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From the tip of the Tuskets to the briny Bras d’Or, Nova Scotia hosts a buffet of islands along the coast and in our many inland lakes. They provide visitors with a glimpse of wild beauty and an air of mystery; offering fantasies of self-isolation in a rustic cabin, or (in rarer cases) a self-sustaining luxury compound in the sea. There is no denying the unique appeal of an island property: every trip is a journey and the setting is ripe for peaceful contemplation and an escape (geographically) from it all. But not all islands are created equal, and one person’s paradise is another’s bare rock suited more to the gloomy vibes of a horror film à la The Lighthouse (filmed, incidentally, in the almost-an-island Cape Forchu near Yarmouth, NS). On occasion we are tasked with placing a monetary value on islands in Atlantic Canada, and though it feels crude to reduce these special places to dollar signs, our valuation crew is beholden to the oath of Market Values and Highest and Best Use. So, what factors into such an assignment? Before I jump into my canoe or take to the sky for the inspection, here are some considerations rolling around my head: Location The classic axiom of real estate applies most strikingly to island properties. An island located many kilometres out to sea will attract a much smaller pool of potential purchasers than an island within a leisurely boat ride of the mainland. For every additional hour spent travelling to an island, the cost of fuel, and risk of weather increases the difficulty in visitation and greatly increases the cost to move construction materials. For this reason, inland islands (on mainland lakes, or the Bras d’Or Lake) are generally more accessible and desirable than their oceanic counterparts. Amenities What better accessory for your yacht than a private island? Islands located near marina facilities, yacht clubs, and other services are immediately attractive to folks who enjoy Nova Scotia’s sailing culture. This trend is best revealed in the market for islands between Lunenburg and Chester on Nova Scotia’s South Shore. Here you will find the most expensive islands in the province, adorned with multi-million-dollar estates including the recently purchased “Kaulbach Island”. With a price tag of $4,000,000 this property includes multiple high-end buildings, deep anchorage, and a farm to keep you stockpiled in the event of any cataclysm (yacht not included). Waterfrontage Sandy beach or granite cliff? Both offer beauty but it is the former which is sought most by island purchasers. Valuing an island property often involves two key unitised elements: the “Basic Land Value” captures the uplands which tend to vary in quality based on vegetative cover, topography, etc. and are expressed as a value per acre; and the “Waterfront Benefit” which varies based on coastline material (sand, stone, boulders, etc.), accessibility, topography, and aesthetic appeal; and is expressed as a dollar amount per linear foot of water frontage. Breaking down value into both the Basic Land Value and the Waterfront Benefit is one of the ways we can leverage past sales of islands (which are inherently unique) to provide an estimate for islands yet to be sold. Ecological Interest As with many assignments involving wild places, the cold calculus of valuation has a redeeming quality when it can be leveraged to protect the land for future generations. In Nova Scotia, organisations such as the Nova Scotia Nature Trust, Nature Conservancy of Canada, Ducks Unlimited, and the Provincial government have created a market for islands which explicitly recognises their ecological significance. Islands which might otherwise be used to dry fishing gear can be justified with a Highest and Best Use “for conservation use” when there is demonstrable demand for islands hosting birds, mammals, and plant life unique to these coastal oases. It’s a small step, but by establishing conservation as a legitimate Highest and Best Use (backed by market data) we are opening a door to recognising the intangible values and relationships we have with land. It is this humble appraiser’s hope that one day the valuation process will broaden even further, allowing for the legitimate weighing of non-market values and against the rigid confines of what is merely “financially feasible” or “legally permissible”. Perhaps we can one day pit the spiritual value of land against its extractive value. .png)
James Stephens is a consultant in our Valuation Division and is heavily involved in the valuation of lands for the provincial governments, private land owners, and land trusts including the Nova Scotia Nature Trust, Nature Conservancy of Canada, Annapolis Valley Farmland Trust, and the Island Nature Trust. For more information about our range of Valuation® services, valuations for land donations, feel free to contact James at (902) 429-1811 or jstephens@turnerdrake.com.
Have you ever gazed over a decrepit old
building, or vacant parcel of land, thinking to yourself “This would be the
perfect place for…”
Taking this vision and transforming it into
reality is the premise behind an as-if-complete valuation. This form of valuation
provides a current or prospective (future) value opinion of a development prior
to it being constructed. In addition to undeveloped properties, real estate
owners and developers can also utilise this form of valuation to determine the contributory
value of renovations to an existing property.
Owners and developers typically require this
form of valuation as an input for mortgage financing and proceed in one of two ways: The property can be valued as though it were complete as of the
effective date of the report or alternatively;
it can be valued as at an assumed date of completion. Regardless the path, the
values presented rely heavily
on the standard described in the report,
and the proposed timeframe of the development.
