Hypothetical Conditions and FIRREA

[Terrel L. Shields]

You cannot simply ignore a permanently affixed industrial building located on the subject site without analyzing the highest and best use. If it has outlived its useful life, you handle it like Michael mentioned. If not, then the value would be subject to a hypothetical condition.

You can value ANY improvement OR land...period. Prove in USPAP you CANNOT. Insurance valuers do it all the time. And the same applies to community banks. Classic is the Manf. home financed by a MH seller. The bank wants the value of the LAND they have securing the loan. They don't have 1st mtg on the MH so it's not of interest to them if the land covered the LTV.

 

[George Hatch]

My understanding of the regs is that the "as is" is always required in addition to any HCs. It isn't discretionary on the appraiser's part and it isn't an either/or.

And although I'm familiar with the reasoning that a prospective value is based on EAs, I think that line of reasoning only holds up when the condition in question already exists. I.e., when existing building is worth $1M today, and the prospective value in 5 years is $1.3M then you have reason to assume that in lieu of info to the contrary an existing use will continue to exist.

That isn't the case when there are proposed changes, like a proposed construction or remodel. We know from experience and for a fact that some HCs never come into existence, so (TO ME) that negates the rationale of "I have reason to believe this exists as such but I'm uncertain of it so I have to make the assumption". As of today, that proposed office building is just a hypothetical that may/may not ever be built as proposed and/or may or may not be finished as of the proposed date. Everything about the project is hypothetical at this point. The projections about the market conditions at that time would probably still be based on an EA, but there is no "I think it's there but I'm not quite sure" basis which forms the basis of an EA.

We would never use an EA in a retrospective value opinion to value an improvement or condition that never existed in the past. We'd always use the HC instead. I don't see the current effective date as the dividing line for valuing something that doesn't exist as anything other than an HC.

Yes, I do realize that I hold the minority opinion on this one.