Valuation question of a multi-family

[ARRE]

I am working on a project with a proposed construction of a multi-family complex.

I am valuing a premise of the property for a current market value and a hypothetical condition that the proposed improvements are completed on the effective date of my valuation (current date). My question is, I am trying to find the type of value. I cannot find a definition for "as complete" which does not indicate a prospective value (future date) while I am working in the current with the HC. I understand I still have to account for the lease up period, and I have performed an absorption study, so I am good with that, but I am still having a hard time finding an accurate definition.

I have completed searches, but I cannot find a satisfactory def for what I am looking.

Help is greatly appreciated.

 

[John Glass]

If the value makes assumptions contrary to what exists, then you are using a hypothetical condition, as in "subject to...".

Definition:

hypothetical condition

That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. (USPAP, 2010-2011 ed.)


Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

 

[PropertyEconomics]

I believe it is not "subject to" but rather the value you are seeking is that of ... The market value of the subject property under the hypothetical condition the improvements were complete as of the effective date of valuation.

Im not sure why a prospective value as of a future date is not more appropriate but it is your report and your client ....

Good luck.

 

[GCJim]

I am working on a project with a proposed construction of a multi-family complex.

I am valuing a premise of the property for a current market value and a hypothetical condition that the proposed improvements are completed on the effective date of my valuation (current date). My question is, I am trying to find the type of value. I cannot find a definition for "as complete" which does not indicate a prospective value (future date) while I am working in the current with the HC. I understand I still have to account for the lease up period, and I have performed an absorption study, so I am good with that, but I am still having a hard time finding an accurate definition.

I have completed searches, but I cannot find a satisfactory def for what I am looking.

Help is greatly appreciated.

Using 'as-complete' when stating your opinion of value is very common for these types of assignments, and normally well understood by users that assign them. Should be no problem.
I have been asked lately to provide 2 values in situations like this: 'as-is' and 'as-completed'.

 

[PropertyEconomics]

Using 'as-complete' when stating your opinion of value is very common for these types of assignments, and normally well understood by users that assign them. Should be no problem.
I have been asked lately to provide 2 values in situations like this: 'as-is' and 'as-completed'.

As complete is either a hypothetical value or a prospective value since the property is not complete as of the effective date of the appraisal. My clients have always asked for this as well and I have typically provided a prospective value based on the extraordinary assumption the improvements are complete as of a future date. I also believe the extraordinary assumption should be reasonable with respect to the time frame of anticipated completion.

 

[Vernon Martin]

Extraordinary assumption v. hypothetical condition for proposed construction

It's possible that the reason you were't able to find the answer you were looking for is that such appraisal assignments are typically performed based on the "extraordinary assumption" that the project is completed on a future date, and funding of the construction loan is based on a "prospective market value" as of that future date.

To paraphrase, "extraordinary assumptions" are based on circumstances that you assume to be true and can be reasonably assumed to be true. "Hypothetical conditions" are different; they are based on something that is not true that you assume to be true. You have an unbuilt project, for instance, that is assumed to be built as of a current date of value.

My own opinion is that hypothetical conditions are riskier that extraordinary assumptions, because they are untrue by their very nature. When I was in banking, I found that federal regulators were more comfortable with "prospective market value" assignments based on extraordinary assumptions than on "current market value" assignments based on hypothetical conditions.

You didn't mention intended use and intended user. May I suggest that those of us on the commercial subforum detail the circumstances relating to intended use and intended user in order to get the best advice from our peers. If you are asked to provide an appraisal based on hypothetical conditions, for instance, you need to know the intended use of your appraisal report. For instance, if a loan is funded based on hypothetical conditions (a scenario known to be untrue), you are on shakier ground than if you performed a prospective market value appraisal with an extraordinary assumption that construction is completed as of a future data. As an appraiser you are more likely to be sued or accused of malfeasance in an appraisal based on hypothetical conditions as of a current date of value than in an appraisal based on extraordinary assumptions as of a future date of value.

I am currently working on a case of a real estate IPO that was based on improperly labeled appraisal reports which were hypothetical in nature. The official Net Asset Value of this property trust is based on hypothetical appraisals, thus presenting the appraisers in an unfavorable light. Did the appraisers know that this would happen with their appraisal reports?
I don't know, but you wouldn't want to be in such a situation.

 

[ARRE]

Thank you for the follow up. I really appreciate your help, and I now know how to move forward. Yes, we were asked for an as is and an as complete, but I have only seen the definition of as complete with the prospective value, not the current with the hypothetical condition noted. That was the situation I was inquiring about, and now I understand.

Thanks,
ARRE