module 11 Flashcards
A designated appraiser is engaged when a property owner (or a buyer) needs an expert, unbiased opinion on the
value of real estate to make a well-informed decision about real estate. Designated appraisers are involved in:
- Renovating or building
- Buying or selling property
- Financing or refinancing property
- Making real estate investment decisions
- Reviewing property tax assessments
- Assessing capital gains
- Making a claim for insurance purposes
- Determining or facing expropriation compensation
- Valuing property for matrimonial purposes, arbitration, or other litigious matters
- Business mergers, acquisitions, or dissolutions involving real estate
- Reporting on property values to meet International Financial Reporting Standards (IFRS)
- Completing reserve fund studies or depreciation reports for condominium/strata property
- Valuing machinery and equipment
- Completing mass appraisals
Appraisers use the form report to provide appraisal
reports to financial institutions, relocation companies,
and government agencies
This type of report consists
mainly of preprinted information that must be checked
off where relevant. Space is also available for additional
comments and supporting details
Narrative report
A narrative report takes a logical, systematic, and
detailed approach by presenting in writing the theory,
facts, analysis, application of methodology, and
conclusions.
Appraisers use a narrative report to estimate the market
value of various types of structures; for example,
apartment buildings, commercial buildings, and
agricultural land for the purpose of financing, transfer of
ownership, capital gains, etc.
Appraisers also use it to value single-family homes,
duplexes, triplexes, and fourplexes for court/legal
proceedings.
Benefits of an appraisal
ome of the benefits of having a professional appraisal
include:
• Obtaining third-party, independent advice
• Getting advice from professionals who regularly
analyze the data generated by real estate
professionals
• Having a trained, experienced person give a
homeowner their unbiased opinion on the
estimated value of a property
If you receive a request from a seller asking for a signed, written appraisal report on the value of their property, askthe seller why they need it. Before you complete any type of appraisal, written or verbal, ask yourself two questions:
A. Do I have the appropriate education and/or the experience to provide an opinion of value or advice about the
value of the subject property for the purpose requested?
B. Do I have errors and omissions insurance that will cover the type of appraisal being requested?
Comparables for sale now
The competitive position of the seller’s house is
extremely important. The selection of properties should
be made with careful consideration to overall
comparability with the subject property. Under
Features/Comments, highlight significant differences
and/or similarities
Comparables sold in the past 12 months
This category represents what the buyers paid for
similar properties in the past 12 months. The more
recent the comparables, the more relevant the
information, assuming that most properties selected are
as comparable as possible with the seller’s property.
Market conditions change, so current or recent
comparable properties sold will better reflect the value
of the seller’s property. The order should start with the
most comparable and proceed sequentially
Sources of Data for a CMA
A salesperson needs to know how and where to search for comparable properties for a CMA before they can list a property. Sources of data include:
• Local listing service – Accessed through a salesperson’s membership in the service provider.
• Municipality – Information, such as lot size and dimensions, builder’s floor plan, living space, etc.
• GeoWarehouse® – Accessed through the salesperson’s local listing service. GeoWarehouse® is a web-based
centralized property information source that provides mapping and research tools, and professional reports.
When reviewing the sold and expired listings, you will
need to take into consideration the:
• Lot sizes
• Location (backing onto green space versus other
properties)
• Date of the sale or expiry of the listing
• Number of bedrooms and bathrooms
• Number of garages, if any, and
• Major upgrades (roof, furnace, window
Comparables
You will need to provide detailed information
concerning the comparables data they have. In
particular, you should share information on the top two
or three in each category: comparables for sale now,
comparables sold in the past 12 months, and
comparables expired in the past 12 months. These
comparables will be the most similar to the seller’s
property.
Avoid overpricing
You will need to discuss problems of overpricing a
property:
• Difficulty in getting other salespersons excited
about the property
• Possibility of the property remaining unsold and
becoming market stale
• Risk of appearing in the wrong price category and
restricting the number of qualified buyers who
might otherwise consider the property (for
example, buyers in the $350,000 to $400,000
range not looking above the $400,000 price level)
• Risk of becoming a comparison house that may
be actively shown but only to sell other wellpriced properties
The advantages of the cost approach are:
- People understand it
- Often the only method to use in the appraisal of special-purpose properties
- Relatively easy to make a cost calculation
The disadvantages of the cost approach are:
1. Difficult to estimate depreciation, particularly in older buildings
2. While the cost of construction appears relatively easy to estimate, no exact cost figure can be given as several
methods yield varying costs
3. Construction costs are constantly changing
The income approach is used to estimate the value of an income-producing property only. It would not be used to
estimate the value of a residential real property or condominium unit.
The advantage of the income approach is that it is applicable in estimating the value of investment properties by
means of cash flow analysis.
The disadvantages of the income approach are:
1. Difficulty in selecting an appropriate capitalization for direct capitalization (or a discount rate in the case of
yield capitalization)
2. Estimating income and operating expenses can sometimes prove difficult, and a slight error in either estimate
is magnified on capitalization
3. Of limited use in the appraisal of owner-occupied and/or special-purpose properties
Direct Comparison Approach
The advantages of the direct comparison approach are:
1. Consumers generally understand and use it
2. Avoids various problems associated with estimating and forecasting; for example, building costs, depreciation,
revenues, expenses, and cash flows
3. Generally accepted by courts and the general public
The disadvantages of the direct comparison approach are:
1. Sometimes difficult to obtain good comparable sales
2. Making adjustments for differences in properties requires careful judgement and experience; In some
instances, such adjustments are often difficult to support and explain satisfactorily
3. Difficult to obtain relevant information relating to each sale, particularly with reference to seller or buyer
motivation
4. Data are historical in nature
The Direct Comparison Approach
A good comparable property should have the given four primary qualities:
• Sold at or near the date of the valuation
• An “arm’s length” transaction; that is one in which the seller and buyer of each comparable property acted
independently and do not have any relationship to each other
• Physically similar to the subject property
• Within the local market area
