How do the terms extraordinary assumption and hypothetical condition differ?

The distinction between extraordinary assumption and hypothetical condition is crucial in appraisal practice, as defined by the Uniform Standards of Professional Appraisal Practice (USPAP).

An extraordinary assumption is a presumption about a fact that, if found to be false, could alter the appraiser's opinions or conclusions. These assumptions are based on information that is not verified but considered reasonable under specific circumstances, and appraisers must disclose these assumptions when they affect the value estimate.

On the other hand, a hypothetical condition is a situation that is contrary to known facts and is assumed for the purpose of the appraisal. This may involve scenarios that do not exist or are not expected to exist but are used to analyze potential outcomes in the appraisal process. Hypothetical conditions are often helpful in stress-testing value conclusions or estimating value based on unforeseeable changes.

The differentiation is vital because they serve different purposes in the appraisal process and require the appraiser to be clear about the basis of their value conclusions. Understanding the subtleties of these terms allows appraisers to communicate effectively and ensure compliance with USPAP guidelines.