Hypothetical Condition

[Randolph Kinney]

Originally posted by Jim Plante+Sep 11 2005, 05:43 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Jim Plante @ Sep 11 2005, 05:43 AM)</td></tr><tr><td id='QUOTE'><!--QuoteBegin-Randolph Kinney said...
What about appraising raw land that is a mining claim. There is no "subject to" box to check on the land form. You are presented a title report that shows a boundary dispute. Your client wants to know what the value is with out the boundary dispute. That is a hypothetical condition that clear title can be delivered. Is this appraisal report being made "subject to" a clear title and a final resolution of the boundary dispute? No. That may never happen in your lifetime.

Egad, Randolph, don't let the form dictate the contents of the report. Yes, it *is* being made subject to a clear title being deliverable, if that's what you stated in the HC. Here's what I'd say in the reconciliation:
"The appraiser signing the certification on page X of this report concludes that the market value of the fee simple interest in the subject property as of {date}, subject to the hypothetical condition that clear title can be delivered, is $zzz,zzz."
Other reconciliations might include...
"..., subject to the extraordinary assumption that the observed termite damage does not compromise the structural integrity of the floor system."
"..., subject to the hypothetical condition that the subject's site size is the five acre site described in this report instead of the eighteen acres recorded."

If you use an HC or an EA, the opinion is "subject to" them. Client agreement to this condition should be of record in advance of the report being delivered, otherwise you can't use'em anyway.[/b][/quote]
I prefer the language as follows:

"The appraiser signing the certification on page X of this report concludes that the market value of the fee simple interest in the subject property as of {date}, using a hypothetical condition that the property value absent of the known condition of a boundary dispute, is $zzz,zzz."

That is restating the what the client ordered for an appraisal. He wants to know the market value assuming no boundary dispute. There may be other problems with the title that you know nothing about.

The phrases "subject to" and "as is" are found on Fannie forms. The land form has no such thing. Also found in the Fannie forms on the page of limiting conditions and certifications:

1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it. The appraiser assumes that the title is good and marketable and, therefore, will not render any opinions about the title. The property is appraised on the basis of it being under responsible ownership.

So, if you include the Fannie limiting conditions and certification pages in the land appraisal form, you should make reference to #1 in your final reconciliation. Or, if you don't use it, then copy and paste #1 in the final reconciliation and call it an EA.

 

[CANative]

Originally posted by Jim Plante@Sep 11 2005, 07:43 AM
"..., subject to the hypothetical condition that the subject's site size is the five acre site described in this report instead of the eighteen acres recorded."

If you use an HC or an EA, the opinion is "subject to" them. Client agreement to this condition should be of record in advance of the report being delivered, otherwise you can't use'em anyway.

Why is a HC necessary? The subject IS a segment of a property and not hypothetical.

 

[Otis Key]

Originally posted by Greg Boyd@Sep 11 2005, 10:05 AM
Why is a HC necessary? The subject IS a segment of a property and not hypothetical.

Because it's not legally partitioned off. Because it might be legal to partition it off as such. Because I'm not in the business of doing surveys or interpreting law.

 

[CANative]

Because it's not legally partitioned off. Because it might be legal to partition it off as such. Because I'm not in the business of doing surveys or interpreting law.

Those are not the issues that would require the use of a HC. The property under appraisal is either there or it's not there. Those issues are a basis for using EA's or doing more work.

 

[Carnivore]

Originally posted by Greg Boyd@Sep 11 2005, 11:16 AM

Those are not the issues that would require the use of a HC. The property under appraisal is either there or it's not there. Those issues are a basis for using EA's or doing more work.

Greg,

I am with you on this. In the other thread I advanced the thought on the need for an HC. No one can show us in USPAP that it would be wrong. Like you said, we only have to describe the property in terms that make it readily identifiable.

For example I might describe the property as being a portion of a 2 acre parent parcel,. I might go on to explain it with dimensions from a starting point. blah blah blah yada yada yada....

 

[xm72mhd]

Greg and Andrew,

I'm cooking (not really just warming up) buffalo wings (now that's a hypothetical if I ever heard one) to eat during the Bronco game.

You seem to be taking the position that if the subject improvements are sitting on the ground that there can't be a hypothetical condition since they are already there, on the ground. We can subtract or add any amount of land and no hypothetical is required sinc ehte improvement is already sitting there on the ground.

Doesn't that make the footprint of the house the only important thing with respect to hypothetical conditions involving the size of the site? I mean what you are saying seems to me if the house was suspended and just sitting on a trailer or something and you hadn't selected the site yet that the only hypothetical would be enough site to fit the house. After that nothing else counts. Is that what you are saying?

 

[CANative]

I'm saying that a HC can only be used when necessary.

House and 5 acre appraisal. Not necessary because the house actually exists and the land (as described) exists. There is nothing hypothetical.

Just the improvements. Not necessary because there are actual improvements to appraise.

What would this property be worth without the improvements? Necessary because you have to a property contrary to what exists.

A segment or portion of a parcel. Not necessary because the land is there (as described)

Propsosed construction: Necessary because you are giving value to something that is not there and must use a hpyothetical condition for purposes of comparison.

I have always had a problem with "house and 5 acre" appraisals for lenders because they want (and usually require) the appraisal reported on a form, which is not organized properly to report this type of appraisal. Trying to cram the information and explaining nuances of EA's and HC's on a form not designed for this purpose can result in a misleading report.

 

[T.E. Faravelli]

Here we go again! Denis, you failed to mention to Mr. Brenan the actual intended use and intended user of the five acre scenario. It is not necessary to invoked an HC to render a credible analysis. What is the basis for the HC? Out with it man! It is the lender attempting to yank your chain in order to put a square peg in a round hole.

I'm saying that a HC can only be used when necessary.

House and 5 acre appraisal. Not necessary because the house actually exists and the land (as described) exists. There is nothing hypothetical.

Get a grip.

 

[Carnivore]

Edd,

Yes, there would only be a need for an HC for the house that was not yet part of any real estate. You see your example makes it personal property.

This is very common in new construction proposed. The land is there but not the house. The land may be a building lot in an unapproved subdivision. You would have two HC's. one HC for the proposed house and one for the subdivision. The lot is actually there and no need for an HC. Course now we run into possible other problems with HBU if the s/d HC does not materialize. Then that is what a 'subject to' is for. :lol:

 

[hastalavista]

T.E.-

I intentionally did not use the 5-acre scenario because there is a reference to that in the FAQ (which I find really didn't answer the question).

My question was more general in nature: In our last 5-acre thread, there was an argument that an HC didn't need to be marked "subject to". I originally disagreed. My question to Brenan was trying to generalize the scenario (I thought the broader it was, the more likely to get a response).

From Brenan's email, I read it to say if the report is a narrative, the question is not applicable (and I agree). But what about the Fannie form? That’s what I was trying to get an answer to; if a HC is used in the development of the assignment, should the form be checked “subject to” the HC or “as is” since the HC is implied in the valuation?

I still see no clear answer to that.