Everyone knows that real estate from the point of view of most people is the most valuable of all types of property. Therefore, court disputes, for example, when a marriage is dissolved, most often involves the determination of the market value of apartments, garages, land, houses, non-residential premises and other types of real estate. And often the appraiser is asked to determine this cost not «for today», but on the date of a certain event, after which it may have been several years.
The judicial process in various civil cases is a very complex and, let’s be honest, imperfect one. And this, despite the numerous reforms, however, is carried out more in word than in deed. Therefore, even at first sight, simple processes can often take years.
It often happens that the parties decide to determine the value of the real estate, when the court has already lasted, for example, for year. And valuate real estate for court is required on a date associated with a specific event. This time is already far from the current date.
It also happens that the object of the current legal dispute is real estate sold a few years ago. For example, without the knowledge of the co-owner of the property, who is now seeking judicial compensation. As a result, one party is likely to turn to appraiser to determine the value of the property at the date of the disputed transaction.
What is that about:
1. What is retrospective real estate valuation
Retrospective evaluation – a concept without a clear legislative definition. Although widely used, this definition can be considered more slang for appraisers, lawyers and real estate professionals.
The meaning of this notion is that property valuation is held on a date after which a significant amount of time has passed. What amount of time is considered significant? The law does not give a clear answer to this question. Therefore, each case of retrospective valuation is unique in its own way. And, in each case, it is necessary to clearly understand and report on the setting and implementation of a specific evaluation objective.
Sometimes this kind of work appraisers also call «retro-valuation». To highlight that the value of the property is determined on the date in the past. That is, what determines not the market value of the property for today, but some «retro-value».
1.1. How to evaluate the property on the previous date
In theory, there are two ways to determine the «retro-value» of real estate:
- Archived information about offer prices or actual transactions.
- Indexing of the current value of property using various factors.
The most understandable method of retrospective valuation, which in general gives the most reliable result. The calculations are based on real estate sales prices, which were relevant at the date of our research. At the same time, it is necessary to find information from reliable sources on objects, which according to the main price-generating factors correspond to our object of evaluation.
In practice, this method is quite problematic. For some types of real estate, given their type and location is impossible. Or maybe, but only in theory. It should be noted that the evaluator should base his conclusions on reliable information. That is, one that could be tested if the parties to the trial.
For this method of retrospective valuation, it is very important that the appraisal company has its own extensive repository of property valuation of a wide variety of types. For example, our appraisal company Real Expert has a fully ordered archive, which our appraisers regularly fill out including for conducting retrospective valuation for presentation in court.
An alternative to the above method of working with archive data can be the so-called index method. The idea is to determine the market value of real estate on the current date. Then go to «retro-cost» using various indices.
The method can work well if necessary to determine the estimated cost of construction of the facility in past periods. For this purpose, it may be advisable to use price indices for construction and installation works. Such information is regularly published by State statistical bodies and line ministries on their websites.
In most cases, the index method for calculating the market value of real estate in past periods is not applied in practice. This is because the method can only give an approximate value. At the same time, the conclusion of the value will contain such a large number of assumptions and assumptions that participants in the process will certainly have doubts about its credibility.
Although in some situations, indexing the current value is indispensable. But some clarity is needed about the price change indices used. The most qualitative result can be given by indices of changes in the market value, if the evaluator has at his disposal archive information about «retro-value» of real estate, similar to the one we evaluate. But, nevertheless, something significantly different from it. For example, the number of rooms for apartments. In this case, the appraiser can himself produce an index of changes in the market value of certain types of real estate for the period under consideration. And this is the index to use in further calculations.
2. Retrospective valuation of real estate and other property
More recently, science and publicistic articles on problematic independent valuation issues, as well as issues related to difficulties in determining the value of a property in the context of forensics, increasingly have to read the term «retrospective evaluation». Individual authors, stressing that the term does not have an unambiguous interpretation even in the professional environment, consider it extremely relevant and appropriate to introduce in Ukraine a single legally regulated definition of the concept of «retrospective evaluation». As a result, there are a number of regulations that limit the conduct of this specific type of evaluation, classify it by type and form of conclusion. And also the transformation of the methods of evaluation itself. How effective and innovative, and most importantly – necessary and useful, can be such innovations, try to understand the current material, researching first of all the meaning and content of the concept of «retrospective evaluation» in one or another interpretation.
