For an otherwise permissible hypothetical condition, a written Appraisal Report values a property as though its area were 10% larger than the known actual area. What disclosure is required?
Correct Answer
B) Conspicuously state the hypothetical condition and that its use might have affected the results.
The report must clearly and conspicuously identify the hypothetical condition and state that using it might have affected the assignment results. No single section heading automatically makes disclosure adequate or inadequate. Reporting duties are separate from the requirement that the condition itself serve a permitted purpose and yield credible analysis; disclosure alone cannot authorize arbitrary contrary facts.
Why This Is the Correct Answer
Option B is correct because an Appraisal Report must state all extraordinary assumptions and hypothetical conditions, and the report must clearly and conspicuously identify the hypothetical condition and state that its use might have affected the assignment results. Option B includes both parts. Users then know the value assumes an area different from the known actual area.
Why the Other Options Are Wrong
Option A: Document the assumed area in the private workfile, without stating it in the report.
Option A says to document the assumed area in the private workfile without stating it in the report. The hypothetical condition must be stated in the report itself, not kept only in the workfile.
Option C: State that a hypothetical condition was used without identifying the contrary assumption.
Option C says to state that a hypothetical condition was used without identifying the contrary assumption. The condition itself, here the 10% larger area, must be identified so users understand what was assumed.
Option D: Explain the assumption only if the client later requests clarification.
Option D says to explain the assumption only if the client later requests clarification. Disclosure is required in the report and is not conditional on a client request.
State it, flag its effect
Two things go in the report: what the hypothetical condition is, and that it might have affected the results.
How to use: Use this when a question asks how to report an extraordinary assumption or hypothetical condition.
Exam Tip
Look for the option that both names the condition in the report and states its possible effect on the results.
Common Mistakes to Avoid
- -Keeping the hypothetical condition only in the workfile
- -Saying a hypothetical condition was used without describing it
- -Omitting the statement that it might have affected the results
Concept Deep Dive
Analysis
This question tests the reporting requirement for a hypothetical condition in an Appraisal Report. The report must clearly and conspicuously state the hypothetical condition and that its use might have affected the assignment results. Options that hide the condition, leave it vague or delay disclosure fail that requirement.
Background Knowledge
A hypothetical condition is contrary to what is known to exist on the effective date but is assumed for analysis. It may be used only when permitted conditions are met, and the report must disclose it clearly with a statement that it might have affected the results. Disclosure does not make an otherwise improper condition acceptable.
Real-World Application
A client planning an addition asks for a value as though the home had the added square footage. The appraiser values it under that hypothetical condition and states in the report that the home is valued as if it were larger than its known actual area. The report also states that using the condition might have affected the results.
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