EA & HA Definition Changes
Appraisers, effective with the 2018-19 USPAP, definitions for Extraordinary Assumption and Hypothetical Condition have changed.
Below is a one page PDF sheet you can print & post at your office, and you may distribute this to others if you like.
According to the Appraisal Standards Board, the Extraordinary Assumption change was done to clarify the term and its applicability. It seems the same rationale was used for the Hypothetical Condition definition change, although that was not mentioned in their Summary of Actions document issued on Feb. 23, 2017.
Underlined words are the changes made. I also include the prior definitions below for comparison.
EXTRAORDINARY ASSUMPTION Definition:
2018+ → An assignment specific assumption as of the effective date regarding uncertain information used in an analysis, which if found to be false, could alter the appraiser’s opinions or conclusions.
Comment: Uncertain information might include physical, legal, or economic characteristics of the subject property, or conditions external to the property, such as market conditions or trends; or the integrity of data used in an analysis.
Pre-2018 → An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.
Comment: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.
HYPOTHETICAL CONDITION Definition:
2018+ → A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
Comment: Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.
Pre-2018 → That which is contrary to what exists but is supposed for the purpose of analysis.
Comment: Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.
Dave Towne on e-AppraisersDirectory.com
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So, if a report is “subject to” repairs, completion or renovations it’s a hypothetical condition ?
That is absolutely correct. If an appraisal is developed on the basis of a condition that is known to be false as of the effective date of the appraisal but is supposed for the purpose of analysis, then the appraisal is prepared using a hypothetical condition.
EXAMPLE: The foundation of the home needs major repairs, and the roof is caving in, but the appraisal is prepared “subject to” roof repair and foundation repair, employing the hypothetical condition that the repairs have been completed as of the effective date of the appraisal… Hope that helps.
Looks like they botched a couple good definitions. The new definitions will last a year then they will change them but in my opinion Hypothetical Conditions was perfect the way it was. Hypothetical Conditions are not contrary to what is known to an appraiser. To me that doesn’t even make sense
EJ….yes. Please read the bottom of the 1004 Form, page 2.
Duh
Jeff….it appears to me that you don’t fully understand the HC and EA concepts. For you also, the statements on the 1004 form help explain these.
I use hypothetical conditions when completing new construction reports and extraordinary assumptions when there may be a septic system in a pre 2000 built home so I understand H and E I just do not approve if changing the definitions of H and E. The 2018 definition for the Hypothetical Conditions seems inaccurate to me. After reading Mikes comments I can see exactly where they are headed grrrrrrrr
Jeff, the LITERAL definition of a hypothetical is “a condition which is known to be false but is supposed for the purpose of analysis”… i.e. – “I know this home does not exist yet, but I am appraising it as though it is already complete as of the effective date of the report.” Does that make sense?
That’s the perfect example
Well done Dave. I am so angry at this that I’m beyond livid. Though not typed here, my mind quietly keeps calling those responsible for this very naughty words.
I have another proposed change for 2019-2020. How about changing the definition of TAF from a quasi public-private enterprise responsible for USPAP and appraisal qualifications to…
a NOTHING? Cut all ties. Cut all authority. They have already ceded their integrity and betrayed the requirement to maintain public trust. Feds need to take back ALL tasks assigned by Congress to TAF.
These most recent changes are nothing more than an accomodation to the hybrid hucksters.
So now, rather than being required to research & verify traditional information TAF just gave carte blanche to side step all:
“Uncertain information might include physical, legal, or economic characteristics of the subject property, or conditions external to the property, such as market conditions or trends; or the integrity of data used in an analysis.”
So, put another way: “I didn’t check the property out or ask anyone about it other than using google earth; there is a gate, common area pool and other things but I didn’t check those out either.
I made no effort to see if the tenant in possession has paid any rent in the past year, and if so how much.
I don’t know what the impact of rent control is on the subject. The City is launching a massive redevelopment project in the area but I’m assuming it will have no impact and that the reasons for it were non adverse to begin with.
Fifty percent of area sales were REOs but I assume they have no impact on value or marketability.
Market adjustments are external to the subject property and inconvenient to obtain in the 15 minutes allocated to this appraisal and report so I just used my rote adjustments that I’ve used for the past half century; GLA $20 sf, Common rooms $1,000, Baths $531.73 per half bath and bedrooms at $3,003 each [except where there is a sliding closet with double doors and drawers underneath-those BRs are adjusted at $3,091.28].
Any and/or all information in this report was gathered in the field by the real estate agents’ handyman who tends to get most things more or less right when he is not drinking.
The rest of the information on the subject and all comparables was from MLS and word of mouth because we all know these are impeccable sources.”
EA#1 “I have made the extraordinary assumption for this specific assignment as of the effective date that none of these things done or not done, verified or not verified, made up for convenience or guesstimated without any support wont have an adverse impact on the comments and conclusions of this report.”
EA #2 I’m assuming the number shown for a value is more or less in the ballpark.
WELL DONE TAF !!!
In foreclosures the lenders asked appraisers for three different values; As Is, As repaired and the a cost estimate of the repairs! That was a can of worms, Were we to estimate repairs necessary for preservation of the structure, or WHAT? When the cost of repairs would not jib with the repaired value. We were asked for an as repaired value minus the cost of repairs. That is different than the accountant’s definition. We Appraiser’s have an obligation for clarity, or not?? My first appraisal text cites the same principles as the Latter institute texts, the Economic dictates have not changed, and the pressures from politics, and bankers, remain.
Changing , renaming, making our own dictionary, redefining “APPRAISAL” makes dues paying memberships appear as ???
Well said Don.
Just hypothetically speaking, what if the public trust has been eroded beyond repair by distributors, and continuing to alter the appraisers specific rules has become meaningless? Where is the continually evolving rules for management companies and other appraisal order distributors? Where is the ethical requirements for these people whom likely already outnumber appraisers? The end draws near.
I think when we all leave GSE work there will still be non lending clients that need to know what property is really worth. Let them ALL start using hybrids and evaluations for everything. I see a great new opportunity to team up with attorneys that file fraud claims arising from inflated values and for those that can hang on a couple years, great new opportunities after the next crash when they find out appraisers had NOTING to do with it! (Im not counting hybrid manufacturers as appraisers). Baggs, as for the rest of your questions – there isn’t even a pretense of integrity or ethics any more among those listed. Read the latest about wells fargo? Case in point. Yet people still do business with them. Unbelievable…
Holding back urge to post relevant and recent Liberty Report videos…. Credit up, equity down, spending continues at a record pace, and Pennywise is operating the underwriting department. “The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” ? Thomas Jefferson. My position continues to be; borrowing bad, owning good. Do not rent lease or pay service charges for anything if you can buy and own outright instead. There is no such thing as free, fools rush in.