Hypothetical Condition

[CANative]

Edd

I'm not ignoring you. You ask goood questions and make good points and I read your posts with interest.

On this issue I must admit to possibly being in a bit over my head. There is no clearly defined, single point rule on this and it appears to hinge on the intended use of the appraisal and the intended users. It may also be a matter of opinion and interpretation because no one can seem to get on the same page. Read the Q&A in the link I've posted below. The ASB qualifies their answer with the term "may."


ASB Q&A See page 2 of 2

 

[xm39hnu]

Originally posted by Andrew Picarsic asked...
You guys who practice condemnation work, how do you handle this?

You use an HC. You value the prop before the take without considering any impact of the project. This requires an HC that the project doesn't exist. Then you value the prop after the take, considering all impact of the project. Requires two HC's: one for the new parcel size; another for impact after a not-yet-completed project. Calculating damages might also require a separate HC in some cases. (What if the "take" reduced the parcel size below zoning minimums, for example. Or created a situation where the footprint was too big for the remaining lot, or left insufficient room for parking?)

As it happens, I had to appraise some sewer easements subject to the Uniform Act. They were 10' wide; length varied. This required a few oddball HC's that you don't run into every day. One was parcel size. Required an HC that the 10'-wide take was an economically marketable size; that it was usable for the same economic purposes as a normal residential tract; that the tract could legally be used under current land use regulations for SFR.; and that an open and active market for such encumbered tracts existed (How many signs have you seen advertising "Sewer easement for sale"?)

Condemnation was not as good an example as you might have thought. Durn stuff is FULL of HC's, EA's, and Jurisdictional Exceptions.

 

[Carnivore]

Edd, I am not ignoring you. I am trying to answer your inquiry by using some of the experts on this forum.

FTR: I reserve the right to edit this specific post at a later date. I wanted it to proceed Jim Plantes condemnation example because it goes directly to Greg Boyds previous post about intended user and intended use.

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It seems to me that the HC is or should be employed only when certain necessities arise. When you dissect the meaning and USPAP requirements it becomes clear that the intended use/user is the key element.

I will not argue agaitns Jim's condemnation example that HC's are necessary and requred for the assignment.

SR-1 (h) identify any hypothetical conditions necessary in the assignment.

Comment: A hypothetical condition may be used in an assignment <span style='color:red'>only if:
§ use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison; YES, He needs this§ use of the hypothetical condition results in a credible analysis; and Yes, again, He needs this for credible results
§ the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions.</span> Again He needs this so that its clear to the readers on just what he did

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My example is for possible probate. Essentially, a client wants to learn how much their portion of an estate will effect them tax wise on a specific date. The client is aware of the limitations to this type of analysis, because of the effective date but is ready to assume that this parcel will most likely be worth more at a later date.

The client wants the market value of this segment as of today. The segment is part of a parent parcel that the other siblings will share in equally by land area. The client has identified the segment they will receive by walking it and drawing it out on a piece of paper. I have that paper.

I dont think I need an HC to comply with USPAP. I clearly can identify the parcel. There are no legal requiresments to be met. My results will be credible in spite of any current legal description. I have disclosed in my SOW what I did and why.
Essentially, I met SR1 USPAP requirements and did not mislead any Intended User.

Now, If your not an intended user!!! Well all I can say is to bad for you.

 

[Fred]

Jim is right about condemantion, but I don’t think you will see a lot of hullabaloo in condemnation reports about HC’s. Most appraisers simply have a section called value before the taking and one called value after the taking. Most economic damages lend themselves to a before-and-after arrangement. However, I would disagree with Jim about the jurisdictional exceptions.

 

[Otis Key]

Edd, Greg & Greg, et al. I think what the problem is comes down to what the problem is with USPAP. It's a "one size fits all" situation when we all know there is no such thing. USPAP is intended to govern all aspects of appraising when each aspect is, in and of itself, different. What applies to commercial does not always apply to residential. What applies to condemnation does not apply to work intended for financing purposes. From what I see of many of the posts, in many different topics, is that we all tend to search for the "one size fits all" answer.

In some cases we to use an HC, in others an EA and in others there isn't anything needed except the mark in the "as is" box.

Good points all.

