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Hypothetical Conditions

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liznindy

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Indiana
I am appraising a REO property and have run into a snag...


It seems the prior owner had some work done on his house (roof and vinyl siding) and for payment he allowed a 'dwelling' to be constructed on his "back 40"...Of course this back 40 is around 40' deep....Now there are two dwellings on this urban lot.

I am sure this is not legally permissible (have not yet done all my homework) and am anticipating (sp) the client will want me to go ahead and appraise the subject structure only.

This scenerio brings up an interesting question.

While doing some light reading of USPAP...I understand it to read that Hypothetical conditions and extraordinary assumptions can be utilized in the appraisal process ONLY IF the use of such results in a CREDIBLE analysis.

Would the use of a hypothetical condition in this instance (ignoring the second structure) result in a credible analysis??

I am thinking it would not be a credible analysis but am looking for some input on this one.


How can an appraisal be done on this property in compliance with USPAP....What is a credible appraisal in this instance........

Side Note: The broker involved said he has completed his BPO and did not include the rear structure.
 

Jeff Horton

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Alabama
If you think the second building is not permissible (legal) and would have to be torn down then it would have no value most likely. Your appraisal would (in my mind) be very credible.

Or if it is in poor shape or quality does i have any value? If it has no value you could just include it and state no value.

Food for though.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Yes, no and maybe. :D

The second dwelling could be STORAGE. Mother-in-law homes could be allowable. You can't go bouncing in and say "is the 2nd dwelling at 123 4th street legal?" That opens you up to a big can of worms that can end up costing you.

I would check the zoning and see what is allowable in the area in a "general" sort of way. If the dwelling is allowable as storage, then treat it as such. But don't report it to the Permit Department. Remember, there is a statute of limitations on a lack of permits (2 years, say). Also, check the possible penalities. It may just be a fine if they find it.

In summary, just because it is illegal doesn't mean it doesn't have value.

Roger
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Liz,
USPAP does not define "credible" and the USPAP Instructor's Manual defines it only by what Webster's says. They opine - we decipher.

A good test for reasonableness of assumptions is whether you have to make them in order to answer the client's legitimate question. In your case, it sounds reasonable to me that someone would want to know what the property is worth without that "illegal" thing sitting on it. Also, you might consider using the cost of removal as the basis of an adjustment. That might eliminate your hypothetical and still answer your client's question.
 

liznindy

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Indiana
Thank you all for your input.

It appears the subject site has been split (rear half has seperate parcel number, legal, and different owner), so I will appraise the subject and its parcel.

After further reading in USPAP, it appears it is up to the appraiser to decide if using hypothetical conditions and extraordinary assumptions would provide a crediable analysis.
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Liz,...... Phew, seems you got the supporting info to make the follow-through easier. I had a recent hypothetical situation......the ol' 5-acre minimum thing was part of it all. The overall property had uniqueness above-and-beyond others in the market. As these things became known to me (and before the assignment was fully launched) it was incumbent upon me to share the key data with the client in such a manner that it became recorded ....and allowed them to clearly define their "scope" for my report. I will usually e-mail a client stating specific and important facts about the property, and requesting their clarification for what they want me to define, include or do. We all know how dis-interested and un-involved most client (contact) persons care to be, but my e-mail is clear that I NEED their reply before I can start......or keep the appointment I have already set. If their "reply-to-sender" e-mail is understandable, and explains in some manner that they grasp what I have already shared with them about the property, then the results they get in the final report have less likelihood of requiring re-explanation or re-writing in some other manner. Always and often, its a client of a client who has the issues to resolve. I print their e-mail reply as it was added to my original e-mail to them, and in the file that page goes. We have to "force" these guys to communicate with us in-writing.......not these random, hasty phone call messages.
 
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