Retrospective Value Opinions

[Stephen J. Vertin MAI]

Working on court case. Value is retrospective. Data was used subsequent to date of value. I see nowhere in USPAP that the appraiser must report the cut off date. It is my understanding only two dates must be report. Date of value and date of report. Is statement 3 indicating a cut off date be reported. What say you?

I have included 2006 USPAP below for easy of reading and so no one has to drag out their copy. It is taken directing off of The Appraisal Foundation's web site.

Statement On Appraisal Standards No. 3 (SMT3)

SUBJECT: Retrospective Value Opinions

THE ISSUE:
Two dates are essential to an appraisal report. Standards Rules 2-2(a)(vi), (b)(vi), and (c)(vi), and 8-2(a)(vi), (b)(vi), and (c)(vi) require that each appraisal report specify the effective date of the appraisal and the date of the report. The date of the report indicates the perspective from which the appraiser is examining the market. The effective date of the appraisal establishes the context for the value opinion. Three categories of effective dates - retrospective, current, or prospective - may be used, according to the intended use of the appraisal assignment.

When a retrospective effective date is used, how can the appraisal be prepared and presented in a manner that is not misleading?

THE STATEMENT:
Retrospective appraisals (effective date of the appraisal prior to the date of the report) may be required for property tax matters, estate or inheritance tax matters, condemnation proceedings, suits to recover damages, and similar situations.

Current appraisals occur when the effective date of the appraisal is contemporaneous with the date of the report. Since most appraisals require current value opinions, the importance of specifying both the date of the report and the effective date of the analysis is sometimes lost.
Prospective appraisals (effective date of the appraisal subsequent to the date of the report) may be required for valuations of property interests related to proposed developments, as the basis for value at the end of a cash flow projection, and for other reasons. (See SMT-4 on Prospective Value Opinions.)

The use of clear and concise language and appropriate terminology in appraisal reports helps to eliminate misleading reports. To avoid confusion, the appraiser must clearly establish the date to which the value opinion applies. In retrospective value opinions, use of a modifier for the term “market value” and past verb tenses increases clarity (e.g., “. . . the retrospective market value was . . .” instead of “. . . the market value is . . .”).

A retrospective appraisal is complicated by the fact that the appraiser already knows what occurred in the market after the effective date of the appraisal. Data subsequent to the effective date may be considered in developing a retrospective value as a confirmation of trends that would reasonably be considered by a buyer or seller as of that date. The appraiser should determine a logical cut-off because at some point distant from the effective date, the subsequent data will not reflect the relevant market. This is a difficult determination to make. Studying the market conditions as of the date of the appraisal assists the appraiser in judging where he or she should make this cut-off. In the absence of evidence in the market that data subsequent to the effective date were consistent with and confirmed market expectations as of the effective date, the effective date should be used as the cut-off date for data considered by the appraiser.

Use of direct excerpts from then-current appraisal reports prepared at the time of the retrospective effective date helps the appraiser and the reader understand market conditions as of the retrospective effective date.

CONCLUSIONS:
§ A retrospective appraisal is complicated by the fact that the appraiser already knows what occurred in the market after the effective date of the appraisal.
§ Data subsequent to the effective date may be considered in developing a retrospective value as a confirmation of trends.
§ The appraiser should determine a logical cut-off.
§ Use of direct excerpts from then-current appraisal reports prepared at the time of the retrospective effective date helps the appraiser and the reader understand market conditions as of the retrospective effective date.
§ In the absence of evidence in the market that data subsequent to the effective date were consistent with and confirmed market expectations as of the effective date, the effective date should be used as the cut-off date.

 

[Fred]

What say you?

I am allergic to SMT-3. It seems indicate that to some degree we should try hypthetically to recreate the point of view of someone doing the appraisal back then. While that may be reasonable or needed in some assignment in the real world, people tend to use common sense the advantage of 20-20 hindsight on subsequent sales. If I were developing, I'd quote a couple of cases in which judges allowed subsequent sales and declare a JE.

You make an interesting point that USPAP requires the cutoff date to be determined, but does not specifically require reporting. I just think the whole SMT needs to go in the shredder.

 

[Dan Blanchard]

I’ve done a few of these. I handle the cut off date just like I would any other appraisal. If the date of value is September 18, 2003 and it’s a commercial appraisal then my cut off date is September 18, 2000. Residential would be September 18, 2002.