Working together with architects, engineers, lenders,
designers and planners is an integral part of orchestrating the materials
required for this form of valuation. Building plans and renderings paint the
backdrop while finish schedules, cost estimates and operating projections
provide focus to the finer economic details required for these projects.
Financing details are based on the lender’s
relationship with the developer together with their experience completing similar
developments, financial position, cost of the project and overall loan-to-value
ratio. Once the as-if-complete value of the property is determined the bank
will typically schedule formal draws for the various milestones of the development.
For example; the first milestone may cover the cost of excavation and site
work, foundations, framing and roofing. This is where experience, organisation and
timing are key to the financial and fiscal success of the project.
Often developers run into issues during initial
milestones, where projected budgets are exceeded and the initial draw does not
cover the costs allocated to such milestones. This can occur as a result of
unforeseen circumstances, an unexperienced contractor or builder, fluctuating
material costs etc. If the developer
does not have access to an outside source of funds to complete this work and
proceed to the next milestone, lenders will sometimes issue a “swing-line” or short-term,
interest-only line of credit to see them through to the completion of the
milestone at hand. Progressing through the first and second milestones of a
project are often the most difficult as they can be the most capital intensive.
Paying close attention to cash flows and budget are paramount to ensuring the
financing terms are met and the project is completed as scheduled.
While construction pushes forward and
developers achieve various milestones, it is typically the responsibility of
the valuation consultant to confirm the work completed falls in-line with the
details described in the report. Various meetings and site visits are completed
throughout the project, and progress reports filed to the lender as per the
scheduled incremental milestones leading up to, and including, the completion
of the project.
New developments and renovations are
susceptible to a number of different variables that could easily alter a
project cost or timeline. Such variables can heighten the risk of a project;
therefore, including proper contingencies and mapping out the development in
fine detail will aid in minimising risk and provide additional comfort to
lenders considering your project.
The ongoing pandemic has had a tremendous effect
on the world and although primarily negative in nature, many clients have taken
this additional time to dream big and “put the wheels in motion.” Formerly
neglected ideas are re-surfacing and with the help of this form of valuation we
are playing a key role in bringing these ideas to fruition.
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Patrick Mitchell is a consultant in our Valuation Division and has extensive experience in the valuation of projects that are in early stages of development, or have yet to break ground. Patrick’s passion for design and architecture has strengthened his relationships with local architects, builders and developers. For more information about our range of Valuation® services, or more details concerning as-if-complete valuations, feel free to contact Patrick at (902) 429-1811 or pmitchell@turnerdrake.com
As summer edges near, warm days
pull our minds and hearts outdoors - reminding us of the natural areas that
make Nova Scotia a beautiful place to live.
From the maple-dappled shores of the St. Marys River to the sweeping
rocky coastlines of Yarmouth’s Tusket Islands Nova Scotia has an abundance of
natural beauty spanning countless ecosystems.
These natural spaces from a web of protected and semi-protected
landscapes across the province ranging from provincial nature reserves to prime
agricultural lands protected in perpetuity from development beyond a plough’s
furrow.
Canada’s legal concept of
‘owning’ land, though heavily based in a euro-centric view culturally, does
provide tools to assist in the protection of our natural environment. Most of the time when someone purchases a
property what they are actually paying for is a registered legal interest in
the property which allows them to use it unencumbered by others (the “Fee
Simple” Interest). However, there are many ways to split up this interest and each
comes with a value reflecting what the interest holder can and cannot do on the
property. For example, by placing a
restrictive covenant on lands, or placing ownership with a land trust, it is
possible to prevent the spoilage of natural places.
Valuing a partial interest in
land is a critical step in protecting wild areas through the use of Land Trusts,
which are not-for-profit organisations dedicated to the protection and stewardship
of special places including rare species habitat, areas of historic cultural
significance, and precious agricultural land.
Sometimes these Land Trusts acquire property outright through donation
or purchase, and other times an interest is granted to the Land Trust as a
Conservation Easement which details what is – and is not – permissible activity
on the land. In this way, these Land
Trusts have steadily grown a network of protected places over the course of
many decades.
For many landowners, the decision
to donate land is driven by a love of nature or a desire for a lasting legacy. As an added incentive there can be tax breaks
associated with these ecological gifts – the value of which must be determined
by a professional appraiser. In this way
Turner Drake has played a quiet (but important) role in the protection of an
abundance of properties which ultimately contribute to Nova Scotia’s roster of important
wild places. We are fortunate that
through this process, we have walked across places few Nova Scotians have seen
or heard of, but which nonetheless provide safe haven for many plants and
animals.
