1.2.7.1. Instructions, Hypothetical Conditions, Extraordinary Assumptions. Application of these Standards may require instructions from the acquiring agency. For example, agency instructions can provide clarification about the legal description of the property to be appraised and/or the property rights being acquired. Agency instructions that result in assumptions, hypothetical conditions, or extraordinary assumptions that impact the appraisal process or the appraisal results should be carefully considered before being issued. An appraiser cannot make an assumption or accept an instruction that is unreasonable or misleading, nor can an appraiser make an assumption that corrupts the credibility of the opinion of market value18 or alters the scope of work required by the appraiser’s contract. For example, it is improper (unless specifically instructed otherwise) for an appraiser to make an assumption that the property being appraised is free of contamination when there is evidence from the property inspection or the past use of the property that contamination may exist. Instructions should always be in writing, retained in the appraiser’s workfile, and included in the addenda of the report. 

Hypothetical Conditions. “A hypothetical condition19 may be used in an assignment only if: 

• use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison; 

• use of the hypothetical condition results in a credible analysis; and 

• the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions.”20 

The appraiser must always consult with the client and/or counsel before employing a hypothetical condition. If utilization of a hypothetical condition is required by the facts or nature of the acquisition, then written legal instructions must be provided to the appraiser and included within the appraisal report. The appraiser must also comply with USPAP requirements regarding disclosure and impact on the value conclusion.21 

Extraordinary Assumptions. “An extraordinary assumption22 may be used in an assignment only if: 

• it is required to properly develop credible opinions and conclusions; 

• the appraiser has a reasonable basis for the extraordinary assumption; 

• use of the extraordinary assumption results in a credible analysis; and 

• the appraiser complies with the disclosure requirements set forth in USPAP for extraordinary assumptions.”23 

It is improper for an appraiser to classify conclusions reached after investigation and analysis as assumptions. For example, after proper investigation and analysis, an appraiser can conclude that a probability of rezoning for the subject property exists, but it would be improper to assume such a probability. The appraiser must also comply with USPAP requirements regarding disclosure and impact on the value conclusion. 

Circumstances arise in which a legal instruction is necessary to properly complete the appraisal assignment. Examples of situations in which a legal instruction may be required include: unity of title questions in a larger parcel analysis, scope of the government’s project questions, compensability of damages questions, special benefits questions, and effective date of value questions. Resolving questions such as these is a proper role for agency counsel (and Department of Justice trial attorneys) and appraisers must follow their guidance. In situations where the legal outcome is uncertain, counsel may direct the appraiser to develop a dual premise appraisal.