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Who’s Going
to Live In All Those Houses? – A common refrain when there’s a lot of
residential development, whether houses, apartments, or condos. Demographic trends can help to answer the
question after the fact, but more importantly, attention to demographic
patterns ahead of developing can ensure that housing supply meets demand. After all, once it’s built, housing supply is
here for the long haul. At the recent
NSPDA and LPPANS conference, Turner Drake led a workshop examining how
individual decisions feed into patterns in housing supply and demand. Here’s a brief recap (granted, a Nova Scotia‑oriented
recap, but many of the principles apply across Atlantic Canada). The Life
Cycle of Housing A typical person will move around a bit in their
lives, starting out in their parents’ house (or houses: if we can infer Canadian behaviours from American stats,
the average person owns 4.5 to 5.5 houses in their lifetime), moving to a
rental apartment before buying their own home(s). Later in life, they may downsize back to an
apartment (possibly a more luxurious one this time) or condo, and finally make
their way to a seniors’ residence. In-demand housing stock is heavily dependent on the
dominant age groups in any given area.
The primary drivers of rental apartment demand are 20-29 year-olds, and the
65-and-older cohort, though the latter is increasingly shifting to a
75-year-plus bracket, and the former arguably extends to above age 35.

Source: Statistics Canada 2016
Census
The inverse is demand for owned housing, and the primary buyers are
ages 25 through 45. The 25-29/34
year-old age bracket falls into each of the renter and buyer categories: this
is the first-time homebuyer age range, where we see the steepest increase in
home-ownership rates. The inference is
that by age 45, buyers have bought their first home, possibly sold it and
upsized to a larger family home, and here they stay for a prolonged period of
time.
 Age distribution in Nova Scotia
(Source: Statistics Canada Population Estimates)
The graph above shows shrinkage in the brackets
that include ages 20 through 45, but growth in the 65+ brackets. Growth in the 55-64 year old bracket means
that the latter will continue to expand as Baby Boomers age. A 2018 Royal LePage survey of home buying
intentions found that 42% of Atlantic Canadian Baby Boomers plan to downsize in
retirement, with 23% intending to sell their homes and move to their secondary
properties, i.e. to the cottage.
Thirty-two percent would consider buying a cottage in which to live in
retirement. The answer is probably no,
but all this moving to the cottage raises the question of whether the province
will see population ruralisation over
the next few censuses, or whether the urbanisation of younger generations will
continue in numbers sufficient to offset it?
The map below shows population change at the Dissemination Area level in
Nova Scotia between the last two censuses: the concentration of purple (growth)
in urban areas, in contrast with the pink and red (shrinkage) of the rural
areas, indicates urbanisation. 
Population change 2011-2016, Statistics
Canada 2016 Census
Just 29% of Atlantic Canadian Baby Boomers would consider purchasing a
condo, the lowest rate in the county.
Recall that the stat comes from a survey of home buying intentions…and recent trends have been for downsizers to opt
for rental apartments over condominium apartments. There is certainly incoming supply of
apartment units: CMHC statistics on housing starts over the past few decades
show a distinct shift from single-family construction to apartments: 

…though the rest of Nova Scotia is a different story:

The breakdown of the same housing start data shows a distinct rental
intention:

…which again is driven almost entirely by the Halifax pattern:

...while the rest of the province still shows a clear preference for
offering options for home ownership, with very little constructed for either
the rental or the condominium market:

On the demand side, the province appears largely influenced by the
statistics for Halifax, with vacancy mirroring the same ups and downs over the
past three decades, though vacancy is a bit tighter in the city (overall 2% in
NS and 1.6% in Halifax in October 2018).
Demand is strong: vacancy rates have been falling since 2014, even as
the inventory of rental units has been steadily increasing.