The season for outdoor
exploration is here and given current restrictions in urban-based gatherings
Nova Scotians have a unique opportunity to explore their surroundings and
connect with their natural environment in a meaningful way.
James Stephens is a consultant in our
Valuation Division and is heavily involved in the valuation of lands for the provincial
governments, private land owners, and land trusts including the Nova Scotia
Nature Trust, Nature Conservancy of Canada, Annapolis Valley Farmland Trust,
and the Island Nature Trust. For more information about our range of Valuation®
services, valuations for land donations, feel free to contact James at (902)
429-1811 or jstephens@turnerdrake.com
I recently read an article by the CBC
entitled “From sacred to secular: Canada set to lose 9,000 churches, warns
national heritage group.” The article
discusses shrinking congregations as member’s age, move away or switch to new
spiritual practices. The article notes
that in Eastern New Brunswick alone the Roman Catholic Archdiocese for example predicts
that 20 of its 53 parishes will likely close if the congregations can’t find a
way to generate more money. With less
money coming in and higher maintenance and operating costs churches face a challenging
future. This article resonated with me on a professional
level and personally as a member of a local church. In the past few years our firm has been
contacted by a number of churches, in particular church committees made up of congregation
members. These committees are assigned
the unenvious task of exploring what to do with their beloved church as it
faces the challenges of a shrinking congregation. The common questions asked by committee
members to aid in their decision making include: - Scenario #1: What is the value of the
church as it currently operates?
- Scenario #2: What is the value of the
underlying land as a redevelopment?
- Scenario #3: What if the church were
sold for an adaptive re-use, what would it be worth?
Essentially the committees want to determine
the Highest and Best Use of their property, with values determined for each scenario
so they can be make an informed decision, and ultimately present it to their congregation. Churches serve a number of roles for
their community. Outside of Sunday
church services and funerals they are used as polling stations, a place of
refuge after disasters, a place for private and not-for-profit groups to meet, a
venue for concerts, fundraiser dinners and suppers and a place for performing
arts to operate out of. While church
layout and design elements vary between denominations the fundamental church
layout is fairly consistent. Typically
it includes a large entrance lobby, a sanctuary, parlour, large multi-use hall
together with a kitchen and a number of smaller rooms used for meetings and
general storage. They tend to have
several large, wide-open areas with high ceilings together with a large number
of smaller classrooms. As a result of
their special purpose design they are challenging to value. Scenario #1 - determining the Market
Value of a church as it currently operates may not be as hard as it sounds. There are numerous examples of church
properties that have sold to other congregations for continued use as a
church. Scenario #2 – determining the value
of the underlying land for redevelopment is more challenging. Often times the property has an institutional
zone assigned to it, reflecting its current use. However, this doesn’t necessarily limit the
property to its current use. It can
often be re-zoned and redeveloped for a more intensive use. Exploring this scenario involves discussions
with the local planning authority, and in the end professional judgement is needed. In addition to re-zoning, heritage
designation issues, service and utility easements on the parcel and demolition
costs for the existing building must be explored and considered under this scenario. Scenario #3 considers the value of
the church for an adaptive re-use. This
can certainly be the most challenging scenario to consider when determining
value. The question here is “does the
existing building actually provide additional, measurable value?” Older buildings often have a lot of character
and heritage value. However, the cost
for repairs and maintenance for these older buildings can be substantial. They typically have masonry exterior walls
with decorative features that require a lot of maintenance. Their walls are often load bearing, meaning
they cannot be easily reconfigured for another type of use without substantial structural
work. In addition they typically sit on
expensive land, located in more central downtown locations with increasing pressure
on land values. All of these things can
point to demolition of the existing church to make way for a new development. However, that’s not always the case. Recently I completed an assignment
for a registered heritage property in Halifax.
The Centre Plan envisioned a low-density residential use for the
property. However, Package
A contained significant implications for the property as it contains policy
applicable to registered heritage properties.
