Back in mid February, the Appraisal Institute published a new guide note to help appraisers better understand exposure time and how to incorporate its analysis into an appraisal. The Institute’s new Guide Note 14: Concept of Exposure Time addresses how appraisers should link exposure time to their value opinion and comply with the Uniform Standards of Professional Appraisal Practice (USPAP).
The new guide note’s introduction explains that “an analysis and opinion of exposure time is required for appraisals where the definition of value is tied to a reasonable or stipulated exposure time. A discussion of exposure time allows the intended user(s) to put the appraiser’s value opinion into context. It also serves as the foundation on which appraisers describe market conditions, analyze comparable sales, and reconcile an opinion of value to the actual sale price.”
The Institute’s new guide note then provides six key reasons why exposure time matters to the valuation process:
- Reasonable exposure in the market is a condition of the definition of market value.
- Improper identification of the reasonable exposure time in a market value opinion can lead to a value conclusion that is not credible.
- The study of market conditions and exposure time allows for proper analysis of market activity.
- Recognition of reasonable exposure time is part of the process of evaluating the suitability of sales as comparables.
- An understanding of reasonable market exposure time is needed to recognize and evaluate the impact of limited market exposure in liquidation transactions.
- Analysis of a prior sale of the subject (property) requires a comparison of the reasonable exposure time linked to the value opinion and the exposure period associated with the sale.
The guide note also provides advice on developing an opinion of reasonable exposure time, and clarifies a big misconception between exposure time and “marketing time” that many individuals seem to have—giving a detailed explanation of both to help alleviate confusion.
If you haven’t already done so, it would be wise to check out this informative guide note; even if you are familiar with exposure time. In today’s highly scrutinized and ever regulated real estate appraisal industry, any reliable form of guidance should be utilized immediately so you can remain ahead of the curve at all times.
To access Guide Note 14: Concept of Exposure Time in its entirety, please click here.