What does Prospective Value Mean?
The value of a property on a specific future date.
“A value opinion effective as of a specified future date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific future date. An opinion of value as of a prospective date is frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not yet achieved sellout or a stabilized level of long-term occupancy.”
Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).
What it Means
Prospective value is not a value itself. Rather, it is the value as of a certain future date. Though it could be paired with disposition or liquidation value, it is most often paired with market value. If paired with market value, the result would be “prospective market value”.
This scenario is common when a borrower is purchasing a property but will receive additional funding for improving and/or fixing-up the property, or, the appraisal is made for new construction. Prospective value is often based on a set of extraordinary assumptions and hypothetical conditions are assumed to take place for the value forecast to be reliable. For instance, if a property owner is planning on installing $40,000 in various fix-up items, the prospective value opinion would typically assume (1) the hypothetical condition that the improvements are installed, and (2) the extraordinary assumption that they will be carried out in a professional and workmen-like manner. Without these assumptions, the prospective value opinion would not be reliable.
Refer to our Value Vault resource section for additional appraisal definitions and appraisal related topics