This general policy allows for consideration of new development via
discretionary approval processes (a “Development Agreement”) rather than
zoning. The overarching goal of the
municipality is to encourage the rehabilitation and retention of heritage
buildings. In order to do this, they will support a significant amount of new
development intensity on sites containing a heritage building, using this as a
tool to create sufficient value that the required conservation measures can be
accommodated within an economically feasible project. This opens the
possibility for significant building height and floor area ratios, as well as
consideration of other cost-savings, such as lower parking requirements. In that
instance, the cost involved with demolishing the existing building coupled with
only low-density anticipated for the site meant that demolition of the building
was not the best option. Alternatively,
retaining the existing structure, or a substantial portion of it under policy
contained within Package A of the Centre Plan opened up the possibility for
significant building height and floor area ratios, as well as consideration of
other cost-savings, such as lower parking requirements. This second option meant a higher value for
the property. In that instance the best
option was retaining the existing building for an adaptive re-use as part of a
larger development. The
take-away here is that valuing churches or special purpose properties is not a
straightforward exercise. With shrinking congregations and higher operating costs
these types of assignments are becoming increasingly more common. They can be complicated and require a team approach
to valuing the property with assistance from planners with a solid understanding
of the Centre Plan.
For more information on the
valuation services we provide visit our Valuation and Advisory Services
site https://www.turnerdrake.org.
Nigel Turner, Vice President of our Valuation Division, can be reached
at nigelturner@turnerdrake.com
Now is the time of year where many companies are cleaning
house. Auditing departments are analysing and assessing inventory, and looking for
ways to minimise losses – kicking off the New Year in stride! Unfortunately, during this process many building
owners and managers overlook the main driver of their revenue – the very square
footage upon which leases are based.
It has become increasingly common for building owners and
managers to rely on historical figures when selling or purchasing a property. Many put their trust in building and unit
sizes that have been carried forward for years, or even decades. Considering building revenues and overall property
values are directly correlated to building size, wouldn’t you want all of your
ducks in a row before purchasing or selling a property? In other words, when making an investment
decision, why rely on areas that have not been certified?
Space certification is more than just an independent, third
party confirmation of the size of an existing space. It can also be a crucial vehicle for
unlocking additional property value.
Recently one of our clients was in the process of negotiating
the purchase of a large multi-tenant industrial building. The owner provided our client with the
overall building area together with segregated unit areas. The owner had openly stated the areas had not
been measured in at least ten years and so prior to making his final investment
decision, he engaged our Lasercad® team to verify the areas with a space
certification of the building. Once the
tenant spaces were measured and the rentable areas calculated in accordance with
the appropriate standard method of measurement, we came to an astounding
conclusion. Our space certification
rendered a total rentable area which was more than 10% higher than the owner-provided
areas! The building area had been
understated for the past 10 years (or more). From an investment standpoint our client was
floored. Based on the current market
rates for the area, the owner had been losing out on approximately $35,000 per
year of additional revenue. The
potential revenues which could be realised from the previously understated
building size played a major role in determining the overall value of this multi-tenant
industrial building.
Although some building owners and managers may overlook the
source of their building and unit sizes, many others have been pro-active in
implementing space certification as a standard procedure - especially when
making investment decisions. Regardless
of whether you are buying, selling, or leasing, it is essential to know where
the underlying areas originate from. The
square footage of your building is typically the core revenue driver and often
times, these areas are understated. Now
is the time to get a grip on your inventory and ensure you’re maximising its
value.
Patrick Mitchell is the Senior Manager of our Lasercad® Division and also highly involved in our Valuation Division. For further information on how to maximise your property’s value through space certification please don’t hesitate to reach out. Patrick can be reached at pmitchell@turnerdrake.comor by phone at 902-429-1811.
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It is a common misconception that a piece
of real estate has a single value. This
is simply not true. Determining which
value is appropriate likely has the biggest impact on property value.
The Royal Institution of Chartered Surveyors’
Global Valuation Standards, specify six types of real estate value (Market, Rental,
Equitable, Investment, Synergistic, and Liquidation). The Appraisal Institute
(of America) has identified ten distinct, and valid, property valuation bases in
common use in North America. Legislation, case law, and the purpose of the real
estate assignment, result in many variations of these property valuation bases.
Any conversation about valuing your property has to start therefore with
an understanding of the purpose of the valuation assignment or you can end up
with a conclusion which is worthless at best, or seriously misleading at worst.
Let’s discuss the
two most common types of value.
Market Value (Highest and Best Use) is typically quoted and understood by many (including
appraisers) to be the only type of value.
It is the highest price you would get for your property on a specific
date, if it was offered for sale, properly marketed, and exposed for a
sufficient period of time to alert and allow all potential purchasers to submit
offers. It assumes that both seller and
buyer are knowledgeable of property values, that neither are under pressure to
sell or buy, are typically motivated, and are each acting in their best
interest. It assumes a cash purchase, or typical mortgage financing, in
Canadian dollars. It also anticipates that the purchaser will be able to put
the property to its “Highest and Best” use, which may for example, include
redevelopment, if this will create a higher value than the existing use of the
property.
