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CLIENT ADVISORY

Standards of Appraisal Practice

Reports, valuation related work, and consulting assignments completed by a member of the Appraisal Institute of Canada must be undertaken in compliance with the Canadian Uniform Standards of Professional Appraisal practice. (CUSPAP). These standards set basic requirements for the content and preparation of reports. An appraiser may exercise discretion with respect to the degree of data presentaton and discussion outlined in a report. Generally, the level of presentaton will be a function of the intended use of the report , expected degree of reliance on the data, and nature of the assignment. As a result, factors which the appraiser may consider to be relevant to the property, its market value, or the valuation procedures may be discussed in relation to the degree of importance. The type of report produced is entirely at the discretion of the appraiser.

The Client & Intended User

Different from other professions, appraisal work often involves complexities in terms of client relationships, obligations, and liabilities. An appraisal report prepared for use and reliance by the party who ordered the report simply for that party’s own use creates a standard clent relationship. Unique to appraisal work however, are the circumstances whereby a party may request an appraisal be prepared for the use and reliance by another. Mortgage appraisal reports are typical. In these cases, the lender is identified as the “intended user ” and accordingly, the appraiser has a primary responsibilty to the lender. The appraiser’s obligation to the party who ordered the report is secondary. It is our policy that this latter obligation is limited to completion of the work and ends with delivery to the lender.

Intended Use

The appraisal report clearly and unambiguously states the intended use. This must be specific. A general use such as “for financing purposes” is not usually not acceptable. In this respect, current practices suggest a term such as “this report has been prepared solely for use and reliance by (name of lender ) as a basis for determining a suitable level of security for first mortgage lending” or “this report has been prepared solely for use and reliance by (named party) as a basis for determining a suitable price in sale negotiations.” Accordingly, the appraiser must know the intended use of the report prior to accepting the work. The type of report produced, extent of narrative, and often, the type of analysis are all contingent upon the intended use.

What to Expect From an Appraisal Report

Appraisal reports are prepared for a wide range of purposes. The type of report produced, the format and the degree of detail are defined by the purpose, function, and client requirements. The type of report prepared is at the sole discretion of the appraiser.

Residential valuations for mortgage purposes are probably the most common type of appraisal report. Typically, these are prepared on a standardized form which provides essential details in a condensed, summary format. In brief, these form reports will include the appraiser’s estimate of market value, a summary of methodology, and short description of the property. These reports are typically intended to provide a lender with the uncluttered, minimum information which the appraiser believes is relevent to market value of the property along with detail adequate for a mortgage lending decision.
Appraisals prepared in this format may be inadequate for other uses or situations requiring greater scrutiny. Form reports can only be utilized in limited circumstances. The appraiser must retain a complete file with all supporting data and relevant material.

For most other purposes and for the valuation of all non single family residential properties, a greater degree of detail is necessary. Typically, a narrative report will be prepared. Reports of this type usually ranging from 40 to 150 pages may provide extensive details of the property and valuation methodology. These reports must include adequate detail in accordance with the purpose, function, and expected degree of reliance. The reader should be given sufficient information regarding the valuation process, data, and reasoning in support of the value conclusions.

In order to understand the degree to which an appraisal report can be relied upon, it is critcal that the reader carefully review and understand the scope of the analysis, assumptions, and limiting conditions. These are usually at the beginning of the report and clearly outlined along with any extraordinary assumptions or hypothetical conditions.

POLICY REGARDING LETTERS OF CONSENT

Unless a prior agreement has been made, letters of consent which permit a named party to rely on the report are issued only at the sole discretion of Inland Appraisers Ltd.

A letter of consent will not be issued beyond 60 days from the original appraisal date. Issuance of a letter of consent will be subject to the following:

  1. The intended use and degree of reliance remain unchanged;
  2. The understanding that the report is essentially retrospective and no representation is made of current value;
  3. The new intended user accepts all conditions, limitations, and assumptions contained in the report;
  4. All copies of the report are returned along with a signed acknowledgment of no reliance; and
    A fee of $150.
  5. The original client and intended user confirm that they are no longer relying on the report.

 

 

SUMMARY OF APPRAISAL FEES

 

Appraisal reports, consultation and review services provided by a member the Appraisal Institute of Canada must be completed in compliance with Canadian Uniform Standards of Professional Practice, Regulations of the Appraisal Institute of Canada, and professional liability insurance requirements.  These requirements impose ethics and the components necessary to provide credible reports.

