As of the effective date, the appraiser knows contamination remains and remediation has not occurred. For an appropriate analysis, the property is valued as if remediation were complete on that same date. Which condition is used?
Correct Answer
B) A hypothetical condition
Assuming remediation complete contradicts what the appraiser knows exists on the effective date, so it is a hypothetical condition. An extraordinary assumption instead concerns uncertain information. Using a hypothetical condition must meet SR 1-2(g)’s substantive conditions and applicable clear and conspicuous reporting requirements. Neither missing evidence nor a client deadline makes an unsupported premise permissible.
Why This Is the Correct Answer
Option B is correct because USPAP defines a hypothetical condition as a condition contrary to what is known by the appraiser to exist on the effective date, used for the purpose of analysis. Valuing the property as if remediation were complete, when the appraiser knows it has not occurred, fits that definition, and its use must meet SR 1-2(g) and the reporting requirements.
Why the Other Options Are Wrong
Option A: A jurisdictional exception
Option A, a jurisdictional exception, applies when a law or regulation precludes compliance with part of USPAP, which is not what is happening here.
Option C: An extraordinary assumption about an uncertain fact
Option C, an extraordinary assumption about an uncertain fact, does not fit because the contamination status is known, not uncertain.
Option D: An ordinary assumption that needs no disclosure
Option D, an ordinary assumption that needs no disclosure, is wrong because assuming away a known condition is a hypothetical condition that must be clearly and conspicuously disclosed.
Known problem, as if fixed
When a known problem is valued as if already fixed on the same date, it is a hypothetical condition.
How to use: Use this for as-if-cured or as-if-complete scenarios on the current effective date.
Exam Tip
Look at what the appraiser knows on the effective date; a known condition assumed otherwise is hypothetical.
Common Mistakes to Avoid
- -Calling a known-fact premise an extraordinary assumption
- -Treating an as-if-cured premise as an ordinary assumption with no disclosure
- -Confusing assignment conditions with jurisdictional exceptions
Concept Deep Dive
Analysis
This question tests classification when the appraiser knows a fact and values the property as if it were different. Contamination is known to remain on the effective date, so valuing as if remediation were complete on that date is contrary to known fact.
Background Knowledge
Hypothetical conditions are often used to value a property as if a known problem were cured or a proposed change were complete. Their use must be clearly required for legal purposes, reasonable analysis or comparison, result in credible analysis, and be disclosed.
Real-World Application
A lender considering a remediation loan asks for the value of a house with a leaking buried oil tank as if cleanup were complete as of today, while contamination remains. The appraiser uses a hypothetical condition, discloses it clearly, and states that its use might have affected the results.
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