Talking about the so-called «retrospective evaluation», most authors focus on the fact that such an evaluation is usually carried out with some level of uncertainty and limited baseline information. Both in relation to the characteristics of the property being valued and the corresponding market segment in which the property is rotated. Such a problem does exist. It’s hard to disagree. But how the consolidation of the term «retrospective evaluation» in Ukrainian legislative and regulatory acts will help to alleviate this problem, taking into account the already existing requirements of the current legislation, it is not clear yet. That is why, in order not to invent a «new bike», let’s analyze the main provisions of the already existing legal acts in the field of property valuation.
2.1. Dealing with terms
For a start, note that the term «retrospective» (from the Latin retrospectare — looking back) – means looking back, seeing what was in the past. As a result, «retrospective» is the one that includes consideration of past events, means turned into part. So it turns out that by the so-called «retrospective evaluation» should be understood precisely the kind of evaluation being carried out «retrospective valuation date». Which, in turn, is distant from the current moment in the past for a certain period (interval) of time. But is such a definition complete and self-sufficient? And most importantly – unique one? Of course not. In fact, it covers almost any assessment that is currently being carried out by both evaluators and forensic experts (if relevant expert study is carried out).
Let’s dwell here in more detail. So, the current version of the National Standard №1 «General framework for property and property rights valuation» are clearly established the two following concepts:
- (1) valuation date – date (day, month and year) by which property is evaluation is carrying out and determined by the cost;
- (2) date of completion of report (conclusion) – date (day, month and year) on which the valuation work was actually completed and an independent property evaluation report (forensic report).
In practice we have a situation where valuation date is always later (distant in the past) than date of completion of report (conclusion). Moreover, the current legislation does not contain any prohibitions regarding the valuation of property on any of the past dates. As a consequence, any evaluation is a priori «retrospective», as it is produced for «past date of evaluation». Level of«retrospectivity» each specific evaluation is determined by a time interval by which specific date of evaluation and date of completion of report (conclusion). The more this interval (day, week, month, half year, year, several years, etc.), the more «retrospective» this evaluation is.
In this way, we come to several intermediate but important conclusions.
- Firstly, the term «retrospective evaluation» is not complete and self-contained. Its essence cannot be explained without revealing the content of concepts «date of evalation» and «date of completion of report (conclusion)».
- Secondly, the concepts «date of evaluation» and «date of completion of report (conclusion)», on the contrary, they are fully self-contained and are already established by legal acts.
- Thirdly, in talking about the so-called «retrospective evaluation», we can always say that this evaluation is not just any specific, it is more ordinary and is carried out on date of evaluation, which is remote in time from research dates to the past for a certain period (interval) of time.
- Fourthly, how far apart in time date of evaluation and date of completion of report (conclusion), characterizes the so-called value of «evaluation retrospectivity». Because the larger the term (interval), the more difficult it is at the time of the actual work to talk about, for example, the significance of changes that have occurred in the market during this period. Or the degree to which the state and characteristics of the valuation object itself have changed.
In other words, this is already a quantitative measure of the level of uncertainty and the limitations of the underlying information for which such an evaluation is carried out. The last allegation is that, in evaluating any property on a certain date, the appraiser (forensic expert) should take into account and use only that information on the object of the valuation or such property, which could potentially be available to it as of that date and/or as a result of events that occurred prior to that date. In other words, such an evaluation is made using the necessary and available baseline information relevant to the date of the evaluation, which was or could potentially be known to the appraiser (expert) at that date in the past. The same holds true for legal acts in force at a specific evaluation date (as at the relevant date).
3. Features of the retrospective evaluation
Now that we have sorted out the common terminology, let us consider another case in which so-called «retrospective evaluation». This is a situation in which, at the same valuation date, the same property (the same or another specialist) is valued over a different period of time.
