There is a sketch from Saturday Night Live poking fun at US Air after they had some airline crashes.¹ The comedian portraying the CEO, at the end of clip, concluded with "At US Air we learn something from every crash. That's a guarantee!"

The notion that an airline would focus on learning from its own crashes as a sole approach to prevention is ridiculous, but it is precisely the approach that appraisers take. Why wait until after your appraisal has been hacked to pieces or rejected in a trial before you revise your methodology?

There are two basic tenants that are the backbone of a proper and defendable appraisal. One is the effective date and the second is the value definition.

        It's a Date

There are many dates involved in appraising. The date of inspection, the date of rendering the report, the date of incident, date of signature, etc. However, one date that is mandatory is the date of value, called the effective date. Thus, in an appraisal for obtaining insurance, the date of inspection is the effective date. Depending on the state jurisdiction, an appraisal for dissolution of marriage, for example, can be the date of separation, the date of apparent separation, the date of filing, the date of the hearing for division of the marital property, date of decree, or the date that the judge declares to be the effective date.

It is imperative that the effective date be the mandatory legally required date for the assignment. To render an appraisal with the wrong effective date runs the risk that it will be dismissed or face severe cross examination during a hearing. In litigation, reviewing the opposition's expert witness' work includes checking if the effective date is correct.

        Double Dating

Can an appraisal have more than one effective date? Yes.

Perhaps the assignment is for larceny. The effective date in the jurisdiction is the date of the incident. But what if the alleged thief stole two items on two different dates? A value for each incident is required. Of course, each item will need to be specifically separated with a different value and effective date.

Also, in litigation, the complaint will most likely have more than one cause of action. A cause of action is the reason to sue or indict.² In such a case, each cause of action most likely will have a mandatory effective date. Thus, in a complaint with five causes of action, there are possibility five effective dates.³ Fortunately, they are usually the same or mostly so.

In analyzing the opposition's appraisal(s) there is a 50/50 chance that the appraiser applied an incorrect effective date. Usually, the appraiser has embraced a current effective date. Although seen often in appraisals, it is usually incorrect as most litigation linked effective dates are retrospective. An incorrect effective date can be a problem for the appraiser. However, are there exceptions? Yes!

        Antepenultimate Valuation

One should state "on or about" in relation to an effective date if market activity is reasonably after or before an effective date. Are your eyes popping out with "that cannot be" engraved in them? As a market expert, an appraiser can use data that is reasonably close to the effective date if they can adjust or show that the data is useful in determining an acceptable value on the required date.

A Supreme Court of Appeals of West Virginia was faced with three appraisals, each with an effective date quite different from the required date of death effective date,⁴ made an interesting conclusion. The estate's personal representative was, according to West Virginia law, to provide valuations with an effective date matching the date of death. Two of the appraisals had an effective date sixteen months and the third one⁵ had an effective date eighteen months after the decedent's date of death!

The appraiser testified that the market had been relatively stable (flat) or with a variance of merely 10% compared to the date of death's market. Thus, since the appraisals reported a fair market value that could be used to determine the value on the date of death, even though they were not matching the date of death, the court affirmed (accepted) the values of the three appraisals!⁶

The benefit of retrospective effective dates is that the appraiser knows what happened in the market. As the Uniform Standards of Professional Appraisal Practice (USPAP) reveals:

"A retrospective appraisal is complicated by the fact that the appraiser already knows what occurred in the market after the effective date of the appraisal. Data subsequent to the effective date may be considered in developing a retrospective appraisal as a confirmation of trends that would reasonably be considered by a buyer or seller as of that date."⁷

However, do not risk that you might be able to stretch the required effective date but instead narrow down your research close to the effective date. Take the route least likely to be challenged.

        Fortune Telling

Did you notice that all the effective dates detailed or mentioned so far are past and not future? Appraisers do not predict future market activity. Thus, be careful with future effective dates.⁸ For example, in a Louisiana dissolution of marriage assignment, the required effective date for the division of marital property is the date of the trial.

"The court shall value the assets as of the time of trial on the merits, determine the liabilities, and adjudicate the claims of the parties."⁹

If you are retained to appraise the marital property for an upcoming hearing, is that not a future effective date? Yes. But you must determine values as close to the hearing as possible and check on the day of the hearing to beware of any market activity changes (increases or decreases). Thus, actual market activity will prevail and not a crystal ball valuation.

        Past Due

An effective date that is from the past is called a retrospective date. And yes, there can be more than one retrospective date in an appraisal. For example, in a larceny case in which the alleged thief stole watches on three different dates, the gemologist-appraiser will have to render a value for each date of incident. Or, if there were three different dates of larceny but the prosecutor is not sure which date is when a ring was stolen, the gemologist-appraiser will have to render a value for each possible effective date.¹⁰

t times, there can be a timespan in which the theft took place. The gemologist-appraiser must render a range of values from the beginning to the ending effective date range. If, per chance, the effective date becomes precise later, the value range must be useful to select a single value linked to that discovered effective date.

        A Final Word

An incorrect effective date discovered in an appraisal involved in litigation can be the basis for the retaining attorney to either request that the opposition's expert witness be dismissed or use it to cross examine and discredit the witness' work product. Do not be that appraiser - employ the correct effective date.

Written by Bill Hoefer