Elements of an Appraisal Presentation to BDC November 18, 2014

Elements of an Appraisal
Presentation to The Risk Management Association
November 18, 2014
Presented by Guy J. Bourgeois AACI P.App
[email protected]
780 452 8000
What is an Appraisal anyway?
It’s an opinion of value
It’s not a sale!
It’s not a fact!
It’s not a guaranteed price!
It’s not a promise!
It is simply someone’s opinion !!!!
So why do you trust it?
Who’s opinion is it?
What does he/she know?
We trust- because it exists
Real estate is a physical asset that we can see and
feel and we know it is not going anywhere!
We also know that property has utility of some
If it has utility it has value to someone.
The level of utility is the determinant of value example farm land vs development land
And combined with what we all read and hear all
of us have some sense of value.
So when we read an appraisal report of a qualified
valuer, the information and reasoning provided
should conform with what we already know, and
that allows us to trust that opinion.
We trust because we read
positive (or negative) news about
the Real Estate Market
Every one reads or hears at least a little
about the real estate market.
And, we tend to believe whatever we read.
This builds confidence in the minds of the
Business and lay people make decisions every
day based on news and information they
Edmonton Journal Headlines
Premiers united over ‘extraordinary’
Energy East pipeline project
We Trust the Valuer
An Accredited Appraiser will have completed the
education program offered by the association to
which he/she belongs.
The Appraisal Institute of Canada (AIC) requires
that all candidates have a University Degree before
being awarded either the CRA or AACI/P.App
CRA – Certified Residential Appraiser
Residential appraisals only –SFD to
Be wary of co-signers that are not
of the same firm.
AACI/P.App – Accredited Appraiser
Canadian Institute.
Qualified for all property types !
But must have experience in that
property type.
What about the Valuer?
How qualified is she/he?
An appraiser with the AIC has an extensive
academic requirement while working as a
candidate appraiser.
From start to finish it usually takes 4 to 5
years to reach the AACI P.App level.
Education Requirements You are required to
pass the following fifteen (15) University of
British Columbia (UBC) courses, or equivalent.
1. BUSI 100 Micro Foundations of Real Estate
2. BUSI 101 Capital Markets and Real Estate
3. BUSI 111 BC Real Property Law and Real
Estate Ethics, OR
BUSI 112 Canadian Real Property Law and Real
Estate Ethics
4. BUSI 121 Foundations of Real Estate
5. BUSI 293 Introduction to Financial
6. BUSI 300 Urban and Real Estate Economics
7. BUSI 330 Foundations of Real Estate
8. BUSI 331 Real Estate Investment Analysis and Advanced Income Appraisal
talks about leases, market rents, cap rates, yield rates, investor expectations
9. BUSI 344 Statistical and Computer Applications in Valuation
Understanding data charts, computer tools to assist the appraiser
11. BUSI 401 Commercial Property Analysis
The commercial property investor has different motivations than a home
12. BUSI 443 Foundations of Real Property Assessment and Mass Appraisal
13. BUSI 442 Case Studies in Appraisal I
14. BUSI 452 Case Studies in Appraisal II
15. BUSI 460 Critical Analysis and Forecasting in Real Estate
Canadian Uniform Standards of Professional Appraisal Practice
All Appraisals must conform to these standards
They outline the minimum requirements of all appraisals completed by
licensed appraisers.
The standard rules of conduct and ethics are extensive and detailed.
Generally though they require that all appraisals touch on or explain
specific items (27 in total).
This includes proper description of the property, purpose of the appraisal,
analysis of highest and best use, along with appropriate recent data and
analysis among others. The appraisal must be an objective opinion and not
misleading in any way.
These items must always be included. Otherwise, if a complaint is
ever launched referring to an appraisal that does not conform, then
the Appraiser may be subject to disciplinary action and/or reeducation.
Types of Appraisals
Full Narrative Appraisal
This is the most complete report available
It should give the reader a detailed description and analysis.
Summary report
This is a shorter report that may have less background information
However it must include the 27 essential elements
Verbal Opinion.
Appraisers are often asked for their opinion over the phone.
These are the least reliable of all opinions.
Appraisers must be careful on what we tell you.
Most often we have not seen the property
and the information that you provide may not be
So what are these 27 essential Elements?
6.1 Preamble
6.1.1 This Standard deals with the procedures for the development and
communication of a formal opinion of value, and incorporates the minimum
content necessary to produce a credible report that will not be misleading.
6.2 Rules
In the report [see 7.1] the appraiser must:
6.2.1 identify the client and other intended users, by name; [see 7.2]
6.2.2 identify the intended use of the appraiser’s opinions and conclusions; [see
7.3] e.g.: a report completed for fire insurance should not be used for
6.2.3 identify the purpose of the assignment, including a relevant definition of
value; [see 7.4]
6.2.4 identify the scope of work necessary to complete the assignment; [see 7.5]
the appraiser must tell you what he/she has done to render the opinion
6.2.5 identify whether the appraisal is current, retrospective, prospective, or an
update; [see 7.6]
most appraisals reflect current market value but often we are required to estimate the value of
a building not yet built. Be careful here. Think about when that value applies.. In an industrial
building, ? An apartment? A motel?
6.2.6 provide an analysis of reasonable exposure time linked to a market value
opinion; [see 7.7]
This is important!!!
6.2.7 identify the effective date of the appraiser’s opinions and conclusions; [see
6.2.8 identify the date of the report; [see 7.9]
6.2.9 identify the location and characteristics of the property and the interest
appraised; [see 7.10]
6.2.10 identify all assumptions and limiting conditions; [see 7.11]
6.2.11 identify any hypothetical conditions (including proposed improvements); [see
Be very Careful Here!!! E.g. TI’s included or not!!
6.2.12 identify land use controls; [see 7.13
6.2.13 state the existing use and the use reflected in the appraisal; [see 7.14]
Where existing use is not highest and best use!!
6.2.14 define and resolve the highest and best use; [see 7.15]
6.2.15 describe and analyze all data relevant to the assignment; [see 7.16]
Must be current and properly analyzed!!
6.2.16 describe and apply the appraisal procedures relevant to the assignment;
[see 7.17]
6.2.17 support the reason for the exclusion of any of the usual valuation
procedures; [see 7.18]
6.2.18 detail the reasoning supporting the analyses, opinions and conclusions of
each valuation approach; [see 7.19]
This section should be logical , make sense and lead you to the same
6.2.19 analyze the effect on value, if any, of the terms and conditions of the
lease(s) when developing an opinion of the value of a leased fee or a leasehold
estate; [see 7.20] Be aware of the impact of low rent in a long term lease!!!
6.2.20 analyze the effect on value of an assemblage; [see 7.21]
6.2.21 analyze the effect on value of anticipated public or private improvements; [see
7.22] EG.. Edmonton LRT..some good and some bad effects
6.2.22 analyze the effect on value of any personal property; [see 7.23]
E.G. FF &E in a motel…or appliances in a condo project.
6.2.23 analyze any Agreement for Sale, option, or listing of the property; [see 7.24]
6.2.24 analyze any prior sales of the property; [see 7.25]
This can be very important to you!!
6.2.25 review and reconcile the data, analyses and conclusions of each valuation approach
into a final value estimate; [see 7.26]
6.2.26 report the final value estimate; [see 7.27]
6.2.27 include a signed certification of value; [see 4.2] Note: An appraiser who signs a
certification of value accepts responsibility for the appraisal and the contents of the
appraisal report.
I would be happy to answer any questions
Thank you!

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