When may a hypothetical condition be used under SR 1-2(g)?
Correct Answer
C) When required for legal purposes, analysis or comparison, and credible
Identify any necessary hypothetical condition. Its use must be clearly required for legal purposes, reasonable analysis or comparison, and must result in credible analysis. Meet the applicable reporting requirements, including clear and conspicuous disclosure and the statement that use might have affected results. A contrary-to-known-fact classification does not by itself permit arbitrary or biased assumptions.
Why This Is the Correct Answer
Option C is correct because SR 1-2(g) allows a hypothetical condition only if its use is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison, and its use results in a credible analysis. The appraiser must also meet the reporting requirements, including clear and conspicuous disclosure.
Why the Other Options Are Wrong
Option A: When an inconvenient fact is uncertain on the effective date
Option A, when an inconvenient fact is uncertain on the effective date, describes the territory of an extraordinary assumption, not a hypothetical condition, and inconvenience is not a basis for either.
Option B: Whenever the client wants a more favorable value conclusion to be reported
Option B, whenever the client wants a more favorable value conclusion, is wrong because a client's desired result does not meet the legal, analysis or comparison test and would undermine credibility and independence.
Option D: In mass appraisal assignments, but not single-property appraisals
Option D, limiting hypothetical conditions to mass appraisal assignments, is wrong because SR 1-2(g) applies to real property appraisals, including single-property appraisals.
Legal, analysis, comparison
A hypothetical condition needs one of three reasons: legal purposes, reasonable analysis or comparison, and it must still produce credible analysis.
How to use: Use this to test whether a proposed hypothetical condition is allowed.
Exam Tip
The correct answer pairs a legitimate purpose with credible analysis; reject options based on client desire or uncertainty.
Common Mistakes to Avoid
- -Using a hypothetical condition for an uncertain fact
- -Accepting a hypothetical condition just because the client asked
- -Believing hypothetical conditions apply only in certain assignment types
Concept Deep Dive
Analysis
This question tests the conditions for using a hypothetical condition under SR 1-2(g). Use is permitted only when clearly required for legal purposes, reasonable analysis or comparison, and when it results in credible analysis.
Background Knowledge
Hypothetical conditions assume something contrary to known fact, so USPAP requires a clear purpose and credible results. Common examples include valuing proposed construction as if complete or valuing a property as if a known defect were cured.
Real-World Application
A lender needs the as-completed value of a home under construction to underwrite a construction loan. The appraiser uses a hypothetical condition that the home is complete, which is required for reasonable analysis, and discloses it clearly in the report.
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