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Extraordinary Assumptions vs. Hypothetical Conditions

This guide helps clarify the difference between Extraordinary Assumptions (EA) and Hypothetical Conditions (HC), in line with USPAP requirements.

USPAP Refresher

Extraordinary Assumption (EA)

You don’t know something for sure, but you assume it to be true in order to complete the appraisal.

  • Definition (USPAP): An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.

  • Use when: You're missing key data (e.g., interior photos, full inspection), but need to assume certain conditions exist as reported.

Example:
“Assuming the entire property is in similar condition to the rooms shown in provided photos.”

 

Hypothetical Condition (HC)

You do know the current fact—but you intentionally assume a different condition to analyze a proposed or future scenario.

  • Definition (USPAP): A condition that is contrary to what exists, but is supposed for the purpose of analysis.

  • Use when: You're analyzing a future or proposed situation (e.g., renovations not yet completed).

Example:
“Assuming the home has already been renovated to include an extra bathroom and upgraded finishes.”

 

Applying EA & HC in Practice

For Desktop Appraisals (No Physical Inspection)

  • As-Is Value: Use EA (e.g., assuming MLS data or photos reflect actual condition).

  • As-Repaired Value:

    • Use EA for the renovation being completed as planned.

    • Use HC for any changes that alter physical characteristics (e.g., added GLA, additional bathroom).

For Hybrid Appraisals (Inspection Provided)

  • EA: Assume the visible condition in photos applies to the entire property.

  • HC: Assume all planned renovations are complete (e.g., new GLA, upgraded finishes) for the ARV analysis.

 

Sample Language for Your Report

“The subject is being renovated per a provided scope of work that includes an added bathroom, 100 ± sf of GLA, and upgraded interior finishes.

As-Is Value: $[Insert Value] — developed under an extraordinary assumption (USPAP SR 1‑2) that the observed condition (e.g., C5) applies to the entire property.

As-Repaired Value: $[Insert Value] — developed under a hypothetical condition (USPAP SR 2‑2) that the renovations are completed as described, resulting in a higher condition rating (e.g., C2). The comp grid reflects as-is features; post-renovation features are analyzed and discussed in the reconciliation.

If any of these assumptions or conditions are false, the value conclusions may change.”

 

Best Practices

  • Clearly label assumptions and conditions in your report.

  • Disclose potential impact if assumptions are incorrect.

  • Tie your EA/HC usage directly to USPAP citations when possible.