An appraiser knows an addition is unpermitted. The proposed assignment would value the property as if the addition were legally permitted, contrary to that known fact. What condition does this describe?
Correct Answer
B) A hypothetical condition, subject to the applicable use and disclosure requirements.
Assuming legal permission contrary to a known lack of permission is a hypothetical condition. An extraordinary assumption concerns uncertain information. Appropriate use must satisfy applicable requirements, and the condition and its possible effect on results must be clearly and conspicuously disclosed.
Why This Is the Correct Answer
Option B is correct because a hypothetical condition is a condition contrary to what the appraiser knows to exist on the effective date, used for the purpose of analysis. Here the appraiser knows the addition lacks a permit but values it as if legally permitted, which is contrary to a known legal characteristic. Its use must meet the applicable requirements, and it must be clearly and conspicuously disclosed along with its possible effect on the results.
Why the Other Options Are Wrong
Option A: An extraordinary assumption, because the known permit fact becomes uncertain when a client disagrees.
Option A is wrong because an extraordinary assumption concerns information that is uncertain. A client's disagreement does not make the known permit status uncertain; the appraiser still knows the addition is unpermitted, so assuming otherwise is a hypothetical condition.
Option C: No assignment condition, because the unpermitted addition is treated as legal.
Option C is wrong because treating the unpermitted addition as legal is exactly what creates an assignment condition. Valuing the property contrary to a known fact is a hypothetical condition, not the absence of a condition.
Option D: An extraordinary assumption that can be omitted from the report.
Option D is wrong on two counts. The situation is a hypothetical condition, not an extraordinary assumption, and assignment conditions of this kind must be disclosed rather than omitted from the report.
Known false means hypothetical
If the appraiser knows the fact is otherwise, it is hypothetical. If the appraiser is unsure, it is an extraordinary assumption.
How to use: Use this to sort assignment conditions by asking whether the appraiser knows the assumed fact is untrue.
Exam Tip
Look for the word 'known' or 'knows' in the stem. Assuming something contrary to a known fact points to a hypothetical condition.
Common Mistakes to Avoid
- -Labeling a known-false assumption as an extraordinary assumption
- -Believing a client's disagreement turns a known fact into an uncertain one
- -Leaving the hypothetical condition out of the report
Concept Deep Dive
Analysis
This question tests the difference between a hypothetical condition and an extraordinary assumption. The appraiser knows the addition is unpermitted, yet the analysis assumes it is legally permitted. Something assumed contrary to a known fact is a hypothetical condition, while an extraordinary assumption concerns uncertain information.
Background Knowledge
USPAP describes hypothetical conditions as contrary to known facts about the physical, legal or economic characteristics of the property, external conditions, or data integrity. Extraordinary assumptions concern uncertain information that, if found false, could alter the opinions or conclusions. Both require clear and conspicuous disclosure and a statement that their use might have affected the assignment results.
Real-World Application
A lender asks for a value as if a finished basement had been permitted, although the appraiser confirmed with the building department that no permit exists. The appraiser can use a hypothetical condition if its use meets the applicable requirements. The report clearly states the condition and that its use might have affected the assignment results.
More USPAP Questions
Under USPAP, what are assignment results?
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Under 2024 USPAP Standard 1, which listed assignment element must be identified in developing a real property appraisal?
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According to USPAP, what is the primary purpose of the Ethics Rule?
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Which list gives the sections of the 2024 USPAP Ethics Rule?
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