Cause before the valuation date, damage afterwards: the root theory

The testator dies on 12 March 2024. The estate essentially consists of a semi-detached house built in 1936, with timber joist ceilings and a bay window facing the garden. The son is the sole heir; the daughter has been disinherited and claims her compulsory portion. In August 2024, almost five months after the succession, the ceiling above the living room visibly sags. Behind the lining are the mycelium and fruiting bodies of true dry rotSerpula lacrymans – a wood-destroying fungus that needs moisture, can grow through masonry and destroys structural timber on a large scale. Remediation is extensive and should normally be supervised by a timber preservation specialist..

The timber preservation specialist called in traces the cause to a valley gutter at the bay window junction that has been leaking for years; judging by the pattern of infestation, the attack began long before the date of death. Photos from the estate inventory, taken three weeks after the death, show a water stain on the bay window ceiling. According to the quotation from spring 2025, remediation will cost around EUR 160,000.

The market value appraisal is commissioned in spring 2025; the valuation date is the date of death. The heir wants the remediation costs deducted in full. The daughter, as the person entitled to the compulsory portion, objects: on 12 March 2024 the ceiling was intact, the damage only occurred after the succession and is not her concern. Both rely on the reference date principle – and both are wrong. The answer lies in the root theory of the Federal Court of Justice (BGH).

The reference date principle only answers half the question

Market value is defined in Section 194 BauGB as the price that would be obtainable “at the point in time to which the valuation relates”, having regard to the legal circumstances, the actual characteristics and the other features of the property. § 2 (1) ImmoWertV bases the valuation on the general value relationships as at the valuation date and on the condition of the property as at the quality date; under § 2 (3) sentence 2 no. 10 (e) ImmoWertV, that condition expressly includes the structural condition of the buildings. For the compulsory portion, § 2311 (1) sentence 1 BGB provides that “the composition and the value of the estate at the time of the succession” are to be taken as the basis.

This settles the date as at which the property is to be valued. What remains open is the knowledge to be applied. An appraisal is always prepared after the valuation date – in inheritance cases often years later. By then the valuer usually knows more than a market participant could have known on the valuation date. Which of these later findings the valuer may use is not expressly governed by § 194 BauGB or the ImmoWertV. How the valuation date and the quality date interact is explained in our article on quality date and valuation date.

The root theory: what the Federal Court of Justice decided

Remarkably, the BGH developed the root theory in a compulsory portion case. In its judgment of 17 January 1973 – IV ZR 142/70 (NJW 1973, 509; WM 1973, 306), the issue was the value of an engineering works forming part of an estate. The court held that it was “not impermissible and, in order to limit as far as possible the uncertainty in assessing future earnings, even appropriate” to take into account the development of the business that had become discernible after the valuation date – without infringing the principle of § 2311 BGB. In support, it referred to the legal rationale of § 2313 BGB, which provides for a subsequent adjustment in the case of uncertain rights and doubtful liabilities. And it drew the line to which the theory owes its name:

“By contrast, later developments whose roots lie in the period after the valuation date must be disregarded.”
BGH, judgment of 17 January 1973 – IV ZR 142/70

Later decisions have confirmed and sharpened the formula:

• BGH, order of 4 March 1998 – II ZB 5/97 (BGHZ 138, 136, 140): “Developments that only occur later but are already inherent in the circumstances existing on the valuation date must be taken into account.” Discernibility is not mentioned here.
• BGH, order of 8 May 1998 – BLw 18/97 (BGHZ 138, 371, 384): under the root theory, the subsequent actual development may only be taken into account “provided that its origins were already inherent and discernible on the valuation date”.
• BGH, judgment of 17 November 1980 – II ZR 242/79 (BB 1981, 1128): even for individual assets, it is not ruled out to use findings obtained later in order to draw conclusions about the value on the valuation date.
• BGH, judgment of 14 October 1992 – IV ZR 211/91 (NJW-RR 1993, 131): if estate properties are sold years after the succession at a considerably higher price than estimated, the market value is, as a rule, to be derived retrospectively from the price achieved, provided market conditions are essentially unchanged and the building fabric has not changed materially.

