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  #1  
Old 01-02-2012, 07:44 PM
PS111222333444 PS111222333444 is offline
 
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Default Retrospective Value Subject Vacancy & Pro Forma Periods

In utilizing a cutoff date for a retrospective value, would the date of death be most appropriate to use? And if so, would the associated pro forma period be the 12 months preceding the date of death or could it extend past this date?
My quandary is that the date of death is November 11, 2011. Two spaces in this commercial building were vacant for the year preceding the date of death and actively marketed. They were leased just prior to or shortly after the date of death and this impacts the value of the subject via the Incoma Approach.
Typically, I apply market rent to vacant spaces and then deduct for rent loss, leasing fees, concessions and other absorption costs (based on market data). In this case, I know leases were signed for these spaces towards the end of my pro forma period, so actually rent loss was nearly 12 months. However, market data earlier that year indicated a 6 month absorption period.
Appreciate any comments on retrospective cutoff dates Especially when they are close to current dates. And, can a pro forma period extend past the Retrospective Date of Value?
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Old 01-02-2012, 09:46 PM
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What is the purpose of this appraisal?
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  #3  
Old 01-03-2012, 01:12 AM
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What would a buyer of this property be thinking on Nov. 11, 2011?

Everything I do now is retrospective. By statute we are allowed to use data up to 90 days after the date of value.
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Old 01-03-2012, 11:38 AM
PS111222333444 PS111222333444 is offline
 
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Purpose is for estate settlement.
  #5  
Old 01-03-2012, 11:40 AM
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I think the conclusions and opinions would be more credible if you took into account the new leases around the date of value. More so than "pretending" that time stopped on the date of death.
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Old 01-03-2012, 12:04 PM
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Stephen J. Vertin, MAI Stephen J. Vertin, MAI is offline
 
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The USPAP requires the appraiser determine a logical cut-off because at some point distant from the effective date, the subsequent data will not reflect the relevant market. In most cases 6 to 12 months is not thought unreasonable. I would use the lease data. It increases the credibility of the report and there is no rule preventing it.
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Old 01-03-2012, 02:02 PM
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Howard Klahr Howard Klahr is offline
 
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I am a bit unclear from the original post - when exactly did the new leases commence?

Were they in the process of negotiation upon the DoD?

What about the alternative valuation date (i.e. six months subsequent to the DoD?

If the space was vacant as of the DoD and negotiations were not underway why would you choose to reduce the rent loss adjustment? After all, it is what it is.
  #8  
Old 01-03-2012, 08:26 PM
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Quote:
Originally Posted by PS111222333444 View Post
Purpose is for estate settlement.

PS .... thank you for your response.

The answer to your questions are largely dependent upon the needs of your client. Under IRS regulations an estate can be valued as of the Date of Death or as of an alternate date of valuation which is exactly six months after the date of death. The entire estate (ie Realty, Stocks, Accounts, Other Holdings, etc) must be valued as of the same date, either the date of death or the alternative date of valuation.

The altnernate date of valuation is in place to allow for drastic changes in markets which affect valuation of an estate. For example imagine appraising a large estate as of the date of death on September 10, 2001 knowing what happened on September 11. The markets changed tremendously one day later and the alternative date of valuation would have allowed for market recognition of events that would have effected the estates' value.

This is not a date that should be determined by the appraiser but should be determined by the estate or their attorney as it can have dire consequences on the valuation of the estate in total.

My experiences with the IRS have been such that they fully understand the variances in real estate regarding leases, dates of leases, dates of proformas, etc.. I think you are safe in utilizing data that was known as of the date of death or the alternate date of valuation, whichever is used.

Consult with your client, further discuss the options available to them, and then decide how to further address the issues you have.


Also be mindful that the definition of value within an estate assignment is that of "Fair Market Value" as defined by the IRS regarding the decedents gross estate. Google the definition and you will find the correct one.

I wish you the best of luck.
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Last edited by PropertyEconomics : 01-03-2012 at 10:19 PM.
  #9  
Old 01-06-2012, 08:12 PM
PS111222333444 PS111222333444 is offline
 
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Thanks everyone for the comments. It appears appropriate to use the leases as they were being negotiated just prior to the date of death.
  #10  
Old 01-07-2012, 11:02 AM
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That's only 60 days ago...I wouldn't think that the market would not change and wouldn't you typically assume "typical" performance rather than the actual performance. Was the vacancies "typical" or were they not unusual in the normal market of 11/11/11?...BTW that would be a great day to die on...
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