But beware, Market
Value is not the
price you could expect to get if the purchaser (1) was an adjoining owner, (2) was
undertaking a land assembly, (3) was a relative or business associate, (4) knew
something that the vendor should have known but did not, (5) did not know
something known to the vendor of which the purchaser should have been aware,
(6) wanted a “vendor take back” mortgage, (7) intended to lease back the
property to the vendor, (8) enjoyed a negotiating advantage because, for
example, the vendor was in dire financial straits, … and so on.
I was recently contacted by an
existing client looking to secure financing for their property located on the
Halifax Peninsula. Their property was
improved with an older, single storey commercial building. The underlying land was worth considerably
more than the building and property under its current use. After discussing the purpose of the
assignment with the client and their bank, it became clear that the bank was
interested in more than just the Market
Value (Highest and Best Use) of the property in this instance. The bank’s goal was to determine if the
income generated by the property, under its current use, was sufficient to keep the lights on and pay the existing mortgage. However, the bank also wanted to know what
they could expect to sell the property for if they ended up taking possession
of it and selling it on the open market. Effectively, the bank had two different
goals which gave rise to two different values.
We completed a thorough analysis of
the property and provided the owner, and their bank with two values (1) Market Value (Highest and Best Use), which in this
case was for redevelopment of the property, and (2) Market Value (Value in Use) as it currently exists
without regard to redevelopment potential.
Market Value (Value in Use) is similar to Market Value (Highest and Best
Use) but is based on the assumption that your property could only be utilised
for its existing purpose.
Difference in Value
In this instance the
difference in value was significant: $1.5 million (Market Value - Value in Use)
versus $2.3 million (Market Value – Highest and Best Use). Both values were included and supported in
the report, allowing the bank to make an informed decision on lending.
Looking for explanations on the different types of values listed
above? Visit our Valuation and Advisory
Services site https://www.turnerdrake.org/WhichValue for more information on the various types of values.
Nigel Turner, Vice President of our Valuation Division, can be reached at nigelturner@turnerdrake.com
Property tax is by far the most important source of revenue for municipalities in Canada, accounting for 49.5% of revenue in 2008 with an annual average growth rate of 1.6% (1988-2008). As reliance on property tax increases, so does the complexity of administering this regressive but necessary evil. Increased computing power in the mid-1960s prompted a shift towards automation of property tax systems, beginning with simple tasks and culminating in today’s fully automated assessment, notification, and payment systems. Modern Automated Valuation Models (AVMs) allow for rapid processing of data with minimised human-bias… but (and this is a large but) real estate appraisal is a nuanced trade: reducing the role of Appraiser to AVM Technician can have significant negative repercussions.
Service New Brunswick’s ongoing cleanup of their attempt at an AVM is a prospective case study in the dangers of a “hands-off” approach to the valuation process. Massive value errors were created by a computer-driven system with insufficient checks in place to alert users to suspicious results. When reviewed by human appraisers many of the shockingly incorrect valuations were easily overturned based on traditional market comparison valuation. Autopilot replaced the flight crew and actual appraisers are left cleaning up the crash, while their political and bureaucratic colleagues deal with the rightful public outcry.
While seemingly seductive, potential time and cost savings offered by an AVM should never mask the fact that, in order to operate successfully, an AVM must integrate human expertise throughout the valuation process. At Turner Drake the “A” in our in-house AVM stands for Accelerated to reflect the role that expert opinion plays in our two-stage computer-assisted mass appraisal model. Stage One combs through real property sales to select comparable properties based on locally relevant, value-defining attributes such as size, location, and design. Stage Two adjusts and weighs a unique set of comparable sales to create a market-based value estimate for each subject property in an assessment area. Throughout each stage of the model, a professional appraiser defines the selection criteria and adjustment values for comparable properties based on market evidence and local expertise. The model does the heavy lifting but certified appraisers evaluate and refine the results.
Outliers - which no system can avoid - can wreak havoc on the results of an AVM unequipped to handle the inherently diverse nature of real estate. It is critically important to flag potential outliers for review so the model can be adjusted for future assessments. During the initial rollout of an AVM model, refinement is time consuming but absolutely necessary for creating reliable, equitable assessments in successive years. In developing our Accelerated Valuation Model, we put the time in up front so the system flags out of the ordinary results, and the professional appraiser, made aware of the potential issue, is able to quickly and easily account for them.
In a Case Study of condominiums on the Halifax Peninsula, the Turner Drake AVM out-performed PVSC assessment values by a margin of up to 45%. That is, 86% of TDP value estimates were within 5% of an actual time-adjusted sale price versus PVSC’s 41% and 98% of TDP values were within 15% of actual sale price versus PVSC’s 84% in the same pool of properties. Our combination of custom programs and a traditional direct-comparison valuation can produce a list of unique comparables with adjustments for 1,000 properties in about two seconds.
