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Do valuation reports expire? An expert and licensed real estate appraiser answers

Real estate appraisal, property valuation, property valuation report, PRC-licensed real estate appraiser

Do valuation reports expire? This is one of the most common questions real estate appraisers or property valuers get. The answer is a valuation is applicable to the date of valuation and that reports do not technically expire. But as the economy and industries in which businesses operate constantly change, the older the property valuation report, the more uncertainty the valuation will have.

 

Property valuation (or real estate appraisal) is the process of estimating the market value of a property using generally accepted valuation standards. It is performed by a real estate appraiser, who in the Philippines is licensed by the Professional Regulatory Board of Real Estate Service (PRBRES) of Professional Regulation Commission (PRC). Estimating the value of a property is necessary for a variety of endeavors, including sales or disposition, taxation, financing, investment analysis, property insurance, and initial public offering (IPO), among others.

One of the most common questions real estate appraisers or valuers get is “how long is an appraisal report valid?” The short answer to this question is a valuation is applicable to the date of valuation. This effective date of the valuation refers to the point in time as of which the analyses and conclusions are relevant, not necessarily the date on which the asset was inspected nor the date the report was prepared or delivered to the client.

Report validity is the time elapsed from a valuation that is acceptable to stakeholders for a particular purpose. As different stakeholders use property valuations for different purposes, they have different guidance as to the usability of the reports as follows:

  • Banks – valuations done for banks for mortgage purposes have a one-year validity. Annual valuation update is also required for both their loans and foreclosed assets.
  • Audit firms – while not prescriptive, they recommend a yearly valuation for asset-heavy clients for their financial reporting especially if they already booked their assets at market value.
  • Securities and Exchange Commission – for any companies with acquisition/disposition and transfer of assets between companies, a formal valuation is required which should not be dated more than 3 to 6 months from the transaction.
  • REIT Companies – this newest asset class in the Philippine stock market requires a valuation not older than 3 months from the initial transaction and an annual valuation update for its portfolio.

Valuation reports do not technically expire, and the value opinion may persist for some time after the report’s effective date. However, as businesses are very dynamic, the economy and industries in which these businesses operate constantly change. Hence, the older the valuation report, the more uncertainty the valuation will have. If the real estate market is in a state of flux, the usability of a report may be shorter compared to when a valuation report date happened during a stable real estate market.

Take the start of the Covid-19 pandemic as an example. The unprecedented shutdown of the world’s economies led to uncertainty in the real estate market. At that time, relevant valuation standards advised that valuations be reported on the basis of “material valuation uncertainty,” where a higher degree of caution should be attached to valuations than would normally be the case considering the unknown future impact that Covid-19 might have on the property market. It was further recommended that valuation reports be kept under frequent review.

The main reason for the valuation uncertainty is that a valuation is not a fact, but a professional opinion based on data and information relevant to the valuation date. And with the volatility of the real estate market brought about by the Covid-19 pandemic, the uncertainty is palpable.

So why does a valuation report have a shelf-life? The simple answer is real estate values change over time.

 


Related Experts

Paul Ramirez

Senior Director

Valuation Services

Manila

Colliers Philippines

Senior Director | Head of Valuation

June 18, 2007 – Present

 

Asian Appraisal Co., Inc.

Asst. Vice President                          

March 16, 2001 - May 31, 2007    

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