclosure in every named report section. A future completion effective date could involve uncertainty rather than a current known-contrary premise; analyze the actual facts and date.
Why This Is the Correct Answer
Option A is correct because USPAP defines a hypothetical condition as one contrary to what the appraiser knows to exist on the effective date but used for the purpose of analysis. The repairs are known to be incomplete today, so valuing them as complete today fits that definition. Its use must be required for legal purposes, reasonable analysis or comparison, must produce a credible analysis, and must be disclosed.
Why the Other Options Are Wrong
Option B: As a prediction that the repairs will be completed on schedule
Option B, treating the premise as a prediction that repairs will be completed on schedule, is wrong because the value is as of today, not a forecast of future completion.
Option C: By averaging current as-is value with any future value
Option C, averaging current as-is value with any future value, is not a recognized way to handle the premise and mixes two different value conditions without support.
Option D: As a confidential premise that need not appear in the appraisal report
Option D, treating it as a confidential premise that need not appear in the report, is wrong because a hypothetical condition must be clearly and conspicuously disclosed, with a statement that it might have affected the results.
Known false means hypothetical
If you know the premise is false today, it is a hypothetical condition; if you are unsure, it may be an extraordinary assumption.
How to use: Use known-false versus unsure to classify a premise as a hypothetical condition or an extraordinary assumption.
Exam Tip
Focus on what the appraiser knows as of the effective date; a premise that contradicts known current facts is a hypothetical condition.
Common Mistakes to Avoid
- -Calling a known-contrary premise an extraordinary assumption
- -Omitting disclosure of the hypothetical condition from the report
- -Treating an as-complete-today value as a forecast
Concept Deep Dive
Analysis
This question tests the difference between a hypothetical condition and other premises. Valuing a property as if repairs were complete today, when the appraiser knows they are not, is contrary to known fact on the effective date. That makes it a hypothetical condition with specific use and disclosure requirements.
Background Knowledge
A hypothetical condition is contrary to known fact on the effective date, while an extraordinary assumption concerns uncertain information. A future effective date for completed repairs could raise different issues, so the appraiser analyzes the actual facts and date. Disclosure must be clear and conspicuous, though USPAP does not dictate a specific report section.
Real-World Application
A lender asks for the current value of a house as if a roof replacement already under contract were finished. The appraiser sees the old roof still in place, uses a hypothetical condition, and discloses that it might have affected the assignment results.
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