Property tax administration systems are as diverse as the municipalities they serve and every region relies to a degree on the convenience of computers and automation. However, no matter the size or complexity of a property tax system it is important to follow best practices, and learn from the success - or failure - of others. When the pursuit of speed comes at the expense of quality there is a significant risk to the accuracy of valuations and the credibility of the property tax system as a whole.
For more information on how our AVM can benefit you, call James Stephens at 902-429-1811 ext. 346 or email jstephens@turnerdrake.com
The Real Estate Appraisal Profession is viewed in different ways by different people. Market value estimates are seen as everything from a financial assurance to a necessary evil. Personal views are typically reflective of the benefits or consequences of the end result; negative views are often the result of misinterpretation or confusion stemming from a lack of direct involvement in the process coupled with the absence of proper explanation. Unfortunately, this has led to several common misconceptions, or myths, about Real Estate Appraisal.
Myth 1: Real Estate Valuation is the same as Real Estate Appraisal
Real Estate Valuation and Real Estate Appraisal, although similar, are not analogous in nature and, contrary to popular belief, should not always be used interchangeably. The term Real Estate Appraisal is a more general term that covers a broad spectrum of value estimates. An appraisal can be anything from an estimate of price provided by a real estate agent to a written value estimate (report) provided to a financial institution by a certified appraiser. Real Estate Valuation, however, is a systematic process which provides an independent or impartial opinion of actual market value that frequently has full legal standing. It’s a complex process that can only be performed by professionally accredited individuals. Although it’s not common practise to point out the misuse of these terms to a potential client, I always like to capitalize on the opportunity to educate my audience and differentiate between the product being offered and the process involved.
Myth 2: Assessed Value = Current Market Value
Although most assessed values are purported to reflect market value, these figures are not necessarily current. For example, in Nova Scotia the assessed value of a property for the 2016 tax year is actually determined by the market value of the property at a base date of 1st January 2014, reflecting the state of the property as of 1st December 2015 (state date). As a result, the current market value of a property could in fact be significantly different than the Assessed Value.
Myth 3: Cost to build or renovate translates into Market Value
Although the cost approach is one of the three traditional methods of valuing real estate (see Myth 7), it is not without limitations. The cost approach can provide a reliable indicator of value for properties where the buildings are fairly generic, relatively new, and have very little depreciation. In this case, the building and improvements likely reflect newer construction trends and support the level of utility demanded by current market participants. However, this approach is less reliable when the building is older and begins to suffer from depreciation, or if the building is not of a typical design or style. The misconception here is that the cost to renovate will be recovered upon sale of the asset. Unfortunately, this is not always the case. In some instances, a retrofit does not necessarily add value to the property; it simply aligns the product with current demand or economic/functional requirements. Similarly, inflated costs due to atypical building designs are not always realized by the local market. In fact, the level of “uniqueness” can actually limit the pool of potential purchasers, therefore lengthening marketing times, and potentially decreasing the achievable value.
Myth 4: Market Value varies depending on who the report is prepared for
Market value is an impartial, unbiased opinion of value. The Appraiser/Valuer has no vested interest in the final outcome of the analysis, and therefore, the final figure should be the same no matter who commissions the report (i.e. borrower, lender, etc.).
Myth 5: A paying client can share a Valuation Report with anyone, and anyone can rely on it
A customer can share the results of a valuation with anyone they please, however the only individuals or organizations that may rely on the conclusions are expressly documented within the report.
Myth 6: A Property Valuation is the same as a building inspection
Although most valuations include an onsite examination of the subject, the Valuer’s task is to render an opinion of the market value for the property. A building inspection typically constitutes a structural survey of the building in order to determine the actual condition of the structure and its major components.
Myth 7: Market Value is based solely on comparable sales
There are three traditional approaches to valuing real estate: the Direct Comparison, the Cost Approach, and the Income Approach. Only the most appropriate combination of the three approaches is utilized in order to properly value a property.
1. The Cost Approach can provide a reliable indicator of value for properties that are fairly generic, relatively new, and have very little depreciation.
2. The Income Approach can provide a reliable indicator of value for properties which are acquired as investment vehicles. The value of the property is determined by its ability to generate revenue. This approach is less reliable when applied to properties which are not likely to be rented to a tenant.
3. The Direct Comparison Approach can provide a reliable indicator of value when comparable sales data are available. This approach is less reliable when sales data is sparse or when the various sales are not truly comparable to the subject thereby requiring extensive adjustments.
