Retrospective Estate Date With a Post-Date Contract
You are engaged to appraise a 1965 three-bedroom ranch for estate tax purposes. The effective date is January 15, six months ago. At the date of death the house had its original kitchen and baths, a 20-year-old roof, and worn carpet. The estate has since replaced the roof ($14,000), painted the interior ($6,000), and installed new carpet ($4,000). It listed at $365,000 and is now under contract at $350,000 with a $10,000 seller credit; closing is next week. The attorney tells you, 'Use the contract price-it is the best evidence-and make the effective date today so the number is defensible.' You inspected the property yesterday, after the improvements. The local market has been stable, and typical exposure time is 60–90 days.
1. Identify the correct value type and effective date, and explain how the post-date contract and improvements affect your analysis.
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The assignment calls for market value as of January 15, not today. An appraisal is retrospective; changing the effective date to today would answer a different question and would not satisfy the estate-tax purpose. The $350,000 contract is a subsequent event. It can be evidence of buyer behavior and market conditions, but it is not the value at the effective date and is not controlling. The $24,000 of post-date improvements must not be included in the as-of value. Inspect current condition, then adjust back to the date-of-death condition: the roof, paint, and carpet added contributory value after the effective date, so deduct their contributory value from the current condition to approximate the January 15 condition. If you cannot determine whether the roof leak or other defects existed on the effective date, disclose an extraordinary assumption or limit the appraisal. The final opinion should reflect the inferior condition as of the effective date.
2. How do you support an exposure-time conclusion, and how should the pending sale be used? Is the contract price market value?
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Exposure time is the length of time the property would have been offered on the open market prior to a hypothetical sale at market value on the effective date. Support the 60–90 day conclusion with local days-on-market and absorption data, not merely the attorney's statement. The pending sale is not a closed transaction; it includes a $10,000 seller credit and reflects today's improved condition. If used at all, convert it to a cash-equivalent basis and adjust for condition and time, then give it secondary weight. The contract price is not automatically market value: it may reflect the estate's motivation, the post-date improvements, the credit, or current buyer preferences. It is a data point, not the definition of value.
3. What reporting and USPAP issues arise from inspecting the property after the effective date?
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Disclose the retrospective nature of the assignment and explain how you reconciled current condition to the effective date. If you assume no undisclosed physical changes occurred between the effective date and your inspection, that is an extraordinary assumption and must be disclosed. If you know about changes, do not use an extraordinary assumption to ignore them; adjust for them. A hypothetical condition would be appropriate only if you were asked to value the property under a condition that does not exist, such as 'as if' the roof had been replaced on the effective date; that is not this assignment. The report should clearly state the effective date, value type, exposure time, and any assumptions, and should not let the attorney's requested date alter the appraisal problem.