Extraordinary Assumptions and Hypothetical Conditions (Copy)

Extraordinary assumptions and hypothetical conditions sound similar, but they address fundamentally different situations in an appraisal. The easiest distinction is this: an extraordinary assumption concerns something that is uncertain, while a hypothetical condition concerns something the appraiser knows is not true as of the effective date.

An extraordinary assumption is used when relevant information is unknown but there is a reasonable basis to presume it is true for purposes of the analysis. For example, an appraiser may have reason to assume that a property is structurally sound despite an observed condition that cannot be fully evaluated during the appraisal. The assumption allows the assignment to proceed without pretending the underlying uncertainty does not exist.

The important feature of an extraordinary assumption is uncertainty. The appraiser does not know the assumed fact to be false. There must be a logical and supportable reason for making the assumption, it must be relevant to developing credible conclusions, and it must be clearly disclosed. If the assumption later proves false, the appraisal conclusions could change.

A hypothetical condition works in the opposite direction. It asks the appraiser to analyze the property as though something were true when the appraiser knows that it is not true on the effective date. The classic example is proposed or incomplete construction. The building may not yet exist in completed form, but the appraisal analyzes the property as though construction were complete.

Repairs provide another common application. A subject-to appraisal may assume that specified repairs have already been completed even though they remain unfinished on the effective date. Because that assumed condition is contrary to the known facts, the resulting value is dependent upon completion of the stated work.

Both tools allow appraisers to address circumstances that do not fit neatly within observable facts, but neither should be treated as boilerplate. The key question is what the appraiser actually knows. If the fact is uncertain but reasonably assumed true, an extraordinary assumption may apply. If the appraiser knows the assumed condition is currently false, it is a hypothetical condition. In either case, clear disclosure is essential because the validity of the value conclusion depends on the assumption or condition.