Two Values Including Prospective Opinion

[ZZGAMAZZ]

Yes. Your date of value is in the future at a time when you anticipate it should be done. Since it is the probable event, it's not contrary to what will exist on that future date so it is an Extraordinary Assumption. However, you also have to project what future market conditions and what prices will do between now and then. Here, I would predict a very slow increase in prices, flat sales and cautious optimism that the economy remains in reasonable shape.

Thanks as always, although I'm unsure whether I will ever be able to understand "since it is the probable event, it's not contrary to what will exist..." that caused a flashback to confusion I experienced during a Philosphy course decades ago...although I often wonder why residential lending appraisals aren't based on prospective opinions because it's the future rather than current value of a property that most affects collaterization in the long run, possibly because the accuracy would be so problematic...

 

[Mark K]

Don't think they want a prospective date. Most likely 1) as-is, effective date and 2) As-IF repairs/other construction has been completed based on a HC that it is complete on the effective date, assuming both date are current.

 

[sputnam]

Another doozy of an assignment. Engagement requires contemporaneous As Is vaue and also prospective As Repaired value of SFR with an existing DU that will be enlarged and improved, as well as a detached garage that will be converted into an ADU. To do so is supported by USPAP where the potential for multiple values to be reported is addressed, and Prospective opinions are described throughout USPAP as well as AO-17 and AO-34.

The potential application in a prospective value assignment of an EA as well as a HC are described in USPAP. Each of two alternatives are logical: EA because one must assume that the proposed construction will be completed as per plans/specs provided by the client, and HC because the appraiser knows it isn't true on the property inspection date.

Questions:
1) EA or HC or both?
2) Are 2 inspection dates as basis of two Effective Dates required, one for date of inspection and another for anticipated future occupancy?

Note: Advice concerning the decision to accept the assignment and/or the need for a reasonable fee isn't needed because mine was a business decision to accept--unless advice is based upon USPAP, etc.

1- You might use an EA that the repairs will, in fact, be completed as of the prospective effective date.
2- Only one inspection date... but 2 effective dates.

Accept it. Doing something you don't usually do is the best way to become a better appraiser. As the saying goes.... You can havce 10 years of experience.. or... You can have one year of experience 10 times.

 

[J Grant]

Another doozy of an assignment. Engagement requires contemporaneous As Is vaue and also prospective As Repaired value of SFR with an existing DU that will be enlarged and improved, as well as a detached garage that will be converted into an ADU. To do so is supported by USPAP where the potential for multiple values to be reported is addressed, and Prospective opinions are described throughout USPAP as well as AO-17 and AO-34.

The potential application in a prospective value assignment of an EA as well as a HC are described in USPAP. Each of two alternatives are logical: EA because one must assume that the proposed construction will be completed as per plans/specs provided by the client, and HC because the appraiser knows it isn't true on the property inspection date.

Questions:
1) EA or HC or both?
2) Are 2 inspection dates as basis of two Effective Dates required, one for date of inspection and another for anticipated future occupancy?

Note: Advice concerning the decision to accept the assignment and/or the need for a reasonable fee isn't needed because mine was a business decision to accept--unless advice is based upon USPAP, etc.

Unless the client gives a specific future value date, it is NOT a prospective assignment. Most clients assume an appraiser knows that, so they do not explain it.

Ask your client to be certain - unfair to waste peoples time here trying to answer something when it may not be the assignment.

 

[George Hatch]

The label (EA, HC) isn't the thing. Only (some) appraisers understand what those labels actually mean. Nobody else knows or cares about the labels. What's important is what you (SR1) do and how you (SR2)disclose the additional assumptions and limitations of what you did. And then provide the (SR2) warning to the reader that if some aspect of the SR1 scenario occurs differently it would have an effect on your opinions and conclusions.

The effective date isn't always the date of inspection. Appraisers do retrospective on a regular basis for certain situations like date of death or prior to the earthquake or whatnot. Same can occur when the question is what the property will be worth when a proposed or potential something is expected to occur by some date in the future.
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For an existing use/condition the Prospective includes some variables

1. What that future date is (for an existing use/condition the client will probably pick that date for whatever reason they have for asking for a future value)​

2. What the pricing trends will do between now and that future date​

3. How those pricing trends will change the current value​

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If this is a single family, the appraiser's only way to do this is to take the current value and project it into the future based on recent and current trends or whatever the appraiser thinks it will be. Usually and in lieu of info to the contrary the appraiser can extrapolate the recent past/present trends into the future. But that isn't the only possibility.
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Then when there's a "subject to" that changes the subject property attributes you still have all of the same variables that apply when there is no anticipated change to the subject attributes, but are adding a couple more variables:

4. That the work will be completed as of a specific date (which the appraiser may be the one forecasting when the project is complete)​

5. That the work will be completed per plans and specs because if it isn't then that will affect the appraiser's opinions and conclusions​

One wrinkle they never mention is that you basically cannot get to what this altered subject will be worth in the future without starting with what it would be worth today. That's why I always add a 3rd valuation scenario "subject to/current date" whether they ask for it or not.