 

[CANative]

I'd say use the effective date as the cutoff unless there was market evience that a date subsequent to that is more logical. Perhaps including a sale or sales that close a month after the effective date but were pending sales as of the effective date.

If the "logical cut off date" was not the same as the effective date, I would list this cut off date for purposes of clarity.

Maybe I'm in over my head (again) on this thread.

 

[Stephen J. Vertin MAI]

Steve S: "I'd quote a couple of cases in which judges allowed subsequent sales and declare a JE"

Stmt 3: Data subsequent to the effective date may be considered in developing a retrospective value as a confirmation of trends that would reasonably be considered by a buyer or seller as of that date.

I am convenience using subsequent sales is both allowed and theoretically acceptable. No argument from me but do I have to report or give a cut off date in the report for all subsequent data?

Dan B " If the date of value is September 18, 2003 and it’s a commercial appraisal then my cut off date is September 18, 2000".

If the date of value is September 18, 2003 and its a commercial appraisal and I use a sale from September 18, 2004 due I have to report a cut off date of September 18, 2004?

Greg B: "Perhaps including a sale or sales that close a month after the effective date but were pending sales as of the effective date."

Do I report the cut off date a month after or is it just obvious this date is used because of the data is used?

 

[CANative]

The Statement isn't specific so why should we be? But it does implies "logic."

If you are using "pending sales" as your justification for using a "logical cut off date" other than the effective date, it may be reasonable to use a logical argument such as:

"As of the effective date of the value, contract sales typically required 15-20 days from the day the listing status changed from "pending" to "closed." Based on a review of my appraisal reports completed during that time frame, I have determined that "pending" sales were given signficant weight in the reconciliation. Therefore, the logical cut of date for the data should be 15-20 subsequent to the effective date of xx/01/2004 or xx/20/2004."

I'm just making this up as I go along. Please let me know when it gets too annoying.

 

[Lobo Fan]

Are you trying to arrive at a reasonavble value at the time or are you critiquing the original appraisal? If it is the first, then I would consider good comps even if they were a little newer than the cut-off date. If it is a review then you are stuck with the original effective date.

 

[Carnivore]

Are you trying to arrive at a reasonavble value at the time or are you critiquing the original appraisal? If it is the first, then I would consider good comps even if they were a little newer than the cut-off date. If it is a review then you are stuck with the original effective date.

Chuck,

Actually thats nt quite true in the case of reviews. Post effective data is OK in a review its just can not be used to impune or grade the ork of another.

To me if its OK per SR3, then it makes no sense not to use post effective date data in SR1. I guess that sort of answers Steve Vertins question. The answer is 'It depends' bsed on the on the purpose and intended use.

 

[Fred]

Andrew,
I'd say you and Chuck are both missing it. Isn't the key word about the data whether it was "available?"

Steve
I added the comment. Maybe you missed. I don't see where a cut off date has to be reported. However, it if goes to trial, it may come out anyhow.

 

[Stephen J. Vertin MAI]

Steve S: "I added the comment. Maybe you missed. I don't see where a cut off date has to be reported. However, it if goes to trial, it may come out anyhow."

Your right I did miss it, sorry.

"You make an interesting point that USPAP requires the cutoff date to be determined, but does not specifically require reporting. I just think the whole SMT needs to go in the shredder."

I would agree. It is as you say, it is sort of like saying lets pretend we only know what an appraiser knew then. But USPAP never really comes out and says that directly. I think it is because saying such a thing is counter intuitive to "credible valuation". Especially if there is credible data past the date of value and there has really been no significant change in market conditions. Therefore they come up with convoluted sentences such as

"In the absence of evidence in the market that data subsequent to the effective date were consistent with and confirmed market expectations as of the effective date, the effective date should be used as the cut-off date for data considered by the appraiser."

The opposing side says we violated USPAP because we did not indicate a "cut off" date within our report. Our argument is USPAP does not require we report a "cut off" date. Which it does not. There argument seem to be the typical rhetoric before trial. I just wanted to see if anyone else saw it in the light of our opposition.

I find when appraisers start arguing USPAP in court typically juries eyes glass over and they tune out. I usually try to keep such arguments out of trial and stick to valuation points. It seem to me the USPAP route has never been an affective way to win cases or to persuade juries to see the bigger picture.