Hypothetical Condition or not

[Raven59]

I see where one or another, or both, might be used in appraising a new single-family construction. In appraising a single-family new construction, especially a custom home, the appraiser can assess the property's value under two different but related scenarios. The first scenario might involve evaluating the property to see if the construction is complete and estimating the future value to help the homeowner or investor understand the potential return on investment. The second scenario could involve an extraordinary assumption, such as the construction being completed on time and within budget. This focused appraisal helps the client, who already knows the current land value and associated costs, to predict how the completed project's value will compare under these assumed conditions. By combining these approaches, the appraisal provides a comprehensive view of the property's projected value and the financial feasibility of the construction project, facilitating informed decision-making in financing, project management, and investment strategy. All is client-driven.

 

[J Grant]

That may be true if 'hypothetical' is given its common definition. As an appraiser, doing and reporting an appraisal, the definition that matters is the one that you will find in USPAP. Opinions are opinions. They aren't hypothetical. They are to subjective to a greater or lesser degree. As you know... in appraising... a hypothetical condition means that I know it's not true but, for the purposes of analysis, I will pretend that it is.

The value opinion, by its nature, is hypothetical. It need not be stated as such, but it is -that is what constitutes an appraisal ( or estimate if it is a valuation )

The SCA ad defined in the MV opinion says the subject ( a house, for example ) the house closed/changed title as of the effective date in the appraisal. For example, the eff date of inspection/value is 3 days ago. Did the subject actually close and change the title 3 days ago ? No. It is a hypothetical appraisal "sale" for valuation purposes. On the cost approach, was the subject built/replaced 3 days ago? Of course not. It is a hypothetical event for valuation purposes. The MV uses the word implicit, which perhaps is a better word than hypothetical. Either way, it is not a real world actual event, it is created within the appraisal itself. In case certain people want to trash an appraisal for that, a valuation does a similar thing, but since a computer/AVM can derive it, it is called an estimate and not an opinion. The specified date in the appraisal is normally the effective date.

To sum up, did the subject, in real life, actually pass title/ consummate sale as of your eff date? 99.99 of the time, no, it did not ( or would not for a prospective date since it has not happened yet )

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

 

[J Grant]

The valuation date ( normally the effective date ) is what it is - past, present/current, or future. The appraisal constructs a hypothetical, implicit "sale" or rental or cost approach to get the value.

Any OTHER, additional assignment condition of the property that is an HC is on top of that (such as an HC subject to repair, completion, expanding to double size, etc )

 

[Mark K]

If you are doing an appraisal for a prospective market value, subject-to plans and specs, is that considered a hypothetical condition? Im probably over thinking this, but would appreciate any feedback.

I've never been asked for a 'prospective' date for a new construction SFR, assuming you're appraising a residential dwelling. Are you certain this is what your client wants? Did they ask for an effective date of 6-8 months (or whatever) in the future?

My reports have always been completed with a current effective date, subject to the HC of completed construction as per...

View attachment 86418

As if the improvements were already completed on the effective date of the report.

 

[Terrel L. Shields]

they are all hypothetical.

Not according to USPAP. A prospective value assumes (extraordinarily) that as of that future date, the property will be built and exist therefore is not contrary to what exists as of the date of appraisal. The assumption is that, in fact, it is built. Again, it's FAQ discussed in USPAP at #150 in the new edition.

I've never been asked for a 'prospective' date for a new construction SFR

Most of us haven't probably.

 

[J Grant]

Not according to USPAP. A prospective value assumes (extraordinarily) that as of that future date, the property will be built and exist therefore is not contrary to what exists as of the date of appraisal. The assumption is that, in fact, it is built. Again, it's FAQ discussed in USPAP at #150 in the new edition.

Most of us haven't probably.

Paste the FAQ 150, and I bet it is something different than what you just posted.

Again, and HC is nto a value issue - when dealing with plans and specs, the HC is subject co cpletion, so of course it is contrary to what is built today.

The valuation date itself can be past, present/current or future, regardless of what an HC i s made or not.

 

[Terrel L. Shields]

Paste the FAQ 150, and I bet it is something different than what you just posted.

Ye of little faith

 

[andrew81]

Current effective date - hypothetically it is built now

Prospective effective date - assumingly it will be built

 

[J Grant]

FAQ is not USPAP and imo the are wrong on this one -

 

[Terrel L. Shields]

See Std. Rule 1-2 (f) THAT IS USPAP.