A higher regional court decision on contamination discovered later is particularly instructive for real estate: circumstances that only become known later but have their root before the valuation date must be taken into account in the valuation (OLG Düsseldorf, order of 2 April 1998 – 19 W 3/93, WM 1998, 2058, 2062). Concealed building damage is structurally the same case.

Value-clarifying information or a new event?

Translated into valuation practice, the root theory distinguishes between two kinds of subsequent information. One changes the condition of the property; the other merely reveals what it already was on the valuation date. Commercial law makes the same distinction for annual financial statements: under § 252 (1) no. 4 HGB, risks and losses that arose up to the balance sheet date must be taken into account even if they only become known between the balance sheet date and the preparation of the statements.

The line does not always run between two separate instances of damage; it often runs right through a single one. That is exactly the situation in our case.

The analysis in three steps

1. Did the cause exist on the valuation date?

The first question is one of fact, and it is not for the valuer alone to answer. Whether an infestation, damp penetration or a crack already existed on the valuation date is established by a specialist report – in our example that of the timber preservation specialist, otherwise a building damage report. The market value appraiser adopts its findings and discloses them.

Not every conceivable chain of causation is sufficient. Case law on the root theory requires the development to have been specifically inherent in the circumstances on the valuation date; with hindsight, almost any event can be traced back into the past somehow. The fact that a 90-year-old house will show damage at some point is therefore not a root in the sense of the theory. This general ageing risk is already reflected in the age-related depreciation and the remaining useful life. A valley gutter that has been letting water into the structure for years, by contrast, is one.

2. Was the cause discernible – and what does that depend on?

Case law is not uniform on this point. The order BLw 18/97 expressly requires the development to have been inherent and discernible on the valuation date; the 1973 judgment is predominantly read the same way. The order II ZB 5/97, by contrast, omits this criterion. For real estate valuation the dispute is less serious than it appears, because two levels must be distinguished:

• The condition of the property is to be determined objectively. § 194 BauGB refers to the actual characteristics and other features, § 2 (3) ImmoWertV to the structural condition. An infestation that existed on the quality date is part of that condition – regardless of who knew about it at the time.
• Market conditions and market data are, by contrast, to be assessed from the perspective of the valuation date. According to the application guidance on the ImmoWertV (ImmoWertA no. 2.(4)), for a past valuation date the general value relationships and the data that “were available or known at that time” are decisive. This restriction concerns indices, property yield rates and comparable prices – not the question of whether there was dry rot in the ceiling.

Discernibility nevertheless remains important, but in a different place: it determines how the market would have priced the circumstance on the valuation date. Openly visible damage is traded with the cost of remedying it plus a safety margin; a mere suspicion – a water stain, a musty smell, roof drainage left unmaintained for years – with a risk discount or a demand for a survey before purchase. In our example, the documented water stain and the unmaintained valley gutter suggest that a careful buyer accompanied by a building surveyor would at least have suspected the infestation on the valuation date.

Whether discernibility is a requirement in the specific proceedings is ultimately a question of law for the court to decide. The valuer should not answer it tacitly, but establish the facts relevant to discernibility and, where appropriate, present both value approaches.

3. What extent was already present on the valuation date?

This is the heart of our case. According to the timber preservation report, on the date of death the infestation affected the ceiling joists above the bay window and the living room. By the time it was discovered in August, it had also spread into the adjoining stairwell wall and the floorboards on the upper floor – encouraged by the fact that the house stood empty and unventilated after the death.

We do not attribute this additional damage to the valuation date. Market value assumes an ordinary purchaser on the valuation date who would have had a detected infestation remedied without delay. What is added by waiting after the valuation date is not a characteristic of the property on that date but a consequence of the time that followed – and the opportunities and risks of that period lie with the heir, not with the person entitled to the compulsory portion, who under § 2311 BGB only participates in the value at the time of the succession. The opposing view, that the further spread was also “inherent in the circumstances on the valuation date”, is tenable; that is precisely why the distinction belongs openly in the appraisal.

Two further distinctions follow from the same logic:

• Cost basis: The remediation costs are taken from a 2025 quotation. What matters, however, are the general value relationships as at the valuation date (§ 2 (1) and (4) ImmoWertV). The costs must therefore be adjusted back to the price level of the valuation date using the construction price index.
• New causes: Had a storm stripped the dilapidated bay window roof in June 2024, that damage would have been disregarded – the storm is a root after the valuation date. The poor condition of the roof on the valuation date, however, would still have to be taken into account.