Written by Mark Farrow, Senior Consultant in our Valuation Division. For more information about our valuation services, feel free to contact Mark at (902) 429-1811 or MFarrow@turnerdrake.com.
Leading up to the birth of our second little one, I found myself going over the list of what to bring to the hospital to ensure we were fully prepared. Some of the most important items included diapers, as our almost two year old daughter would say… Momma and Dadda’s clothing, and the ever so important, highly analysed, overly scrutinised… take-home outfit. While I had originally second guessed my completed to-do list and fully packed, yet functional “go bag” (as I like to call it), the planning and comprehensive process paid off with a stress free stay at Hotel IWK. Looking back at my eight years with Turner Drake & Partners Ltd.’s Valuation Division, I can recall multiple instances where a small detail had a big impact on the overall assignment. If not for checking off my due-diligence list, these details may have gone overlooked.
Below is a list of the areas I spend extra time on when valuing a property:
Zoning/Planning Information
Typically when valuing a property, a zoning map and accompanying Land Use By-Law can be found on the city or town’s website. Once the existing use is deemed permitted under the current zoning by-law, the next step should not be to move on and consider this section of the report complete. Instead, the next step is to be speak with the local planner to determine if the existing Planning Strategy is either currently, or will soon be, under review and if that could affect the property in the near future. An example that I came across was a commercial building with a limited commercial zoning designation. The property was located on a highly desirable corner; however its maximum height was limited and the redevelopment potential was restricted. After speaking with the Town Planner, I not only uncovered the zoning designation was in the process of being changed to allow high density residential apartment buildings, but also that the maximum height would be increasing substantially as this street was designated for revitalising the immediate commercial area. You can surely bet the property owner was pleasantly surprised.
Comparable Sales
I have come to realise that this old saying does hold true with any real estate transaction … “every sale has a story”. While I would like to assume that all transactions satisfy the criteria of a fair sale, sadly I have been mistaken. I consistently come across different situations that have impacted the sale price. If not for speaking to one of the parties involved in the transaction, the sales information may have been misleading. An example is selling a property to an existing tenant. The tenant indicated they were willing to pay above market value as their business was established at its current location and this would save them the costs and hassle of moving. Another example is a sale between two related parties. While the Deed Transfer appeared to be between unrelated parties, an investigation on the Registry of Joint Stocks may determine otherwise. I sometimes pat myself on the back, envisioning that Sherlock Holmes himself may not have uncovered this convoluted sale. Unfortunately, this means another cup of coffee for me and further research for that ever desirable perfect comparable sale.
Easements and Right-Of-Ways
Sometimes reading a Legal Description is as complex as reading Shakespeare… “thence, North at a stone’s throw distance to the old birch tree…”. While this description sounds like poetry, it proves troublesome when the property has since been fully improved with no birch tree for miles. A nearby oak tree was noticed from the subject property; however is located within the sidewalk’s planter box so I assumed that was not the reference point. Nevertheless, a Legal Description should always be read (sometimes deciphered) and the easement and right-of-way portion should be verified on every assignment. I recently came a across a property owner looking to redevelop their property. While the property looked good on paper (i.e. large level site with good access from the road and redevelopment occurring in the area), I discovered that a public sewer line bisected the middle of the property which restricted any development above this easement. This had a large impact on the possible buildable area, overall design, and likelihood of the redevelopment occurring.
Conclusion
While no two valuations are ever the same, by creating a standardised to-do list that covers some of the essential components of a valuation assignment, no small detail should ever go unnoticed (or take-home outfit left behind!).
Our Valuation Division never overlooks the details. For more information on our valuation services, feel free to contact Matthew Whittleton, the author of this blog post, a Consultant in our Valuation Division and Manager of our Saint John, NB operations, at (902) 429-1811 or MWhittleton@TurnerDrake.com.
There is a common misconception that valuing unimproved parcels of land (i.e. not built on or cultivated land) is fairly straightforward. Although there is no shortage of land sales to draw from … the sheer number of variables involved with value and mixed nature of the sales makes valuing unimproved property, which includes islands, one of the most challenging exercises in real estate valuation and appraisal. Over my career I have become familiar with the most important variables to consider when valuing land and briefly share them below. This is by no means a complete list but does demonstrate the complexity involved with valuing land.
It all begins with a conversation with a client regarding their unimproved property. A typical conversation will usually go something like this:
“I am looking to have a valuation completed on my property for sale purposes. I have received an offer and I want to know if it’s reasonable. They are offering me $375,000 for 250 acres which is $1,500/acre. Does that sound reasonable to you?”
