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Hypothetical condition?

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Pat Butler

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
I have a client that wants to ingore a porch for value purposes. It's OK to show it everywhere on the form, but they don't want any value associated with it. I know that a hypothetical condition would work, but is there a simpler way to develop/report this sort of thing when a client has specific instructions regarding there desire to not show value for pools, sheds, etc.?
 

Verne Hebert

Senior Member
Joined
Feb 25, 2002
Professional Status
Certified General Appraiser
State
Montana
Why don't they want to show it? If you don't have a porch, then do you have legal egress? Is it encroaching on the street or something?

State your client requested condition in the letter of transmittal, body of report, and in the limiting conditions--put it in bold.
 

Pat Butler

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
Actually, they had intially ordered a 2055 drive by. I requested an interior inspection and did the report. The back yard of the subject property slopes down and the swimming pool and landscaping were in the way of getting a decent picture of the porch itself. A portion of the porch did appear in the photo however and it's on the sketch. Of course the 2055 form doesn't have a lot of space for a description of the subject's improvements. The porch just shows up on the adjustment grid. I refuse to turn a 2055 into a 1004 by adding all sorts of addendums unless it's for USPAP purposes.

The underwriter wanted a full picture of the porch-- imagine that- they intially ordered a drive by appraisal that wouldn't show the porch anyway- now they want all sorts of details on the porch. The lender would rather not pay my fee for making a trip just to take another picture. The LTV is really low so the lender told me to just ignore the porch for value purposes. Seems very reasonable to me. I can save them money and still give them an appraisal with a hypothetical condition that satisfies their underwriting requirements.

I have a number of clients who, for one reason or another, do not want value attributed to decks, pools, etc. It would be so nice if USPAP just allowed a simple statement like, "..the client has requested that the appraiser not attribute any value to....." Instead, we have all this other garbage to contend with.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
That is the strangest thing I have ever Whoird! (thanks Curley). To answer your question...yes it is!
 

larryhaskell

Senior Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Nevada
Pat:

Since when does the client decide what you contribute value to?
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
The client does not dictate what you put in the report. It is your report. If the porch has contributory value, and you want it in, leave it in. Tell the UW to strike the contributory value from your report if they want for lending purposes but that you are leaving it in.

If they had requested this BEFORE you made the inspection you could put something like this in the report in 2 or 3 places:

"At the specific request of the client, no contributory value is to be assigned or considered for any porches attached to subject's improvements. For purposes of making this a hypothetical report, the appraiser will comply with this request.

This is a hypothetical appraisal in that at the specific request of the client, all of the contributory elements of the subject are not considered. Insofar as this is a hypothetical appraisal, the final estimate of value contained in this report may not have any relationship to the actual market value of the subject were all elements considered in forming an opinion of value. "


Type it out in one place. Then cut and paste it in a couple of other places in the report. That should take care of that. (And earn you a couple of phone calls from the LO and UW)
 

Don Clark

Elite Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
8)

The purpose of a hypothetical is to do an appraisal as tho the subject of the hypothetical did not exist. Hypothetical: That which is contrary to what exist(USPAP Definitions section).

There are many reasons for using hypotheticals:

1. Environmental contamniation for which a cost to cure cannot be estimated.

2. Agreement of the parties to a contract,

3. Condition for which the appraiser has no expertise to resolve.

4. At the request of the client, whatever the reason.

However, USPAP also cautions us that we must clearly define in the report, the subject of the hypothetical, and that to the extent possible, what effect it may have on the opinion of value. The resulting opinion will be an opinion (usually) of market value as tho the condition does not exist.

We do this stuff all the time. Example....A retrospective appraisal of a land site prior to any improvements. A prospective appraisal... a vacant site with a set of plans and specs that describes a house, landscaping, grading and finishing, with an opinion of value as to what that will be worth when complete.

I had a for sale by owner call me that wanted to sell his home to a tenant that had been there over 12 years. They wanted the value to not include 2 rooms added by the tenant, a deck, and a detached garage. They got what they wanted. lender was happy as the lender knew by the way the report was written that there was more value in the property than what was expressed in a hypothetical.

Question: Since when does the appraiser have the authority under USPAP to decide what type of report(URAR, 2055, etc) to provide the client? You should take a good look at your USPAP. That is a client decision, and you should be able to develop a scope of work and a credible report based on what the client, not you, wants. Example: Client wants a report with an opinion of value on a subject property and states that you are not to do an inspection, even a drive by of the subject and comps, no photos, and do it as a desk top appraisal report. USPAP compliant? You bet it is. Having said that, it is an appraisers decision to accept or reject an assignment. However, you cannot dictate the type of work that the client wants. If you doubt me, carefully read USPAP, and please, make sure you get an early copy of the 2003 USPAP and read it as well.

Don
 

Pat Butler

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
Don, you said, "However, USPAP also cautions us that we must clearly define in the report, the subject of the hypothetical, and that to the extent possible, what effect it may have on the opinion of value. The resulting opinion will be an opinion (usually) of market value as tho the condition does not exist."

Where did you find that? I searched USPAP and the Q&A book and couldn't find that but am probably overlooking it. I agree that hypotheticals can be used for many reasons and are usually at the request of the client. Thanks!
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Pat,
Here are the cites

2-1c: "clearly and accurately disclose any extraordinary assumption, hypothetical condition, or limiting condition that directly affects the appraisal and indicate its impact on value."

1-2(e)(v): "identify...whether the subject property is a fractional interest, physical segment, or partial holding;"

My view is that partial values tend to be complex assignments. It might take quite a bit a searching and analysis to prove the contributory value of exerior square feet.
 
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