In the years ahead, expect continued growth in demand for higher
density residential forms, especially of the rental variety. This trend is driven by the Halifax market,
and offers an appealing lifestyle (low maintenance, low commitment), combined
with the option to live off the equity unlocked from the sale of the family
home. It is not far-fetched to
extrapolate that demand for multi-unit rental apartments may also exist in
smaller municipalities in the province, but that rural housing economics (lower
housing prices but similar construction costs) have thus far constrained the
supply side of the equation.
Turner Drake & Partners’
Economic Intelligence Unit follows closely trends in real estate and the
factors that can impact its value, from demographic patterns and preferences,
to climate change. Custom reports
translate data into conclusions. For
more information on how we can assist you, please call or email Alexandra Baird
Allen: 902-429-1811 x323 or abairdallen@turnerdrake.com.
Turner Drake started in 1976 with the mission to “provide solutions to real estate problems”. Initially we focused on valuation practice, but as real estate and its challenges have become more diverse, so too have we. Over the decades we’ve added complementary practice areas, expanding our perspective and deepening the expertise we could bring to the aid of our clients. Not long ago we once again ventured into new territory, adding a Planning Division. Rooted in the economic perspective that all our divisions share, our planning practice is unlike any other in Atlantic Canada. Often we are called in to lend
a hand on other Turner Drake assignments; bolstering property tax appeals,
identifying implications for property valuation, or accurately reviewing
development potential for brokerage clients. But we work most closely with our
Economic Intelligence Unit, where our combination of GIS resources and
expertise in the analysis of demographic, economic, and real estate market data
have led us to some truly interesting planning assignments. Working with a variety of both private and
public sector clients, we’ve been involved in some of the largest planning and
development projects in the Region. And some of the smallest. We’ve even picked
up a few awards along the way. The challenges and outcomes are varied, but one
thing is always common; an approach grounded in real estate economics. Now, having just crossed the
five-year milestone, we celebrate another; our first staff expansion. We put
out the call shortly before the New Year: thanks to the many that applied, we
are humbled by your interest in what we are trying to bring to the planning
profession. So who is the new recruit ready to help us continue our success?
Say
Hello to the Newbie – Andrew Scanlan Dickie [1][2].jpg)
Hello world, I’m Andrew –
Turner Drake’s self-declared Newbie – here to share the story that is me; a
story of adventure, intrigue, and spreadsheets. Yes, I’m that guy – the one who
likes numbers just a little too much. I’m no mathematician, just a fanboy
hoping to put my interests to use. I suppose that’s how I ended up here, but
that will come. My last names may throw you
off, but I’m a born and bred Montrealer (I can feel the maritime Bruins and
Leafs fans cringing). I decided to stay local for my first university degree,
receiving a Bachelor of Commerce from McGill. I was young, inspired, and ready
to take on the world. What does the mean? You got it – I went back to school,
but this time away from home (sorry mom). In Spring 2017, I graduated
from Dalhousie University with a Masters of Planning degree. My short two years
in Nova Scotia were nothing short of amazing; I met my soon to be wife, made
amazing friends, and embraced the culture and lifestyle. But like many before
me, I left to seek opportunities elsewhere. Over the last two years I
worked for a small-town municipal government in Ontario, wearing the many hats
allotted to me and expanding my knowledge of planning policy. Don’t get me
wrong, I loved it – but two things kept nagging at me: (1) Ontario’s got
nothing on the Maritimes (there’s just something about the air here) and (2) my
professional life was number deficient (ahem, nerd). At the time, my partner and I
were nestled in the suburbs. We had adopted a dog and enlisted the help of a
real estate agent – we were getting pretty darn serious about putting down
roots. So, one might say it was an 11th hour moment when the Planning
Division opportunity for Turner Drake came up. I would say it was more an
aligning of the stars; a chance to return to the place my partner and I hoped
to call home and the lifestyle that comes with it, and an opportunity for me to
develop both my business and planning expertise. So here I am, ready to take on
the world yet again and use my skills to contribute to the well-oiled machine
that is Turner Drake. I’m chomping at the bit, so if you or your organisation
are wondering how our expertise in development economics and real estate market
analysis can enhance your planning process, just give us a call! Hint, hint,
nudge, nudge – mandatory municipal planning strategies as part of the Nova
Scotia Municipal Government Act are becoming a thing, so feel free to reach out
about how that may affect you or how to explore that process. Alternatively, if
you’re in Ontario and require some help navigating Ontario’s Planning Act, let
me know!
To
see how your project can benefit from our unique planning expertise, call
Senior Manager Neil Lovitt at (902) 429-1811 or nlovitt@turnerdrake.com. We’ve
got more horsepower than ever.