This is a difficult question to answer without knowing the details of the property. In our profession the accepted method for valuing land is to determine an appropriate per unit rate, which is based on similar properties that have sold, and then applying that to the property being valued. However, this approach is often flawed due to the number of input variables involved with value. For example, you could have two parcels of land that are the same size located adjacent to one another, with one of those parcels having extensive waterfrontage and the other having very little. So does it make sense to value both of these parcels using an overall per acre rate? Let’s take a look at the most crucial variables …
Access
The type and amount of access can be a large contributory factor to value. The property, for example, might have enough linear road frontage to be subdivided thus creating several lots. However, if the road is only maintained and accessible for a portion of the year it can have a significant impact on value. Alternatively, the property may be accessible by way of a right-of-way. If that’s the case it would be necessary to review the right-of-way documents to understand what the restrictions are for use of the right-of-way.
Size, Shape and Topography
The overall size, shape and topography of the parcel are also variables which need to be considered. The parcel may be very long and narrow, short and wide, or have steep terrain or be fairly level, which can have a significant impact on its use and value.
Location
Location, location, location … If the parcel sits adjacent to a developing residential area it would likely attract a higher value than a property situated in a more rural setting with little development. Location of the property is very important to consider.
Waterfrontage
Does the property have extensive waterfrontage to a river, a lake or the ocean? If so, is it susceptible to flooding during certain times of the year? Is the shoreline badly eroding or is it permanently in a state of wetland? What is the depth of the adjacent water and does the water level drop significantly during the summer months? All of these factors affect value and must be explored.
Cover Type
Another critical variable is the type of land cover. If the likely use of the property is for forestry harvesting than the cover type would be a critical input variable. Often times we are asked to value property which contains unique cover types including old growth forests or hemlocks.
Zoning and Other Restrictions
Even in rural areas where properties are not typically subject to the same level of land controls, there are often restrictions on the use of the property. For example, the property may be located within a designated wilderness area or within an area designated as a watershed. These types of restrictions can severely limit the use of the property and thus impact its value.
Conclusion
Back to the original question; is this offer reasonable? Well that all depends on a number of factors that need to be investigated before providing any input ... The morale of my blog post: Nothing is ever as straightforward as it seems, especially when it involves valuing land.
If you have questions regarding the value of your property or are interested in learning more, feel free to contact Nigel Turner, Senior Manager of our Valuation Division, at (902) 429-1811 or NigelTurner@TurnerDrake.com.
I joined Turner Drake in 1981, just about the same time the Space Shuttle successfully returned from its inaugural flight to usher in the use of manned reusable spacecraft to return to Earth. Upon landing, I believe astronaut John Young hyped on adrenaline, proclaimed “that was a ride of a lifetime”. While my time with my colleagues at Turner Drake has been more grounded, I also consider it a ride of a lifetime; ushering in new challenges, adventures and innovations along the way.
Operating throughout Atlantic Canada and beyond, we have valued a diversity of properties from airports to smelters; pulp mills to fish plants; convents to quarries and vast tracts of moose pasture … and just about everything in between. Valuation of real estate is not a simple task or an exacting science: it has always been a combination of art and science. With a predominance of the former in the years gone by, giving way to the latter as a plethora of data and technology has, and continues, to become available. As the saying goes … everyone has an opinion on value. However it is certainly more than just producing fluff and a leap of faith. As valuers, we have to use the tools developed to capture, analyse and make sense of demographic, economic and market factors that drive real estate values. Clients of real estate practitioners expect and deserve accurate conclusions based on sound analysis and interpretation of the evidence available.
To meet this expectation, it is incumbent on valuers to be leading the wave, not just riding it. As more and more real estate data becomes available, i.e. published sales data, online property zoning, assessment data, financial analytical tools, etc., the valuer’s time is not so much spent working as an old time private investigator travelling the region and unearthing spotty evidence but more so assimilating the available data and recognising what is relevant and applying the correct analytical tools to interpret it to produce a creditable result. The tools we use at Turner Drake include our Compuval® Database assembled over the past 35 years comprising over 200,000 detailed property records including sales, assessment, income and expense data on properties throughout Atlantic Canada and across the country; Geographic Information Systems (GIS) databases that focus on demographic trends, land use, spatial connectivity, development patterns and the physical aspects of property; and financial analysis and projection software. These tools together with the knowledge and skill sets of my colleagues at Turner Drake make the challenge of valuing properties a rewarding experience and as I indicated at the onset … a ride of a lifetime.
Rick Escott, Vice President of our Valuation Division and Newfoundland Operations, reflects on his last 34 years at Turner Drake. To find out more about Rick and his adventures, check out our Facebook page!
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