USPAP Advisory Option 17: Current or Prospective Value ?

[George Hatch]

You make the extraordinary assumption that it is built since it is likely to be built. ​

That is literally a hypothetical. Maybe it will and maybe it won't. We know for a FACT that some proposals never come to pass. And that is precisely why I disagree with calling it an "assumption of something I think is true but I'm not quite sure of". I think that unless it did exist (as is the case on a retrospective opinion) or it currently does exist then it doesn't exist, which makes it 100% hypothetical.

 

[Mark K]

I've often wondered if a prospective value "subject to" completion of a future event(s) also requires a HC? This is for any "subject-to" report.

If a house needs roof repairs and the appraisal is completed subject-to the repairs, does it also need a HC? You're reporting a value based on the roof being repaired at some point in the future. A report based on a HC is contrary to what currently exists, but then so is a S-2 value.

Seems like it should be either/or re: HC or S-2.

FWIW, the F/F forms have check boxes for S-2 OR HC, not both.

 

[Terrel L. Shields]

You make the extraordinary assumption that it is built since it is likely to be built. ​

That is literally a hypothetical. Maybe it will and maybe it won't. We know for a FACT that some proposals never come to pass. And that is precisely why I disagree with calling it an "assumption of something I think is true but I'm not quite sure of". I think that unless it did exist (as is the case on a retrospective opinion) or it currently does exist then it doesn't exist, which makes it 100% hypothetical.

I listened to Mark Lewis explain that and if Mark doesn't know, then the entire AQB doesn't know.

 

[CANative]

I've often wondered if a prospective value "subject to" completion of a future event(s) also requires a HC? This is for any "subject-to" report.

If a house needs roof repairs and the appraisal is completed subject-to the repairs, does it also need a HC? You're reporting a value based on the roof being repaired at some point in the future. A report based on a HC is contrary to what currently exists, but then so is a S-2 value.

Seems like it should be either/or re: HC or S-2.

FWIW, the F/F forms have check boxes for S-2 OR HC, not both.

You need the HC that the roof was repaired as of the effective date of the appraisal which is the date of the inspection (for GSE/Gov. mortgage lending assignments.) It is a current appraisal.

 

[J Grant]

I've often wondered if a prospective value "subject to" completion of a future event(s) also requires a HC? This is for any "subject-to" report.

If a house needs roof repairs and the appraisal is completed subject-to the repairs, does it also need a HC? You're reporting a value based on the roof being repaired at some point in the future. A report based on a HC is contrary to what currently exists, but then so is a S-2 value.

Seems like it should be either/or re: HC or S-2.

FWIW, the F/F forms have check boxes for S-2 OR HC, not both.

It is not a prospective value ( unless the effective date is in the future ) . For a current value effective date, (usually same as inspection date) , the value is the present made AS IF the work is complete, with the HC that it will be done in the future, - ( the subject to part of the HC ) .

"If a house needs roof repairs and the appraisal is completed subject-to the repairs, does it also need a HC? You're reporting a value based on the roof being repaired at some point in the future

No.. appraiser is not reporting a value based on roof repaired at some point in the future ( unless assignment asks for a future date value).
On typical assignment (esp for lending ) Appraiser is reporting a current effective date value AS IF the roof was repaired (on the current effective date-). If part of assginment the work is actually coplete,d then the HC includes a "subect to completion" ( and at a future date when work is finished appraiser goes out for a 1004D /completion inspection )

OF course the market value of a property can change if there is a big time passage between the present effective date valuation and the subsequent date the construction or repairs is complete, which is why clients will order a value update as well as a completion inspection.

 

[CANative]

IMO (and this has be controversial) there are no "accidental" retrospective or prospective valuations. They are the result of a specific assignment condition and the scope of work to fulfill the condition. It's a current appraisal unless a client specifically requires a value opinion as of a certain date in the past or the future.

 

[George Hatch]

I listened to Mark Lewis explain that and if Mark doesn't know, then the entire AQB doesn't know.