"As Is / Current Date"​

"Subject To Completion / Current Date"​

"Subject To Completion / Future Date"​

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In that manner I am conveying the effect of the changes to the property (which is knowable as of today) separately from the effect on value of the future market trends (which is unknowable as of today).

I also build 3 projections of that future value - based on different assumptions for the pricing trends during the interim - before reconciling to one of them as my own conclusion. That way the reader can get an idea of what else might happen if the scenario I concluded to doesn't work out.

"The market trends over the last 2 years have shown moderate increases averaging ~6%/year.

A- If the rate of increase stops at 0%/yr then the 03/2026 value will be similar to the current 03/2025 value. $500k x 1.00 = $500k​

B- If the rate of increase slows to 3%/yr then the 03/2026 value will be slightly higher than the 03/2025 value. $500k x 1.03 = $515k​

C- If the rate of increase remains at 6%/yr then the 03/2026 value will be markedly higher than the 03/2025 value. $500k x 1.06 = $530k​

In lieu of information or indications to the contrary I have projected the recent/current trends into the future (#C above) so in my opinion the future value as of 03/2026 will be $530,000.

This opinion of the future value (aka prospective value) is based in part on the assumptions that the improvements will be completed by then and the market trends don't change over the next 12 months. In the event that any of these assumptions are not met in full it would have an effect on my opinions and conclusions."

Obviously, the above isn't the only way to get to a prospective value for a construction related project, but it is one way to do it. YMMV.

 

[Dublin ohio]

Question Z, is this for Fannie

 

[Tom D]

Usually the rehab/remod should normally take 3-6 months at most, so a projection is not a time sensitive case, unless the market has crashed. But a short time rehab/remod is pretty simple subject to value. A lender just doing the construction costs is really concerned about the final value and their risk in amount of money loaned, LTV. They also want to be sure the house is priced correctly at purchase time so as not to exceed their LTV finished ratio for a rehab loan. The rehab lender typically has a 6 month lending term.

Now we don't know the financing type. Some such type loans are only for the construction money, not the final mort when done. FHA 203k and some banks do 1 stop shopping with rehab financing converting to a permanent mortgage, done with only 1 settlement. Or just when it's almost done, you get permanent financing from someone else.

 

[Zoe]

Are you SURE that the as-repried value is a so-called prospective value?

Because normally, especially for a URAR form conventional lending assignment, it is subject to (repair, remodel, etc.) as of the effective date of the inspection. In other words, it is appraised to the current value as if the property were repaired, including the ADU, etc.

Two different values, one AS IS, and the other AS REPAIRED, as of the SAME effective date is typically the assignment - check with your client.

Yes. You are doing both "as is" and "as if completed" as of effective date. If they are requiring prospective value, I probably would not accept even though you already accepted. You have no clue when the project will be completed.

Just because you accepted the assignment, USPAP allows you to back out.

 

[Zoe]

Your reason to back out is unacceptable assignment conditions. You could use competence card also. Okay?

Competence card can be used if at any time you don't feel competent. That means even after you have accepted the assignment.

You won't lose your client if you back out.

Just say I am sorry I could not complete it and please consider me for next assignment. Don't send the client an invoice.

Think about how many assignments get cancelled on you by the client or the property owner sometimes for various reasons. I do charge on those but not if I back out of the assignment.

I don't send the client an invoice if I back out.

 

[sputnam]

Unless the client gives a specific future value date, it is NOT a prospective assignment. Most clients assume an appraiser knows that, so they do not explain it.

Ask your client to be certain - unfair to waste peoples time here trying to answer something when it may not be the assignment.

That's incorrect. The appraiser often makes the call regarding when the construction will be complete. You definitely need to make sure that you and the Client are clear about what is needed. That is part of what the Letter of Engagement is for. So that later, when you've done the work and delivered the report, they can't say... 'No. What were really wanted was...'. Or, if they do, you can make them pay for your time.