What this means for the value in our case

The following numerical example is deliberately simplified. The starting point is a value of EUR 890,000 for the property in its condition on the valuation date, but without the infestation. According to the timber preservation report, the extent of the infestation on the valuation date corresponds to remediation costs of EUR 105,000 (2025 prices); adjusted back to March 2024, this gives around EUR 102,000 in the example, assuming construction price inflation of 3 per cent. In addition, there is a discount of EUR 25,000 for the residual risk and the stigma-related loss in value that a dry rot infestation leaves on the market even after professional remediation.

The cost of remedying the damage is not automatically deducted one-for-one. Under § 8 (3) sentence 2 no. 2 ImmoWertV construction defects and building damage count as special property-specific characteristics and, under sentence 3, are taken into account “in particular through customary market premiums or discounts”. How a buyer would have priced the damage is the actual valuation question; the costs are merely its most important indicator. For the treatment of defects in general, see What role does a construction defect play in the valuation?

The economic difference is considerable. If the testator leaves no spouse besides the two children, the daughter's statutory share of the inheritance is one half, so her compulsory portion under § 2303 (1) sentence 2 BGB is one quarter of the value of the estate. Between the daughter's position and the root theory approach there is therefore a difference of around EUR 32,000 in compulsory portion, and between the heir's position and this approach around EUR 14,500.

Valuation occasions in which the question arises

Wherever a statute or a contract prescribes a past reference date and time passes between that date and the appraisal:

• Compulsory portion and supplementary compulsory portion – the reference date is the succession (§ 2311 BGB); this is where the BGH developed the root theory. More on this in What role does a claim to a compulsory portion (Pflichtteilsanspruch) play in real estate valuation?
• equalisation of accrued gains – for the final assets, §§ 1376, 1384 BGB generally refer to the date on which the divorce petition became pending. On subsequent changes in value, see How does a subsequent increase in value after the valuation date affect the equalisation of accrued gains?
• Division of estates and settlements for departing partners or co-heirs, where the contract sets a reference date.
• Retrospective appraisals in general – for example years after the date of death, as described in Can an appraisal report also be prepared retroactively, years later, as of the date of death? .

The root theory is a concept developed by the civil courts. For tax valuations, such as proof of a lower fair market value, the reference date rules of tax law apply; whether and how damage that becomes known later is taken into account there must be examined separately.

What a robust appraisal report must contain on this point

• The valuation date and the quality date, expressly stated and justified.
• The damage findings with cause and timing, based on a specialist report or verifiable own findings – not on one party's assertion.
• An express classification of whether the root lies before or after the valuation date, with reference to the root theory and the relevant case law.
• The distinction between the extent present on the valuation date and the subsequent additional damage, and the adjustment of costs back to the price level of the valuation date.
• The facts on discernibility on the valuation date: photos, witness statements, maintenance records, reports – and the reasoning as to how the market would have priced the circumstance.
• Where legal questions remain open, two value approaches, so that the court is not bound by a tacit preliminary decision of the valuer.

If such damage only becomes known after the appraisal has been delivered, the question of a supplement arises. See the answer to What happens if new value-relevant information emerges after the appraisal report has been submitted?

Case law on the root theory at a glance

Conclusion

The root theory shifts the focus from the time of discovery to the time of origin. Consequently, a structural defect that only becomes apparent after the valuation date is neither automatically immaterial nor automatically deductible in full. Only what was already present at the valuation date must be considered – to the extent it existed at that time and at the prices applicable then. Any damage arising solely from a new event or from the passage of time after the valuation date remains excluded.

In the present case, this means: The person entitled to a compulsory share must accept the wood rot as a deduction, as its origin – the leaking pipe and the pre-existing infestation – predates the inheritance event. However, the heir cannot simply allocate the entire 2025 renovation invoice back to the date of death. A decisive factor will be an appraisal report that clearly distinguishes between cause, extent, and detectability, and substantiates each of these boundaries.

The complete derivation, verifiable by third parties, is provided by the market value report.