It turns out that in this case too there is no need to invent a «new bicycle». For example, to address such situations through, for example, forensic examinations, in accordance with procedural legislation and special Instruction on the appointment and conduct of forensic examinations and expert research is provided by the possibility of experts of primary, additional and repeat expert examinations. If some parallels are drawn with the independent property evaluation, the initial examination is essentially consistent ordinary property evaluation, completed at a certain valuation date; additional expertise – finalization (updating) of the report on the value of the object of valuation (in meaning of the National Standard №1 «General framework for property and property rights valuation»); for re-examination – the re-evaluation (in meaning of Property valuation method).
Here are two general conclusions about the problem of the comparability of the results of the so-called «retrospective evaluation» with the results of an evaluation carried out in the past at the same date:< / p>
- (1) none result of re-evaluation is no more reliable than the result of primary evaluation. Or maybe even reserved – is less reliable because on the result re-evaluation негативно влияет отсутствие всей информации, которая была доступна при проведении первичной оценки;
- (2) cost difference of another and initial evaluation does not in any way disclose undervaluation or overstatement as a result of initial evaluation, because there is distrust of the value that results from re-evaluation, cause of limited to all information sources related to the subject of the evaluation.
That is why, in case of difference in values of second and initial evaluation, in the main part of the property valuation report (research part of the expert’s opinion) during the re-evaluation(expertise) would be useful to indicate the possible reasons for such discrepancies. Including, for example, uncertainties and limitations of baseline information at which re-evaluation is performed.
3.1. Lack of information, legal conflicts and value ranges
Let us highlight another interesting point. In an environment where information on the characteristics of the facility at the valuation date is uncertain and/or baseline information is limited, an objective valuation may result in several values (for example, for various variants of property characteristics) being obtained by the appraiser (expert) or their interval values. At the same time, in practice, we have a situation in which, under the conditions of uncertainty or limitations of data, the possible variations of which lead to different values of the value of the facility, almost all evaluations end up indicating in the conclusions accurate (unambiguous) object value.
And there occurs a legal conflict, which is particularly acute in judicial proceedings, especially criminal proceedings. On the one hand, judges are not prepared to analyse and use property valuation findings that contain intervals of value of the facility – they need to make a decision with specific quantitative conclusions about the parties to the trial. On the other hand, practice shows that when there are well-qualified representatives of the participants of the process who disagree with the conclusions of the appraiser (expert) conclusion with an accurate result with high uncertainty of the original facility data cannot be considered as adequate evidence. As a result, the process is moving to the stage of re-evaluation (expertise), new conclusions about the value of the facility are emerging in the case. And ultimately, judges have to make decisions based on two or more values of the assets valued at the same valuation date.
Under such circumstances, during the conduct of precisely re-evaluation (expertise) and the availability of data on another, previously determined by the results of initial evaluation (expertise) the specific value of the object, It would be useful to consider the possibility of indicating interval or variant values of property. So, given the ambiguous characteristics of the object, It would be logical to include multiple values for different variants of unsubstantiated facility parameters or intervals of cost. In such a case, during the trial, the exact value of the property, as determined by the results of the original valuation (expertise), could provide some basis for a fair judgement and the specified cost intervals in the conclusions of the repeated evaluations (examinations), which would allow the process participants to feel a better possible area of intersection of cost intervals.
3.2. Retrospective evaluation as a special case of re-examination
So, as shown above, the recently popular term «retrospective evaluation» does not carry any specific and/or additional semantic burden. A is in fact a peculiar slang (like, already well-known «Eurorepair»). This type of evaluation is not specific and therefore not only can but should be carried out by the relevant professionals within the framework of the existing legislation.
To describe the so-called «retrospective evaluation» everyone should use the already well-known, and most importantly established and normative terminology, which includes the following basic concepts: «evaluation date», «date of completion of the report (conclusion)», «primary examination», «independent property assessment», «additional expertise», «completion (updating) of the valuation report», «re-examination»«re-evaluation».
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The article partially uses materials from the site
All-Ukrainian Evaluation Association.