Hypothetical Condition

[Diego Lopez]

Per USPAP standard 1.2g comment:

"Comment: A hypothetical condition may be used in an assignment only if:

• use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison;
• use of the hypothetical condition results in a credible analysis; and
• the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions."

A colleage been asked by client to provide a leased fee value based on a hypothetical lease (property not currently leased) and an addition of a billboard to the property (there is no billboard currently at the property) and a lease on said billboard.

Is this an acceptable use of a hypothetical condition since USPAP limits when we can use a HC?

 

[BRCJR]

It can be done.
The Appraiser must believe the lease would be considered reasonable, thus able to provide reasonable/credible results. Same goes with the factors around the billboard.

 

[RSW]

What is a hypothetical condition? It is a lie or something that is is not true. So, if the billboard is not there and the Client wants the appraisal done as if the billboard is there, then yes, it can be done. Treat it the same way you would for a proposed construction or repairs made to a property.

 

[Terrel L. Shields]

No problem. The client appears to want to know what it will be worth once such improvements are made and/or to see if it is feasible to make such changes. That's "reasonable" to me. The purpose of the appraisal would be for scenario analysis I presume.

 

[hastalavista]

What is the intended use of the appraisal?

 

[Diego Lopez]

No problem. The client appears to want to know what it will be worth once such improvements are made and/or to see if it is feasible to make such changes. That's "reasonable" to me. The purpose of the appraisal would be for scenario analysis I presume.

Yes, that is exactly it.

 

[Diego Lopez]

What is the intended use of the appraisal?

The intended use is for the client knowledge at this time. Just as a curiosity, if it were to obtain investment money to make such changes to the property, would it still be acceptable? Thanks!!!!

 

[hastalavista]

The intended use is for the client knowledge at this time. Just as a curiosity, if it were to obtain investment money to make such changes to the property, would it still be acceptable? Thanks!!!!

Then I would say this is exactly the kind of situation that an HC would be appropriate: "...purposes of reasonable analysis" and I wouldn't hesitate employing it with the necessary disclosures.

Good luck!

 

[Meandering]

A colleage been asked by client to provide a leased fee value based on a hypothetical lease (property not currently leased) and an addition of a billboard to the property (there is no billboard currently at the property) and a lease on said billboard.

The intended use is for the client knowledge at this time. Just as a curiosity, if it were to obtain investment money to make such changes to the property, would it still be acceptable? Thanks!!!!

STOP, STOP, STOP.

Billboards, typically on leased land, or leased space on the exterior of the building, not usually owned by the overall real estate owner, but rather is owned by the billboard company. There should be no change other than delineating the portion of the real property to be leased to a billboard company, if, there is a billboard company interested in the location.

The billboard lease should also indicate that the billboard company will be responsible to run all utilities to, and pay for the use of the utilities, blah, blah,

So, your billboard land lease, might also require utility pole or cable easements.
Which, could impact the overall utility of the remaining real estate.
BA-ZING!

So, if you guys are starting out asking the basic HC question, I would suggest, you guys partner up with a commercial appraiser who has some experience will billboards in your local market.

Otherwise, unless your building(s) are multi-tenant, there shouldn't be any change to the property, unless of course, some trees have to be removed for the billboard location, and someone hires an arborist to appraise those trees,
BADA-BOOM!

.

.

 

[Tom D]

also, based on the intended user this would be a 'restricted' appraisal. the recent USPAP had a lot to say on these 2 matters, you might want to look at their advisory opinions.