 

There are three categories  of practicing members:

  • AACI, P.App. – Qualified to provide a range of     property valuation & consulting services.
  •  CRA (Canadian Residential Appraiser) – Qualified to provide valuation related     services on vacant residential sites and dwellings no larger than four     units.
  •  Candidate – Junior members progressing through the     mentoring program after completion of initial educational requirements.

Assignments completed by a Candidate must be reviewed and co-signed by either an AACI or CRA competent and knowledgeable in the property type.

Assignments

Appraisers provide a range of valuation, consulting and  appraisal review services for clientele including lenders, legal firms, different levels of government and private parties.  Assignments can include current valuations   for mortgage security, estate settlement, litigation (foreclosure, court  ordered sales, marital settlements, partnership disputes) expropriation, lease/rental negotiation, purchase/sale negotiations, accounting &  business purposes, and insurance settlements. In addition to current valuations, appraisal reports can be based on a prior date (retrospective) or proposed future development   (prospective).

Consultation services are often provided when non valuation    issues are involved.  These can  include project feasibility studies, market analysis, housing studies and forecasting reports.
Some appraisal offices, like Inland Appraisers, provide commercial     arbitration services.  These     typically involve settlement of construction disputes or market rental issues.

 

Complexity

 

The nature of the property and appraisal instructions is critical to the time necessary to properly complete an assignment.  The typical breakdown for standard appraisals is as follows:

 

Small commercial building

  • Initial research & file preparation                                                        .5 hr.
  • Property inspection                                                                                1 – 2 hrs.
  • Review of leases and any material provided                                          2 hrs.
  • Research of comparative land & building sales and

rental information                                                                                          3 – 4 hrs.

  • Analysis of material and completion of:
    • Direct Comparison Analysis (as appropriate)                                4 hrs.
    • Cost Approach (as appropriate)                                                   2 hrs.
    • Income Approach                                                                       2 hrs.
  • Preparation of appraisal report                                                               2 – 4 hrs.
  • Review & proof reading                                                                         1 hr.

TOTAL          19.5 – 22.5 hrs.

  • Expenses
    • Clerical/assistant                                                                       3 – 4 hrs. @ $25
    • Title search (assuming no encumbrances)                                    15.00
    • Courier or other charges

 

Vineyard or orchard up to 15 acres

  • Initial research & file preparation                                                          . 5 hr.
  • Property inspection                                                                               1 – 2 hrs.
  • Research of comparative sales                                                               2 hrs.
  • Inquiries, investigation and confirmation of

comparative sales                                                                                           3 hrs.

  • Analysis of comparative sales and completion of

Direct Comparison                                                                                           4 hrs.

  • Preparation of appraisal report                                                               2 hrs.
  • Review & proofreading                                                                          1 hr.

TOTAL             13.5 – 14.5 hrs.

  • Expenses
    • Clerical/assistant                                                                       3 – 4 hrs. @ $25
    • Title Search(assuming no encumbrances)                                     $15
    • Courier & other charges

 

Additional costs can include travelling time to outlying communities, automobile expenses at $.55/km, time necessary to review and report on any encumbrances.

 

Fees

 

Like most professional services, appraisal fees are not subject to regulation, minimum or maximum limits.  In private practice, appraisal offices will often have some standard fees for a single service such as single family residential valuations completed for mortgage purposes (common appraisal requests).  Similar to residential site plans provided by surveyors, this type of work is generally streamlined and completed by a CRA.

 

Fees for most other assignments are usually based on an hourly rate plus expenses and disbursements.  Typically the hourly charge out rates for a senior AACI are in the order of $175 to $250 and $75 to $100 for CRA members.

Complexity – Residential Appraisals

 

  • Property inspection(excluding any travel time)         .5 – .45 hr
  • Sales research & valuation process                           2 – 3 hrs
  • Completion of the report                                         1 –  2 hrs

 

 

Report Format

It is our policy to provide independent valuation services with reports prepared in a comprehensive format with supporting discussion of aspects relevant to the assignment.We do not utilize the standardized residential appraisal form report for any property types other than single family residential.  These forms are not intended for use in any other type of assignment and may not provide adequate information.

 

 

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