You are a tenant looking for commercial
space to lease. You start your search by checking the local Kijiji ads and
maybe check with a few colleagues when you realise that perhaps you are in over
your head. One ad is asking for $14/ft.² net plus operating and taxes, while another
is asking $3,500 per month gross. How do you compare these two rents?
Or perhaps you are a new landlord, eager to
fill up your new investment property and start making a return. You are not
sure what to charge for rent, but you want to ensure that all of your operating
expenses are recovered at the end of each operating year and you are not out of
pocket for any expenses.
First, let’s summarise the rental
terminology:
Net
Rent: Often
called “Base Rent”. This is what you pay
for the right to occupy a given space
Additional
Rent: Often
called “Common Area Maintenance (CAM) and Realty Taxes” or “Service Rent”: This is the cost of operating a given space
or property. It includes such things as
electricity, heat, garbage removal, snow clearing, etc. It is typically paid for by the landlord and
then recharged to the tenant on a per square foot basis.
Gross Rent: This
is the sum of all rent paid (Net and Additional Rent).
In order to compare a net and gross lease,
the rents must be converted to the same basis (ie: both must be compared on a
per square foot basis, or both on a monthly rental basis). For example: let’s say that a particular unit is
1,500 ft.2 and it is being offered at a Net Rent of $14/ft.² and CAM
and Taxes of $11/ft.². Converting this
to a monthly rent is as follows:
($14/ft.² +
$11/ft.²) X 1,500 ft.² = $37,500 annual or $3,125 per month.
Alternatively, if you are provided with a
rental rate of $3,500 per month gross for a 1,500 ft.² space, converting this
to a per square foot rent is as follows:
$3,500 per month X
12 = $42,000 per annum / 1,500 ft.² = $28.00/ft.²
Now that you know how to calculate and
compare net and gross rental rates…which one is better? A net lease or a gross lease?...well it
depends which side of the lease you are standing on. The main difference between a net and gross
lease, comes down to who shoulders the risk of increasing operating costs. Under a gross lease, a tenant has committed
to a set amount of rent for the lease term.
If the operating costs increase during the term of that lease term, the
landlord “eats” those costs, thereby cutting into his/her effective rent. Under a net lease however, the Additional
Rent charged for operating costs fluctuates throughout the term of the
lease. Since landlords are recharging
the tenants for common area costs, any increases are simply passed on to the
tenant. Tenants may prefer a gross lease
since it represents a steady and guaranteed rent, and no risk of increasing
common area costs during the length of the lease. Landlords on the other hand tend to prefer a
net lease where there is a steady and guaranteed base rent, and any risk of
increased expenses is simply passed along to the tenant.

Ashley Urquhart is the Senior Manager of our Brokerage Division. She has a vast network of contacts and would be happy to assist you with all your leasing needs. Feel free to contact Ashley at (902) 429-1811 or aurquhart@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. [1].jpg)
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.

Specific Claims are launched by a First Nation band against the
Government of Canada for historic grievances, typically over issues like
unfulfilled treaty obligations, loss of reserve lands and mishandled First
Nation funds. The most common cases that cross our desk involve the sale of
reserve lands by the government of the day without the Band’s consent, either
because it was never surrendered by them or because it was invalidly surrendered.
The events are always historic and quite often pre-date Confederation
– a time when settlers were actively seeking to establish themselves in the new
world and the government of the day was eagerly trying to accommodate them
through grants and leases of land. And
sometimes that happened to be unsurrendered reserve land.
Those readers with a penchant for all things historical will find
interesting reading on the origins of these claims by researching King George III’s
“Proclamation of 1763”, issued in those turbulent times of squabbling between
the French and the British. It imposed a fiduciary duty of care on the Crown
which endures to this day, and is enshrined in the Constitution Act of
1982. Heady stuff.
Our involvement in these files begins when the historical research has
been done and the claim has been accepted by the government for negotiation.
The stage is then set for negotiations to begin over the amount of compensation
that the FN should receive from the Government of Canada.
The structure within which these negotiations take place is laid out
in federal government guidelines. The first, released in 1982, set out the
policy on specific claims and established guidelines for the assessment of
claims and negotiations. These were tweaked under successive governments but
the fundamentals remain the same. They
can currently be found in the document entitled “Specific Claims Policy and
Process Guide”, available online and currently (still) under review.
We have been actively engaged on claim files in the Maritime provinces
since the company began over 40 years ago – impressive, but a mere blink of the
eye within the context of the time periods actually covered by these types of
claims. Our involvement occurs in one of two ways. 1.
As an independent Consultant, hired under a
joint terms of reference to calculate the ingredients of the claim, which then
forms the platform for negotiations between the parties. 2.
As a Technical Expert on behalf of the First
Nation, advising their negotiation and legal team on the technical aspects of
the claim, ensuring that the process follows the guidelines and that the FN
receives the compensation it is due.
We have represented (or continue to represent in currently active
claims) over half a dozen First Nations throughout NS and NB, usually in the role
of Technical Expert.
The structure of a claim is set out in the guideline and usually there
are two components, calculated separately but intrinsically linked through the
historical record. (1) Current Unimproved Market Value - Where a
claimant band can establish that certain of its reserve lands were never
lawfully surrendered, or otherwise taken under legal authority, the band shall
be compensated either by the return of the lands or by the current unimproved
value of the lands. A relatively straight forward process….. (2) Historical Loss of Use -
Compensation will include an amount based on the loss of use of the lands in
question, where it can be established that the claimants did in fact suffer
such a loss. This can include losses from timber, agriculture, minerals and
aggregates, fishing rights, land rental losses and a myriad of other
components. A far from simple process,
often involving experts from different fields … and forests. The claim clock
begins when the lands where first taken – usually 100 years or more in the
past.
The process is not a quick one.
Reconstructing historical events – and placing a value on them - takes time and
diligence. This is no splash-and-dash
appraisal job. And rightly so because
there is much at stake here. Claims typically run into the millions of dollars
and the calculations behind them must withstand robust scrutiny by both
sides. The cost of righting past wrongs
does not come cheaply – or quickly. .jpg)
Lee Weatherby is the Vice President of our Counselling Division. If you'd like more information about our counselling services, feel free to contact Lee at (902) 429-1811 or lweatherby@turnerdrake.com