 

[xm39hnu]

Originally posted by Steven Santora posted...+--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Steven Santora posted...)</td></tr><tr><td id='QUOTE'>However, I would disagree with Jim about the jurisdictional exceptions.[/b]

<!--QuoteBegin-From the report
Jurisdictional Exception

Jurisdictional Exception is taken from Standards Rule 1-4 (f), which states: “An appraiser must analyze the effect on value, if any, of anticipated public or private improvements, located on or off the site, to the extent that market actions reflect such anticipated improvements as of the effective appraisal date.”
The Uniform Act designates the Department of Transportation (The Department) as the lead agency for implementing the Uniform Act. The Department has delegated this responsibility to the Federal Highway Administration (FHWA) [49 CFR 1.48(cc)]. Pursuant to section 213 of the Uniform Act, the FHWA promulgated a single government–wide regulation for implementing the Uniform Act, at 49 CFR Part 24

49 CFR Part 24.103 (b ):Influence of the project on just compensation. To the extent permitted by applicable law, the appraiser shall disregard any decrease or increase in the fair market value of the real property caused by the project for which the property is to be acquired, or by the likelihood that the property would be acquired for the project, other than that due to physical deterioration within the reasonable control of the owner.

The Jurisdictional Exception Rule of USPAP states: “If any part of these Standards is contrary to the law or public policy of any jurisdiction, only that part shall be void and of no force or effect in that jurisdiction.”

The “applicable law” referred to by 49 CFR 24.103 is USPAP's SR1-4(f), which would seem to negate the provision of the regulation. However, public policy, established by the Federal Highway Administration, demands that a property owner not experience any diminution, or windfall increase, of his just compensation as a result of a public project, and that therefore the effects of the project should be disregarded in appraising such property. Consequently, we treat the requirements of 49 CFR part 24.103 as explained by the Federal Highway Administration, to be controlling. We take jurisdictional exception to SR 1-4 (f).

Departure from Uniform Standards
By the terms of the contract under which the appraisals are performed, we may not consider any enhancement or diminution of the value of the subject properties which occurs as a result of the project. Standards Rule 1-4 (f) requires that we consider the influence of public projects. Under many circumstances, such consideration would seem to be both relevant and necessary to a credible opinion of value. If that were true, no departure from the specific requirement would be permitted absent jurisdictional exception. In the analysis of the Henry market, we find that, although the project has been public knowledge practically since its inception, no extraordinary changes in land values have occurred.

According to the Departure Rule of USPAP a specific requirement (such as SR 1-4 (f)) is applicable when it addresses factors or conditions that are present in the given assignment. Since there appear to have been no changes in value attributable to the project, any analysis addressing such changes would be superfluous and unnecessary. Since the analysis is unnecessary, no departure from the uniform standards is taken, and the appraisals of the easements remain complete appraisals.
[/quote] Still disagree?

 

[xm72mhd]

Originally posted by Otis Key@Sep 12 2005, 05:46 AM
From what I see of many of the posts, in many different topics, is that we all tend to search for the "one size fits all" answer.

ASTUTE and WISE. See there is something to be said for getting old. I agree we do tend to have tunnel vision and instead of listening we tend to try and "sell" our point.

I guess you knew I would twist this into my favorite saw. We need to encourage questions!

I learn a lot (or was it alot?) from you guys. I was stuck on the "subject to" shift in the HC circumstance, and I didn't think as globally as Andrew to include a limited and restricted appraisal of an undivided part for something other than lending.

I share in the USPAP frustration, but the more I read it the more flexible and profound it is. Don't tell those foundation types I said that.

 

[Fred]

Jim, I don’t want to sidetrack the thread, but.

Still disagree?

Whoever wrote that needs to read USPAP. Those are all “scope” issues covered within USPAP, not exceptions to USPAP.

Maybe I should stop there.

USPAP requires that we identify the “relevant characteristics” of the subject. If a public project, ie condemnation, changes properties, those changes are not “relevant” to value for calculating compensation related to that same project (in the federal jurisdiction). Intended uses change the defined subject property (relevant characteristics). That is not contrary to USPAP. That is USPAP.

 

[xm39hnu]

Steve,
Maybe so, but I won't bet my license on a redneck judge drawing distinctions that fine. USPAP says "..appraiser must consider..."; federal client says "...appraiser may not consider...". Would you be willing to bet on a favorable judicial review? I wouldn't.

 

[Jim Onderisin]

Greg: Given a house on 10 acres with lot lines of record. A client wants the house and 5 acres appraised. The 5 acre parcel does not have lot lines of record. The house and 5 acres does not legally exist. Only the house and 10 acres legally exists... no matter what the client wants. When I appraise the house with 5 acres, I am appraising something that does not exist, so I must use a hypothetical condition. My appraisal is subject to the hypothetical condition.

Now, the appraisal forms have little boxes to indicate 'as-is', 'subject to completion', or 'subject to some type of condition'. Maybe those boxes are creating the confusion here. If my appraisal is subject to the hypothetical condition of 5 acres when the property really has 10 acres, can I check the 'as-is' box but be sure that the hypothetical condition is well explained throughout the report? Or, should I check the box that says 'subject to a condition' and then explain the hypothetical condition?