As Of Effective Date: Meaning

[J Grant]

Say that, this morning, it is announced that Apple was relocating their headquarters from Cupertino, CA to Palm Beach Gardens, FL. Do you think that what sale prices were yesterday (in either location) make any difference at all today?

If the effective date was yesterday prior to announcement, the market value opinion would reflect what was known and existed yesterday. Boo hoo, order a new appraisal after the announcement if it's to set a list price or what offer to accept. Appraisals that develop market opinions of value ar limited in time and scope. That is why clients or users are free to order a new one at any time!

 

[Ken B]

The only constant is change. Whether it be slow change or rapid change, there is still change. Which is why the effective date of the appraisal is so important. If there are three model match properties that all sold yesterday for X, today, the same model match property would likely sell today for X +/- Y.

We need to develop and support the Y. And we do not do that based on yesterday's news, nor yesterday's exposure time.

If we want to get really technical, we need to discuss if the meeting of the minds occurs on the contract date or closing date as well as consideration of such factors as penalty that may result from a failure by either party to not comply with the terms of the contract agreed upon as of the contract date on or before the agreed upon closing date.

 

[Ken B]

Say that, this morning, it is announced that Apple was relocating their headquarters from Cupertino, CA to Palm Beach Gardens, FL. Do you think that what sale prices were yesterday (in either location) make any difference at all today?

If the effective date was yesterday prior to announcement, the market value opinion would reflect what was known and existed yesterday. Boo hoo, order a new appraisal after the announcement if it's to set a list price or what offer to accept. Appraisals that develop market opinions of value ar limited in time and scope. That is why clients or users are free to order a new one at any time!

Not sure what this is supposed to address as it argues against a point not made.

 

[Howard Klahr]

the definition demands it be based on retrospective acitvity (closed sales).

Closed sales are not stated anywhere in the definition of market value. In fact you don't need any sale transactions at all to provide a credible and supportable opinion of market value.

It is assumed the parties of all the closed sales paid a price that reflected the present value of future benefits.

That is 100% correct. At the time they occurred. Unfortunately for your assertion, they did not occur simultaneously with the effective date of value of your subject property. Hence, changes in market conditions may in fact have occurred. Up, down or even remained stable, But unknown without proper analysis of the market. That analysis would include the transactions used as comparables yet also incorporates other data too. The analysis is not performed in a vacuum.

Isn't value always based on "backward thinking", aka past historic evidence of prices/marketing times?

No. Value is a forward looking concept. An analysis of historical trends may encompass part of an analysis for valuation. However, have you not ever heard the phrase that past performance is not necessarily reflective of future performance. Where do you think that came from?

Furthermore, if your assertion about sales was correct, then AVMs would be far more accurate than they actually are. Valuation would then just be a mathematical formula.

In RE, agents develop CMA's based on closed sales to show buyers what they think a property is worth.

They also include other information as well.

value is supposed to have an enduring element, one that is "more" than a passing or rapidly changing market trend.

Where have you obtained this incorrect concept. Appraisal reports provide opinions of value as of the effective date stated within the report. There is absolutely no extension of value into the future. Not by a day, a week or a year. Re-read the definition of value ... the word enduring is not stated anywhere in the definition.

 

[J Grant]

The only constant is change. Whether it be slow change or rapid change, there is still change. Which is why the effective date of the appraisal is so important. If there are three model match properties that all sold yesterday for X, today, the same model match property would likely sell today for X +/- Y.

Our engagement is not to develop a sale price today (what property would likely sell for today) We could if that were purpose of assignment, however it's not the purpose of assignment when purpose is to develop a market value opinion. A client wants a value opinion rather than a sale price opinion, because a MV opinion also factors in enduring elements of value (the quality of the property itself , adjusted for against other properties, underlying land value, cost to build etc)

These value elements are why large $ amounts are loaned on, or paid for properties, because people rely on these elements as intrinsic to the property throughout the changing market change cycles.

 

[Ken B]

Just shoot me...

 

[J Grant]

Where does the word sale price occur in the market value definition?

 

[Ken B]

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby

Focusing on two aspects: most probable price a property should bring. Should means per the per the appraisal development itself, linked to the MV definition. The verbiage is not a speculative most probable price a property would bring (on) effective date. (would if Y happens)

The verbiage as of is used instead of "on"; because of the below;

Implicit in the definition is consummation of sale and passing of title AS OF X effective date. Since sale prices of contracts are typically negotiated before a property closes and passes title, doesn't this verbiage imply the price of subject was set prior to effective date? It even states "implicit in this definition" . A time adjustment can bring retrospective activity such as the sold comp prices current to today's effective date, but a time adjustment can't take us beyond the effective date to a future value (unless deriving a future value is the purpose of assignment)

I post this because agents ( and some appraisers) feel that appraisal results of market value opinions are "behind" the market. (behind future direction of the market) If that is so it is by design per the MV definition itself. I presume this is intentional since a value opinion is by design somewhat different than a pure price opinion. A price opinion can be more speculative in the future, or based only on today, vs a value opinion which is reliant on past events to support it.

 

[J Grant]

I did not say the word enduring is in the MV definition. I said, MV opinions by their very nature include enduring elements of value intrinsic to a property , which differentiates them from price opinion. MV opinions are developed including analysis and adjustments for enduring elements such as location, build quality, underlying land, features relative to other properties.

Enduring is the descriptive word I chose to use.

 

[Meandering]

Our engagement is not to develop a sale price today (what property would likely sell for today) We could if that were purpose of assignment, however it's not the purpose of assignment when purpose is to develop a market value opinion.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under

You are chasing your tail.
Slow down and read ALL the words.

Just shoot me...

Ken, you'd do better explaining physics to a rock.



J,

Did your college degree classes teach you about a circular reference?


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