Playing Pretend
Using Hypothetical Conditions
In real estate, the questions I’m asked aren’t always about what’s physically there. Sometimes, I’m asked to value a property before it’s built or as if it were already renovated.
Whether it’s a vacant lot with blueprints, a homeowner completing a big renovation, or a fixer-upper with big investor plans — these are all moments where I’m asked to imagine a different version of reality.
And that’s when I turn to one of the most useful tools in my work:
The Hypothetical Condition.
First - a big thank you to Denis Desaix, MAI, for helping me clarify a few key distinctions while writing this. The appraisal world is full of nuance, and Denis gave me some additional insight on how to frame when hypothetical conditions apply — and when they don’t.
So, What Is a Hypothetical Condition?
In simple terms, a hypothetical condition is something I assume to be true for the purpose of developing a credible value — even though it’s not actually true at the time of the appraisal.
It allows me to answer the kinds of questions that come up when timing, plans, or circumstances don’t line up with what’s physically present today.
Questions like:
What will this property be worth once it’s built?
If I renovate this shell, will I make money on the resale?
These scenarios are all too common, and hypothetical conditions are a tool that enables me to provide answers that are meaningful and useful.
Let me show you a few ways this works:
1. New Construction That Isn’t Finished Yet
Sometimes, I’m asked to appraise a home that hasn’t been built — or isn’t finished yet. Maybe the framing is up, maybe it’s still just dirt and construction tape, but the buyer or lender needs to understand the market value once the home is complete.
In this case, I’m not valuing what’s physically there today. I apply a hypothetical condition that assumes the home is 100% complete, based on the builder’s plans, specifications, and construction timeline.
That means digging into the details — literally and figuratively. I review the building plans, finish schedules, and material lists. I look at everything from square footage and layout to cabinetry, flooring, siding, and appliances. I also research comparable homes (often within the same development or by the same builder) that have already been completed with similar design and quality levels.
In short, I’m answering the question: What would this property be worth in the current market — if it’s fully built, exactly as planned?
This helps everyone — from lenders to homeowners — make informed decisions before the project is finished, whether they’re approving financing, investing in the build, or planning for resale.
2. Subject-to-Completion for Renovation Loans (Existing Homes)
Sometimes, I’m asked to appraise a property that does exist, but it needs work — and that work is tied directly to loan approval.
For example: a homeowner is refinancing or buying a property using a renovation loan, and the lender wants to know what the home will be worth after the planned improvements are complete.
This is where a hypothetical condition comes into play.
I assume the renovation work has been completed as described — typically based on contractor bids, renovation plans, or a detailed scope of work. I review those plans carefully, then analyze comparable homes that reflect the post-renovation condition.
This helps lenders determine loan amounts, loan-to-value ratios, and risk — and gives the homeowner a sense of how the improvements will affect their property’s market value.
3. As-Is vs. After-Repair Value for Investors
Investors often come to me with properties that are in rough shape — outdated kitchens, damaged roofs, missing systems, or deferred maintenance everywhere you look. They know it needs work, and they’ve usually got a renovation budget and a plan. What they aren’t always confident about is:
What will this place actually be worth once it’s finished?
That’s where I step in — providing both an As-Is value (what the property is worth today, in its current condition if needed) and an ARV (After-Repair Value) using a hypothetical condition that assumes the improvements they planning are completed.
This process involves:
Reviewing the investor’s scope of work — what they plan to do, how extensive the renovations will be, and the quality of materials.
Analyzing recent sales of similar homes in the same area that reflect the level of quality and features the investor is targeting.
Being realistic about what the market will support — not just what the investor hopes the property will be worth.
My goal is to provide an objective, data-backed opinion of what the property could be worth once those specific improvements are completed. This helps the investor determine if the project pencils out, and gives lenders critical information if they’re underwriting renovation loans or short-term financing.
Why This Isn’t “Making Things Up”
I get it — “playing pretend” might sound like I’m inventing numbers. But that’s not what’s happening.
Hypothetical conditions are a formal, well-defined part of appraisal methodology. They’re allowed under USPAP (Uniform Standards of Professional Appraisal Practice) — as long as they’re reasonable, clearly stated, and appropriate for the intended use.
I don’t apply them casually or without good reason. When I use a hypothetical condition, it’s because the situation calls for it — and because my client needs a value tied to a different set of facts than what exists today.
In every case, I document the assumption in the report and explain how it affects the opinion of value.
Wrapping It Up: Helping People See the Full Picture
Real estate isn’t always about what’s visible. Sometimes, the most important decisions are based on what will be or what could be — if certain things happen.
That’s where hypothetical conditions come in. They let me fill in the gaps, answer the “what ifs,” and give people the clarity they need to move forward — whether that’s planning a build, making an offer, or securing financing.
So yes, I play pretend.
But it’s informed pretend — grounded in market data, sound analysis, and a clear understanding of the story behind the property.