Happy
GIS Week! We were working recently on an assignment in the
Annapolis Valley, the land of orchards and sloping vineyards…and that got us
thinking about the impact of elevation on land area. Ultimately, the question is one of land
value: inherent in the value of agricultural land is potential crop yield. More land area equals more growing potential equals
more value. Where slopes are acceptable
or even advantageous, they may serve double duty in that sloped land is larger
than it seems. Our Valuation Division’s MO is to maximise your property
value…this is an Economic Intelligence Unit blog post, and this is GIS Week, so
we’re going to geek out on how to ensure you’re counting all your land, using a GIS, a little high school math, and a fair
bit of Pythagoras[i]. Pythagoras’ Theorem defines the relationship between the
sides of a right triangle with the equation a² + b² = c². Side “c” is the hypotenuse, and is always the
longest of the three sides.
For illustrative
purposes, we created a convenient, perfectly rectangular, parcel. It measures 500 x 1,150 m, for a total area
of 575,000 m² (57.5 hectares).

That is:
 But the land comprising
this parcel is sloped. The contour lines
added to the image below demonstrate the degree of the slope; on average, there
is an elevation differential between the highest and lowest elevations of 140
m.

Thus, the 500 m parcel dimension is effectively 519.2 m: 
and
the effective land area is 597,080 m²
(59.7 ha.), a difference of 22,080 m²
– over 2 hectares of extra space for crops!
This
is a highly simplified example of the impact of slope on land area. There are many other factors to take into
account, such as the tipping point between beneficial slopes and unusable
inclines. But in a world where “land:
they’re not making any more of it,” holds true, the most informed decisions are
the best ones. Where a precise figure is
required, you’ll need to call in a professional land surveyor. But when an area scaled from a map is fit for
purpose, using a GIS and a little high school math can yield a more useful
number than you’d get from a regular map.
P.S.
a related fun fact was shared at Wednesday night’s Geomatics on the Town event (part
of the 2018 Geomatics Atlantic Conference): tree planters space their seedlings
at a certain distance from each other.
For one tree planter, this was the equivalent of 3 steps on flat ground,
but on sloped terrain, it was 12 steps in order to leave sufficient room
between trees!
[i]
Mainly for defining the relationship between the sides of a right triangle, but
a little bit for first floating the idea that the Earth is a sphere...it comes
into play in measuring distance. There
are two methods of measurement in a GIS, Cartesian and Spherical. The Cartesian method calculates distance and
areas based on data as projected onto a flat surface (like scaling from a paper
map), while the Spherical method accounts for the curved surface of the Earth
(like scaling on a globe). The distances
in this example were measured in MapInfo using the Spherical method.

Alex Baird Allen is the Manager of Turner Drake's Economic Intelligence Unit, and has a high level of expertise and interest in GIS. If you'd like to reach Alex, call 902-429-1811 Ext.323 (HRM), 1-800-567-3033 (toll free), or email ABairdAllen@turnerdrake.com