I have the minority opinion on this issue.

In the end, it doesn't really matter what label an appraiser uses to explain the limitations of the valuation scenario they're using so long as they explain what the limitations are and what the possibilities are if the IRL turns out to be different. It's the disclosure and explanation and execution that matters, not what labels are being used to describe them.

So on that basis it's not really worth me or anyone else getting emotionally invested in resisting the party line due to disagreeing with it. This is just another example of how uniformity and consistency is sometimes more important to our users than whether or not that party line is intellectually "pure".

BTW, if the given conditions currently do exist and the assignment is to provide the prospective then the appraiser DOES have reason to believe-but-not-quite-be-sure that those conditions will exist in the future. So on that basis all prospectives will not be hypothetical, either.

So really, my opinion isn't one or the other, but "it depends".

 

[J Grant]

This ought to cover it ( example is a pool, but could be a repair or construction )

123 Cherry Street a single family house has no pool. On a same day 06/01/2020, client or clients order 3 different appraisals on 123 Cherry St from a same appraiser. The owner wants the inspection to be on a same date of 06/05/2020. Each appraisal has a different SOW engagement condition :

Appraisal A) What Would 123 Cherry St be worth current if it had a pool?. HC is made as if pool exists. Inspection date is 06/05/2020, the effective valuation date is 06/05/2020.

Appraisal B. What Would 123 Cherry St be worth 13 months from now if it had a pool? (prospective value ). HC is made as if pool exists . Inspection date date is 06/05/2020, :the effective valuation date a future 07/04/2021

Appraisal C) What Would 123 Cherry St be worth current if it had a pool?. HC is made as if pool exists, and also made subject to completion . Inspection date is 06/05/2020, the effective valuation date is 06/05/2020. Subsequently, 6 months later, the pool is complete. On 12/02/2020 the appraiser (or other ) goes out to inspect the pool is done and submits a completion inspection to client. The effective valuation date has not changed, it remains 06/05/2020

 

[J Grant]

I did not want to over complicate the above example. But regarding the below, when the HC for valuation ALSO includes a subject to the repair or construction complete:
,
Appraisal C) What Would 123 Cherry St be worth current if it had a pool?. HC is made as if pool exists, and also made subject to completion . Inspection date is 06/05/2020, the effective valuation date is 06/05/2020. Subsequently, 6 months later, the pool is complete. On 12/02/2020 the appraiser (or other ) goes out to inspect the pool is done and submits a completion inspection to client. The effective valuation date has not changed, it remains 06/05/2020.

After the 12/02/2020 completion inspection is submitted, it serves to remove the HC from the original appraisal -when the pool physically exists with inspection to prove, that appraisal eff date 06/05/2020 becomes an " as is " appraisal. This is used in a lending or construction draw loan : the effective valuation date remains same, but lender now will fund or contractor be paid since the pool is completed. completed.

 

[glenn walker]

I did not want to over complicate the above example. But regarding the below, when the HC for valuation ALSO includes a subject to the repair or construction complete:
,
Appraisal C) What Would 123 Cherry St be worth current if it had a pool?. HC is made as if pool exists, and also made subject to completion . Inspection date is 06/05/2020, the effective valuation date is 06/05/2020. Subsequently, 6 months later, the pool is complete. On 12/02/2020 the appraiser (or other ) goes out to inspect the pool is done and submits a completion inspection to client. The effective valuation date has not changed, it remains 06/05/2020.

After the 12/02/2020 completion inspection is submitted, it serves to remove the HC from the original appraisal -when the pool physically exists with inspection to prove, that appraisal eff date 06/05/2020 becomes an " as is " appraisal. This is used in a lending or construction draw loan : the effective valuation date remains same, but lender now will fund or contractor be paid since the pool is completed. completed.

J. Grant now my head is now spinning-and Uncle Billy said just check the freaking HC Box and be done or if unsure check both the HC & EA box and let the client choose which box they prefer : )