By Leon Castner
Most of us know that every appraisal has a few dates that must be declared in every report-whether it is written or oral. USPAP requires two while other organizations, like ISA, may require more. These dates provide the chronological context of the assignment and must be stated so that both the client and any intended user understand what has happened.
Valuation is a process that places a value or cost on an item at a specific point of time. Something may be worth a certain amount one day and a different one the next. This is usually called the effective date of the appraisal. It explains what the determined or estimated value or cost was at a selected time chosen by the client’s needs. If the client is preparing an estate form and needs the monetary amount of the personal property, it is stipulated by the IRS as the date of death, or six months after the date of death (the “alternate” valuation date). There is no other choice. If a person is donating an object and needs a charitable contribution deduction, the IRS says it must be the value as of the date of contribution. If an insurance carrier or insured asks for an appraisal due to a claim, the values set forth are as of the date of loss (DOL). This date is required on all forms and communications about the property loss. Each assignment has its unique effective date, which must be stated very clearly.
Appraisals are usually done “after the fact.” We aren’t called immediately upon the death of a person (unless we happen to be a coroner). We could be called six months or even years later. We aren’t called the instance a fire or flood happens nor are we asked to attend a separation hearing in a divorce matter. There are times, however, when we may be called because the client is anticipating a need. For example, they may be contemplating a move and were told to get an appraisal to assist in obtaining moving insurance. They may be interested in selling an object, but they don’t know when, where, or how. It might depend on the amounts you provide.
Effective dates can be delineated as past, present, or future. When the valuation dates are in the past they are called retrospective. When they are present they are called current or contemporary. When they are future they are called prospective. There are no set deadlines or segmentation for this decision. The appraiser makes the call using common sense. Since the effective date is clearly noted, the use of terms such as retrospective, current, or prospective are largely inconsequential. The reader will be able to understand the context for the value based on the report date and the effective date.
The report date is simply the date the opinion is rendered. It is the date the certification is signed, sealed, and often delivered. (Delivery times may vary.) Some finished reports may sit on a desk for days for various reasons, i.e. client not available, waiting for full payment, etc. The point is that the report has been completed and the opinion rendered.
By having a report date, usually printed on the title page and/or the cover page, it provides easy comparison to the effective date, which should be stated in the cover letter, if not in other places as well, i.e. title page, footnote, etc. The reader should be quickly able to establish whether the report is termed retrospective, current, or prospective-whether the appraiser has so stated.
The effective date is the redline the appraiser used to research and analyze the market activity. In theory, the appraiser sits in judgment on the effective date. They either go back in time, go forward in time, or sit tight in the present. It’s as if the appraiser can transport their operation via a time machine to that date and render judgments based on the information available then, but not after. Since we can’t do that (to my knowledge) we must handicap ourselves by largely ignoring the activity that happened after the date. However, that information may be a confirmation of trends or a representation of a changing market. In some instances, sales comparables may not exist prior to the date and only after. It would be foolish not to consider them. The appraiser becomes the judge of where the cut-off date should be and how relevant the post effective data is to the assignment. This should be “clearly and accurately set forth in the appraisal in a manner that will not be misleading” (Standards Rule 8-1).
The issue of inspection dates is not covered in USPAP. The certification must include a statement about whether the appraiser personally inspected the property, but not when. ISA, on the other hand, requires it as part of their appraisal checklist. It is a good idea since the condition of the property may have changed after the inspection. This will have little to do with the valuation results as of the effective date, but it may limit personal liability. It’s part of the writer’s story and answers the “who, what, where, when, and how” of an assignment.
OTHER QUESTIONS:
Q: Can there be more than one effective date?
A: Yes. Any assignment can include various effective dates. It means that the results must be clear and indicate which effective date is used with the items. For example, I once had an assignment to use two effective dates for an estate appraisal. One was the actual date of death. The other was 6 months after the date of death. Since it was around the 2008 “crash,” the clients thought the marketplace may have changed in those six months (downward) and they would pay less tax if the lower amount was used. They were correct. The value of a large, super motorhome had indeed decreased in those 6 months to a rather significant lower amount. By having the values on the two dates indicated which they would use. Be forewarned that having more than one effective date creates two valuation points within an assignment, with the possibility of different market research and analysis. The scope of work causes two appraisals within one document.
Q: Is the client responsible for the correct effective date?
A: The client is responsible for providing the intended use of the assignment. The appraiser is ultimately responsible for the effective date, based on information provided by the client.
Q: What is the effective date for an insurance coverage appraisal?
A: The effective date is usually the date of inspection or a specific date provided by the client, often in cooperation with the insurance company. Sometimes a client is changing coverage and will ask that the effective date coincides with the policy enrollment. If one does not know, it is better to use the date of inspection.
Q: If one sends a report to the client and it is returned for changes, is a new report date issued?
A: Changes to a report sent out to a client usually mandate the issuance of a new report, even if changes are minor. The report date is the date of the new report and the signing of the certification. This may cause the revision of the USPAP clause about the 3-year involvement in the property. One could just state an original report had been sent on a certain date and that corrections were made and a new one provided.
Q: How far back can an effective date be used?
A: There is no limit to a retrospective valuation. The appraiser must have the ability to do the appropriate research and analysis within correct markets prior to the effective date to offer a meaningful answer. If the appraiser does not have that ability, they may have to decline the assignment.
Q: Can I provide a charitable contribution prior to the client donating the item to a charity?
A: The IRS states the appraisal can’t be done prior than 60 days before the date of contribution (the effective date). It can be done any time after, however. The reason is that markets may change between the original inspection and issuance of the report and the date of donation. In other words, the report date can’t be before 60 days of the donation.
Q: What if the client wants to sell an item but doesn’t know when they will do it? What date would one use as the effective date?
A: In this instance, the effective date would be the date of inspection, but the appraiser should note that the research and analysis is for that specific date. If a sale is transacted after that time, the numbers may not be accurate. The appraiser might suggest that the report be revised or reviewed in the future to ensure that the amounts are still accurate.
Q: If I work on an appraisal document over a long period of time, what date should I use as the report date?
A: The report date is the day the report is “issued”-which means the certification is signed and ready to go.
Q: What if I use an inspection date in the report but the assignment has taken a long time over a period of months and at different locations? Must I state all the times at each location?
A: USPAP does not require the inspection dates in a report. You must check with your own appraisal organization on whether they have stipulations on how such time must be stated. Usually one can give general parameters about the inspection times and places, without going into specific details.
Q: May I do an appraisal if there is no effective date?
A: No. USPAP states that it must be stated (Standards 8-2-b-vi). “The effective date establishes the context of the value opinion, while the date of the report indicates whether the perspective of the appraiser on the market and property as of the effective date of the appraisal was prospective, current, or retrospective.”
National Appraisal Consultants, LLC
www.NACVALUE.com
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