The effective date is today. A proposed house is known not to exist today, but the appraisal assumes it is already completed per plans today. What premise is used?
Correct Answer
D) A hypothetical condition, subject to appropriate purpose, credibility and disclosure
The effective date controls the classification. If the house is known unbuilt on today’s effective date but is analyzed as completed today, the premise is a hypothetical condition. A prospective effective date after expected completion can present a different information problem; the words subject to completion alone do not settle classification.
Why This Is the Correct Answer
Option D is correct because USPAP defines a hypothetical condition as one contrary to what is known by the appraiser to exist on the effective date, used for analysis. Treating a known-unbuilt house as completed on today's effective date fits that definition. Its use is permitted only when USPAP conditions on purpose, credibility and disclosure are met.
Why the Other Options Are Wrong
Option A: An extraordinary assumption about future market trends after the house is complete
Option A is wrong because an extraordinary assumption about future market trends after the house is complete does not describe the premise. The issue is a known-false physical fact on today's date, not uncertain future trends.
Option B: An automatic jurisdictional exception
Option B is wrong because an automatic jurisdictional exception applies only when law or regulation precludes compliance with part of USPAP. Nothing in the facts involves a legal conflict.
Option C: A limitation excluding the site
Option C is wrong because a limitation excluding the site has nothing to do with assuming a house is complete. The site is part of the property being analyzed.
Date decides the label
Check the effective date first: if the premise is known false on that date, it is a hypothetical condition.
How to use: Use this to classify as-complete and proposed-construction premises.
Exam Tip
Read the effective date carefully; a current date plus an assumed-complete unbuilt improvement points to a hypothetical condition.
Common Mistakes to Avoid
- -Calling an as-complete-today premise an extraordinary assumption
- -Ignoring the effective date when classifying the premise
- -Assuming the words subject to completion settle the classification
Concept Deep Dive
Analysis
This question tests classification based on the effective date. The house is known not to exist today, and the effective date is today, but the analysis assumes it is complete today. A premise contrary to what is known on the effective date is a hypothetical condition.
Background Knowledge
Proposed construction can be appraised with different effective dates. A current effective date with improvements assumed complete uses a hypothetical condition. A prospective effective date after expected completion can raise different questions, often involving extraordinary assumptions about information that is uncertain.
Real-World Application
A lender wants the current value of a lot as if the planned house were already finished. The appraiser values it as of today under a hypothetical condition of completion per plans and clearly discloses it.
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