A report states a value 'subject to completion per plans and specifications.' A reader should understand that:
Correct Answer
C) The value assumes work not yet performed has been completed
Why this is correct: The value assumes work not yet performed has been completed. The phrase 'subject to' signals a hypothetical condition—the appraiser is valuing the property as if the described future work is already complete, which is different from its current 'as-is' state. Why the other choices are wrong: The value applies to the property as it physically exists today describes an 'as-is' appraisal. The appraiser has inspected the finished improvements cannot be true if work is not complete. The lender has approved the construction budget may be true but is not what the 'subject to' statement conveys. Exam tip: 'Subject to' indicates a hypothetical condition about future completion.
Why This Is the Correct Answer
Option C is correct because subject to completion tells the reader the value assumes work not yet performed has been finished. That is the entire content of the phrase and the reason it must appear prominently rather than buried in the addenda. It also implies the corollary the reader needs, that this number is not the as-is value and should not be used as though it were. Any comparison to the property's current condition requires a separately stated as-is opinion.
Why the Other Options Are Wrong
Option A: The value applies to the property as it physically exists today
As-is value describes the property in its actual current condition on the effective date, which is precisely what the subject-to figure is not. Reading the two as interchangeable is the most consequential misuse of this report type, since a lender advancing against an as-if-complete value on unfinished collateral is over-advanced. The phrase exists specifically to prevent that confusion.
Option B: The appraiser has inspected the finished improvements
Improvements that do not yet exist cannot have been inspected, so the appraiser has necessarily relied on plans, specifications, and any partially completed work rather than on observation of a finished building. The report should describe the extent of inspection and the documents relied on. Inferring a completed-work inspection from a subject-to value reverses the situation the phrase describes.
Option D: The lender has approved the construction budget shown
Lender approval of a construction budget is a credit decision made by the lender, entirely separate from the appraiser's analysis and outside the appraiser's control or responsibility. An appraiser may review a cost budget for reasonableness against cost data, but that review is not approval and confers none. The option imports an external party's action into a statement about the appraisal's assumptions.
Subject To Means Not Yet
Subject to means not yet. The building in the report is the building on the drawings, not the one on the lot. If the drawings never become concrete, the number never becomes real. Always ask what the as-is figure is before relying on a subject-to figure.
How to use: When a stem quotes a subject-to phrase, identify the fact being assumed and check the effective date. A current date with unfinished work signals a hypothetical condition; a future completion date signals a prospective value resting on extraordinary assumptions. Then pick the option describing the assumed completion and reject any option equating it with as-is value or with inspection of finished work.
Exam Tip
Determine the effective date before classifying the assumption; the same as-if-complete premise is a hypothetical condition on a current date and an extraordinary assumption in a prospective opinion.
Common Mistakes to Avoid
- -Using a subject-to-completion value as though it were the as-is value of unfinished collateral
- -Failing to disclose the condition clearly and state that results may differ if it proves false
- -Omitting identification of the specific plans and specifications the value depends on
Concept Deep Dive
Analysis
This question tests what a reader should take from the phrase subject to completion per plans and specifications. The value being reported is not the value of what stands on the site today; it is the value the property would have once the described construction or renovation has been finished exactly as the plans and specifications provide. That framing depends on an assumption about work that has not happened, and how USPAP classifies the assumption turns on the effective date. If the effective date is current while the improvements are unfinished, valuing the property as though complete contradicts a known fact and is therefore a hypothetical condition. If instead the appraiser states a prospective value with an effective date at the anticipated time of completion, the analysis rests on extraordinary assumptions about completion, quality, cost, and market conditions at that future date. Either way the condition must be clearly and conspicuously disclosed, the reader must be told the value may differ if the assumption proves false, and lenders commonly order both an as-is and a subject-to figure so that draws and collateral coverage can be managed against the correct number.
Background Knowledge
You need to know the difference between a hypothetical condition, which is contrary to a known fact on the effective date, and an extraordinary assumption, which concerns uncertain information that if false could alter the opinion, and that both require clear disclosure with a statement of their possible effect. You should also know that effective dates may be current, retrospective, or prospective, and that lenders on construction assignments typically require as-is, as-complete, and sometimes as-stabilized values.
Real-World Application
For a construction loan on a partially framed home, an appraiser reports an as-is value reflecting the site and work in place and a separate value subject to completion per the plans and specifications dated and identified in the report. Both figures appear on the transmittal page with the condition disclosed and its possible effect stated.
More USPAP Questions
Reconciliation of the approaches to value is best described as which activity?
Why should the reconciliation address the quantity of evidence as well as its quality?
How long must a report be retained compared with the workfile?
What distinguishes an appraisal review from an appraisal?
An appraiser reconciles to a value at the top of the indicated range because the client needs that figure. What has occurred?
What does it mean that a value opinion must be reasonable rather than merely arithmetically derived?
What should the reconciliation section explain to the reader?
How do the content obligations of the two report options differ with respect to the information analyzed?
The three approaches indicate $480,000, $495,000 and $610,000. What should the appraiser do first?
Three approaches indicate $1.02 million, $1.05 million and $1.04 million. How should this be reported?
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