When producing their reports, appraisers must determine an appropriate date of valuation. While this may sound straight forward, in reality, the date of valuation can be a nuanced detail that shapes the entire appraisal. A property’s value can be appraised as of the date of inspection or the appraiser can choose either a retrospective or prospective date depending on their client’s needs.
The date of valuation can have a dramatic effect on the value of a property. Consider, for example, an appraisal for a large apartment building. Imagine that shortly after the appraisal is completed, a gang shooting occurs in one of the units, suddenly stigmatizing the building as a dangerous place to live. This would significantly reduce the marketability of the property, thus reducing its value on paper as well. This case underscores the potential role that the date of valuation can play in reflecting a property’s worth.
Retrospective Date of Valuation
With a retrospective date of valuation, an appraiser seeks to estimate the value of a property for a past date. This is most commonly used in estate settlements when divorce, tax appeal or partner disputes require clients to know the value of a property at a prior date for legal purposes.
Prospective Date of Valuation
A prospective date of valuation assesses the value of a property at a future date. This is predominantly used in cases where there are proposed construction or improvement projects involved. In these instances, borrowers may seek additional funding for property improvements, prompting lenders to request a prospective appraisal that will estimate the future worth of the property. With prospective valuations, appraisers must assume that the work will be done in a professional manner; ensuring the value will indeed be added to the property.
Whether current, retrospective or prospective, the significance of the date of valuation can vary depending on how the appraisal will be used. Nevertheless, the date of valuation is an important and potentially consequential detail in every commercial real estate appraisal.