Prospective Value
One key assignment element is the effective date of value, which may be a current date, a retrospective date, or a prospective date. If your assignment is for a proposed project, your client may need a value that is effective as of the date of completion and/or date of stabilization (prospective values). Or your client might need to know what the property would be worth if it were completed as of today (current value). Either is allowable. Each can provide the client with a useful conclusion. See Advisory Opinion 17, Appraisals of Real Property with Proposed Improvements, for further information.
There is confusion about how to qualify your reporting of a prospective value. Extraordinary assumptions help you report prospective value without being misleading; they assist you in being clear about your valuation process, opinions, and conclusions. To some it is confusing whether the value of proposed construction or of non-stabilized properties should be based on a hypothetical condition or an extraordinary assumption. If your effective value date is a current date, your appraisal will be based on the hypothetical condition that the improvements exist when, in fact, they do not. If your value date is in the future, when you anticipate completion (a prospective value), then your appraisal will be based on the extraordinary assumption that the improvements will indeed be completed as proposed as of that date.
Whenever the date of value is a prospective date (even in cases that don’t involve proposed construction), there will be one “automatic” extraordinary assumption that relates to the potential changes between the current time, when you are researching and writing the report, and the effective future value date. Because you cannot see into the future, you want to point out that you assume no significant changes will take place.
Reporting prospective values must be done with care. According to Statement No. 4 in USPAP, “In prospective value opinions, use of the term ‘market value’ without a modifier such as ‘forecasted’ or
‘prospective’ and without future verb tenses is improper.” It’s correct, for example, to state your conclusion as “market value as of (future date) will be $zzz,” rather than “the market value is….”
Prospective Value – Value Date
In a prospective value assignment, you may be asked for the value as of either a specific date or a specific event. The date of value to be used in an analysis is identified based on the nature of the problem to be solved.
If your client requests a value as of a specific event, such as completion of construction or stabilization of the property, you will need to figure out what future date will be associated with that event. The client, developer, or other parties to the assignment may provide you with dates reflecting their estimate of completion, lease-up, or stabilization. These may be reasonable estimates, but you cannot assume they are without some consideration. It is not appropriate for you to accept the developer’s estimate of completion or stabilization at face value. You must consider the market and determine if the completion, lease-up, sellout, etc., is likely to occur by the specified date.
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