User:KTrimble/Extraordinary assumptions and hypothetical conditions

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A hypothetical condition is an assumption which is contrary to what exists but is supposed or assumed for the purpose of discussion or analysis.

Hypothetical conditions assume facts or conditions which are known to be contrary to known facts, whether about

• physical, legal, or economic conditions,
• or about conditions or facts lying outside the observable scope of discussion or analysis but potentially affecting the scope or results of analysis or direction of discussion (such as market conditions or trends known to be contrary to known conditions),
• or about the accuracy, reliability, or integrity of data on which an analysis may be based.

Hypothetical conditions are distinguished from extraordinary assumptions which are assumptions made also for the purpose of discussion or analysis, but regarding facts or conditions which are merely uncertain or undetermined.

The distinction between hypothetical conditions and extraordinary assumptions can carry a legal consequence and are most important in analytical fields 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

Examples of hypothetical conditions used in the course of analysis might include

• In a discussion or analysis of historical events assuming the hypothetical condition that Bobby Kennedy was not assassinated in 1968 and went on to become President of the United States (known to be contrary to fact) and attempting to extrapolate the resulting course of history.
• In the appraisal of property, assuming for purposes of estimating just compensation for the taking of property for a public use by a governmental entity that the proposed public improvement will not be constructed in an effort to isolate any impact on market values of project influence.
• Also in the appraisal of property, assuming that a property is zoned commercially or can be rezoned for commercial uses when it is in fact zoned residentially and there is no reasonable expectation that it could be rezoned commercially. Such a hypothetical condition would have to be assumed in order to estimate the impact on value of a past downzoning.

Examples of extraordinary assumptions used in the course of analysis might include

• In a discussion of creationism or evolution, assuming that God does or does not exist. The belief in the existence of a god is generally regarded as an element of faith. The assumption that God does not exist is an assumption of science under lex parsimoniae or Occam's Razor. The actual existence or non-existence of God is generally recognized as not being directly observable and not succeptible to logical proof. As such, any discussion or analysis which assumes the existence or non-existence of a supreme being would be based on an extraordinary assumption and not a hypothetical condition.
• In the appraisal of real estate, when an appraiser observes items which might potentially indicate the presence of environmentally hazardous material, but he has no direct knowledge of any environmental contamination and is not qualified to detect such conditions, he may continue to formulate an opinion of value under an extraordinary assumption that the property is not chemically contaminated, though as a practical matter, he would need to communicate the extraordinary assumption made along with the value conclusion.
• Analyzing data and reaching a conclusion when the source of the data, its accuracy, or its veracity may be suspect, but is not known to be completely false. The conclusions would be based on the extraordinary assumption that the data is accurate and reliable.

Applicability to Real Estate Appraisal

The main example where the distinction between extraordinary assumptions and hypothetical conditions can be a matter of law or professional standards include the field of real estate appraisal where the distinction is codified in USPAP in the United States (although the concept is clearly applicable to all forms of valuation).

Under USPAP, a real estate appraisal may be predicated on extraordinary assumptions under certain conditions, including proper disclosure and description of the assumption on which results are based to the client and third parties. The use of any hypothetical conditions, in contrast, is considered professionally inappropriate unless the use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison. The purpose of the distinction is to avoid the communication of assignment results based on conditions contrary to facts which might mislead third party users of the results into believing the existence of conditions contrary to known facts.