Hypothetical Condition?

[Zoe]

The E&O lawyer is the best one to answer how you handle this. I don't know.

Send your E&O lawyer a copy of the contract and see what they think.

 

[Zoe]

Send your State board a copy of the contract and ask them too. I don't know.

 

[Zoe]

Even better you pay your E&O insurance. Get their lawyer to ask the State Board.

You have privity established with your E&O lawyer.

 

[bsilver]

There is a restriction on the title. The property can not be sold for one year. The assumption that states the property has good and marketable title IS a hypothetical condition. The assumption of good and marketable title, as of the date of valuation, is a condition, specific to this assignment that is known to the appraiser to be false. That's a hypothetical condition whether you label it that way or not, as it is nevertheless employed. And because it is in the report, not mentioning it clearly and conspicuously that its use can impact value would be a USPAP violation. Without the HC you would necessarily need to discount the market value as of the date of appraisal.

The other alternative would be to make a prospective appraisal with a valuation date as of the date of release from the restriction with an extraordinary assumption that the property would be in materially similar condition. That opens another can of valuation worms.

I have recently been reviewing stacks of somewhat complex appraisal reports, most of which required the use of HC or EA for a variety of reasons. These two concepts, in my view, are the most misunderstood and misapplied tools in the appraisal toolbox. Be careful not to indicate an as is value as well.

 

[Zoe]

There is a restriction on the title. The property can not be sold for one year. The assumption that states the property has good and marketable title IS a hypothetical condition. The assumption of good and marketable title, as of the date of valuation, is a condition, specific to this assignment that is known to the appraiser to be false. That's a hypothetical condition whether you label it that way or not, as it is nevertheless employed. And because it is in the report, not mentioning it clearly and conspicuously that its use can impact value would be a USPAP violation. Without the HC you would necessarily need to discount the market value as of the date of appraisal.

The other alternative would be to make a prospective appraisal with a valuation date as of the date of release from the restriction with an extraordinary assumption that the property would be in materially similar condition. That opens another can of valuation worms.

I have recently been reviewing stacks of somewhat complex appraisal reports, most of which required the use of HC or EA for a variety of reasons. These two concepts, in my view, are the most misunderstood and misapplied tools in the appraisal toolbox. Be careful not to indicate an as is value as well.

And the appraiser don't know what market conditions will be in a year. So doing a prospective market value opinion is very risky without an EA and/or HC.

 

[Zoe]

Client probably needs to wait on the refinance until the date it can be sold. If the client is the same lender that financed the building, they can just carry the loan on a conventional loan for another year. Borrower will get a 1 year interest rate lock.

Borrower can carry it with current lender another year on 1 year interest rate lock.

Construction loan rates are usually a little higher on interest rate lock for a year. So they can refinance with current lender and probably get a lower interest rate lock for 1 year.

Sometimes construction loan interest floats with like prime lending rate from the FED. Like the bank wants 2% above whatever the bank has to pay the FED to borrower money overnight.

That may be what the owner/builder has at the moment and wants like a 2-3-5 year interest rate lock. Maybe longer interest rate lock.. That is not your problem.

Don't let the owner/borrower and your client make their problems, your problems.

 

[Sadie]

Current assignment is a new construction duplex. Upon inspection, the owner/builder provided me with the certificate of occupancy. On the certificate it stated under special stipulations and conditions that the owner/builder can not sell within 1 year of issuing certificate of occupancy. This is common in our market when properties are built by the owner/builder and did all the work themselves. So my main question is would I have to use a hypothetical condition to report a opinion of market value?
Since market value is
Market value is the most probable price that 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.

If the subject property can not legally be sold as of the effective date of the appraisal do I need to use a hypothetical condition to report a opinion of market value, which is based on the theory of what it would sell for as of the effective date. Since it legally can not be sold is it misleading to report a opinion of value without the use of a hypothetical condition?

Really appreciate any insight. Local appraiser saod I'm over thinking it and that since it's for a refinance transaction it doesnt matter. I told him that is irrelevant as I'm am reporting a opinion of market value regardless of its a sale or refinance transaction.

Client wasn't helpful either and had to explain more and waiting to hear back but was hoping to get some input from other appraiser's.

Thank you

HC is for something that you know not to be true. Maybe an EA.

 

[George Hatch]

If this was a 40-story office building as of the effective date it would be worth $1.99
(it's an if/then hypothetical because you know for a fact it isn't a 40-story office building).

I think this room addition is permissible and the property owner says they have permits, so I will proceed under the assumption it is permissible
(it's an assumption because you have reason to believe it might be true but you're not quite sure. It's an EA only because it's specific to this assignment and is not among the standard assumptions we commonly use for everything).