Why Hire a Commercial Broker? How a Commercial Broker Adds Value in Real
Estate Transactions
There are ample online and
offline resources available at your fingertips to help you purchase or sell a
commercial property on your own – so why hire a broker? If you have the time,
negotiating skills, real estate market information, and understand your target
market and how to reach them, you don’t!
However, unless you can say
yes to all of the above, here is how a commercial Broker adds value to your
transaction:
1. Your time is valuable. Letting a Broker do the heavy lifting and
deal with “tire kickers” allows you to focus on your business.
2. Brokers have the contacts
and resources to market your listing or find you a suitable property, ensuring
all opportunities are uncovered.
3. Brokers understand your
target market and how to reach them.
4. Brokers do not have an
emotional attachment to the property or transaction.
5. Brokers are often members
of local real estate associations, which can provide you with access/exposure
to the MLS system in addition to their own websites, social media platforms,
and databases.
6. Brokers have the inside
track on market data, sales transactions, planning considerations and players
in the market who are looking to purchase or sell commercial properties. They can
help you determine a reasonable price and can help maximise market exposure.
7. Brokers know how to
properly measure a building and collect the property information required, such
as any material latent defects that must be disclosed in a transaction, which
can avoid future lawsuits.
8. Brokers prepare Purchase
& Sale Agreements, Counter Offers, etc. on your behalf, saving you from hiring
a lawyer to assist with these items.
So, once you’ve decided to
hire a commercial broker, how do you choose which broker/brokerage to represent
you? The short answer is to simply hire the broker with whom you feel most
comfortable. There are many excellent commercial brokers locally, so meet with
a few, ask them questions, and choose the broker you feel will best represent
you, and who understands your wants and needs. Each commercial broker has their
own strengths; it is up to you to determine which one is the best fit for your
organisation.
As Senior Manager of our Brokerage Division, Ashley Urquhart assists
both landlords and tenants meet their space requirements, and vendors and
purchasers optimise their property portfolios. For more real estate brokerage advice, you can reach her at
aurquhart@turnerdrake.com or 1 (800) 567-3033.
October 7th
through 13th is Fire Prevention Week in Canada. With firefighters in Nova Scotia responding
to over 1,400 fire related incidents in 2016/2017, it is important to ensure
that you have the resources in place to help tenants safely clear a property in
the event of a fire.

The theme of this year’s Fire Prevention Week is “Look. Listen. Learn. Be aware. Fire can happen anywhere.” The “learn” component of this year’s them refers to the need for everyone to learn two ways out of every room. We can help. 
Our LaserCAD® team is able to assist with “learning” by creating fire escape diagrams for your building. We can add additional crucial details to your fire escape diagrams by including the locations of fire extinguishers, pull stations, hose cabinets, and emergency lighting, as well as clearly indicating escape routes. These maps allow tenants to quickly identify an escape route and the location of fire safety equipment in the event of an emergency. We can also customise the diagrams as needed, showing separate escape routes for each individual tenant space and noting any other relevant details, such as muster locations. You may not be able to predict when a fire will occur, but you CAN plan for it. For further information feel free to reach out to any one of our Lasercad® space measurement experts at (902)-429-1811 or toll free at 1-800-567-3033.

Several blog posts (and a few years) ago, drawing on the experience
amassed over my twenty-five year career at Turner Drake, I did some property
tax myth-busting. One bears repeating-
particularly at this time of the year:
The Best
Opportunity to Reduce Your Assessment (and Taxes) is NOT on Appeal
In every Province in which we operate, assessing
authorities are willing to discuss assessments prior to their values being inserted onto the official assessment
roll. In our experience, such
preliminary consultations often produce better results- at lower cost- than
waiting to file formal appeals.
Nova Scotia’s assessing authority, the Property Valuation Services
Corporation- the “PVSC”- and its predecessor, Service Nova Scotia and Municipal
Relations, is a pioneer in this regard, and has been pre-publishing its
assessments for over twenty years.
This year, 2019 pre-roll assessments for commercial property and
apartments containing six or more units were pre-published on September 25th. Proposed values can be accessed on the PVSC’s
website at www.pvsc.ca,
and the underlying valuations can be obtained by using the AAN and PIN from the
top right- hand corner of 2018 assessment notices at:
https://www.pvsc.ca/en/home/findanassessment/multiple-report-tool/default.aspx
Owners with concerns with their proposed assessments have about eight
weeks to contact the PVSC: assessors have the ability to amend values until the
last week in November. The 2019 roll officially closes on December 1st.
PVSC’s management embraces the opportunity to discuss assessments (and
to make changes, where warranted) at the “pre-roll” stage. Property owners are encouraged
to avail themselves of this opportunity, and PVSC should be commended for
publishing its proposed 2019 values.
Of course, it’s not always possible to engage in
preliminary consultation, as not all values will be available with sufficient
“lead time” in advance of the filing of the roll. But where the opportunity presents itself, my
advice is always to be proactive, and to address a problem before it becomes
one. A stitch in time saves nine.
Giselle Kakamousias is the Vice-President of
Turner Drake’s Property Tax Division. Her experience negotiating and
appealing property assessments is extensive: it is a wise property owner who
follows her advice. If you’d like more of it, she can be reached at (902)
429-1811 ext. 333 or gkakamousias@turnerdrake.com.
.jpg)
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
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