Extraordinary assumptions and hypothetical conditions

Under the Uniform Standards of Professional Appraisal Practice (USPAP), they are two of the assignment conditions on which an appraisal assignment is predicated, the others being general assumptions, laws & regulations, supplemental standards, jurisdictional exceptions, and other conditions affecting scope of work.

[1][2] Making the distinction between the two is important when compiling or reporting appraisals in the United States or other jurisdictions where USPAP is considered the professional standard because USPAP has different specific disclosure requirements for each in an appraisal report and specifies different conditions under which each can be made.

[8][9][10][11] A hypothetical condition is an assumption made contrary to fact, but which is assumed for the purpose of discussion, analysis, or formulation of opinions.

The results of an analysis involving any hypothetical conditions are known to not be reflective of what exists because the assumptions on which they are predicated are contrary to fact.

If in the course of investigation, inspection, or research the appraiser discovers evidence which might call particular assumptions into question, he may still have a further decision to make regarding the scope of work.

[22] Although these concepts are of particular importance in the field of appraisal conducted under USPAP where they can carry legal consequences for an appraiser, they are generally applicable to any analytical field where calculations or representations of professional opinions based on such assumptions are communicated by a professional to a client or end user, such as through an attest function.

Examples include These two related terms are defined in the text of USPAP, and most appraisal literature and coursework have since been built around these definitions.

[35][42][43][44][45][46][47][48][49] Appraisal reports written where USPAP compliance is a requirement or assignment condition will usually be written with a separate section, or sometimes two distinct separate sections, enumerating and explaining the rationale for and effects on value or utility of all extraordinary assumptions and hypothetical conditions.

[22] The distinction between extraordinary assumptions and hypothetical conditions can be a matter of law or professional standards in the field of real estate appraisal in the United States where the distinction is not only codified in USPAP, but enforced by various state real estate appraiser commissions or professional boards.

[55][56][57] In a legal context, a presumption is defined as a conclusion derived from a particular set of facts based on law, rather than probable reasoning.

If a driver's blood alcohol content is measured above the legal limit, the law makes a presumption that he is intoxicated, even though a particular person's physiologically might be almost unaffected and his driving abilities might not be impaired.

In this context, the public entity is usually able to demonstrate that it was bargaining in good faith if the offer made was based on an independent appraisal.

A legal presumption which may be regarded as an assignment condition might include the legal presumption that in the after condition of a partial taking of real estate, the proposed public improvement is to be constructed expeditiously immediately after the date of taking and not delayed for years or decades as is often the ultimate practical reality.

An appraiser performing and communicating an appraisal under USPAP may estimate value assuming facts and conditions proscribed by a legal presumption, but a determination would have to be made whether the assumption is an extraordinary assumption or hypothetical condition and communicated appropriately as required under USPAP.

The observation of signs of environmental conditions may require the use of an extraordinary assumption that the property is not contaminated if the nature and extent of contamination are unknown or can't be determined by the appraiser, depending on the scope of the appraisal and the needs of the client.
The valuation of a property with proposed improvements or partially completed improvements as if completed will require the use of an extraordinary assumption or a hypothetical condition depending on whether the date of valuation is prospective or contemporary
An appraisal of a property with proposed multi-tenant improvements may involve the estimation of a value as of a prospective date assuming both the completion of improvements and the leasing of the property to a stabilized occupancy.
The valuation of property for estimating just compensation due for a partial taking of property for purposes of constructing a public improvement may involve the use of several extraordinary assumptions or hypothetical conditions in both the before and after condition in order to formulate estimates of overall just compensation due or damages from non-compensable items, including quantifying project influence, damages from diversion of traffic, condemnor's blight, temporary construction easements, general benefits, special benefits, and other factors, sometimes all in the same appraisal, or sometimes repeatedly for every property affected by a larger project involving acquiring right of way from several different property owners.