FAQ

Buying property is the single largest investment most Canadians make in their lives. Whether you are looking for a family home, or purchasing property as an investment, knowing the value of real estate is absolutely critical. Flynn Mirtle Moran’s business is advising client’s, ranging from homeowner’s to multi-national corporations and governments on real estate matters.

The following represents some of the more common questions that we are frequently asked:

What is an Appraisal?

What Types of Appraisal Reports are Suitable for Residential Property?

What Types of Appraisal Reports are Suitable for Commercial Property?

Who is an Appraiser?

Why use an Appraiser?

Who Uses our Service?

What is Highest and Best Use?

What are the Different Approaches to Value?

What are the Commercial Benefits to Hiring an Appraiser?

What Professional Designations Should I Look For?

What is an Appraisal?

An appraisal is a valuation report prepared by an expert who determines the estimated market value for any given home or property. It is the impartial estimate of that property's value. To ensure the market value estimate is objective and accurate, the appraiser must inspect the property and research the market extensively. Relevant data and analysis must back up the appraiser's estimate. In most cases, the appraisal will be in writing. There are many different types of report, which are explained in a separate question.

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What Types of Appraisal Reports are suitable for Residential Property?

Residential appraisals are completed on computer based form reports with tick boxes and narrative sections to describe the property and buildings and include photographs and mapping. Both forms must meet a minimum standard established by the Appraisal Institute of Canada and they are most often presented in one of the following two formats:

Summary Appraisal Reports – This is the most common form report and requires an inspection of the property including the interior of all buildings. It is used for a variety of purposes and would be the format most likely used for your mortgage financing.

Limited Appraisal – This is a restricted appraisal that does not reflect the depth of analysis required in a Summary Appraisal and is generally utilized by institutions for low ratio financing or situations where access to the property is not possible, such as foreclosures. There is no onsite inspection completed and some publicly available descriptive data on the property such as a Multiple Listing is required on which to base the valuation.

Comment – in certain circumstances, for example expropriation or litigation, a more complex report may be appropriate, similar to those for commercial property (see following question)

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What Types of Appraisal Reports are suitable for Commercial Property?

Due to the complexities associated with commercial properties, appraisal reports are generally in some form of narrative format. The main types of report are as follows:

Full Narrative – This is the most thorough type of report and is the common format used for most types of commercial property. Report length and complexity will be dependant upon the purpose of the report. Reports for litigation typically are the most detailed, while a report on a "straightforward" property for financing will typically be briefer. The report will discuss the different aspects of the property in a narrative format.

Short Narrative – This type of report is similar to the full narrative in many aspects; however, comments will normally be in a summary format.

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Who is an Appraiser?

An appraiser is a valuation expert who determines the market value of any given home or property, and an appraisal is the impartial estimate of that property's value. To ensure the market value estimate is objective and accurate, the appraiser must inspect the property and research the market extensively. Relevant data and analysis must back up the appraiser's estimate.

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Why Use an Appraiser?

Real estate purchases can be pretty intimidating. The city charges taxes on home and property, the bank gets a mortgage, real estate agents earn commission, vendors want the best price possible, and the buyer wants the best value. Combining these interested parties with changing property values, market trends and new laws, real estate investments can be confusing and stressful.

Knowing the value of real estate is essential when property is being bought or sold, and when property is involved in a legal dispute. Appraisers may also determine property value for mortgage or lending purposes, for assisting investment decisions, for verifying damage claims (such as after a fire or a flood), determining compensation if a property is being expropriated, and for assessing capital gains and other taxes. An appraisal can also be necessary to determine the prospective value of a property being built.

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Who Uses our Services?

Companies, institutions and individuals call upon appraisers to act as consultants and valuation specialists. Topics within an appraiser's range of expertise include determining the value of real property, the value of assets, and the retrospective/prospective value of property. Appraisers may also act as consultants for feasibility studies, property management, lease analysis, market rental analysis, and Highest and Best Use studies.

A list of some our clients can be found by clicking the "What We Do" button on the left side of this web page or contact us for a complete list of our clients.

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What is Highest and Best Use?

Highest and Best Use is the foundation of a real estate appraisal. The appraiser will consider many different aspects of the property to arrive at the most profitable, or "Highest and Best" use of the real estate in question. This will involve a thorough analysis of legal restrictions affecting use, physical factors, location, design and market demand for the real estate. The conclusion forms the basis for the subsequent valuation analysis.

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What are the Different Approaches to Value?

Appraisal practice relies on an established body of knowledge, as well as on accepted technical approaches to estimating property value. An appraiser can use three basic methods of valuation to determine a property's market value.

The Cost Approach estimates how much money it would take, at current material and labour costs, to replace your home or commercial property with an identical one. Accumulated depreciation is subtracted from that figure, and the estimated land value is added.

The Direct Comparison Approach is also known as the Sales Comparison Approach, and is based on the selling prices and listing of comparable properties. This method compares your property to others that have recently sold. When using this method, the appraiser must take care to analyse many different sales to arrive at a fair valuation for your property.

The Income Approach refers to how much income your property would produce if it were developed to its Highest and Best use. The appraiser must consider the return on the property if it were rented as an apartment house, a store, or a factory. Operating expenses, taxes, insurance and maintenance costs also need to be taken into account.

To arrive at a final estimate of value, appraisers will use any or all of these approaches according to what is supported by the most reliable, factual and relevant market data. In specialized circumstances, for example when dealing with development land, other approaches may also be employed.

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What are the Commercial Benefits of Hiring an Appraiser?

Institutions and commercial organizations have a lot to gain from the services of professional appraisers. Because appraisers are experts in valuation, their knowledge and experience has long been trusted by mortgage lenders, brokers, development companies, realtors and lawyers to provide a variety of services. Appraisals are used to estimate current equity, market value for purchase or sale, to obtain financing, for commercial mediation/arbitration, settlements, and to help investment and business decisions.

In addition to these traditional appraisal activities, valuation professionals are able to offer a wide range of skills and advice regarding a project. Thus, appraisers are value-added professionals.

With a broad spectrum of knowledge about valuation techniques, regulatory issues, investment analysis, development approval process, surveying and construction, and social issues such as demographics, appraisers are in a unique position to work as consultants.

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What Professional Designations Should I Look For?

All of the appraisers with Flynn Mirtle Moran either hold, or are working towards professional designations of the Appraisal Institute of Canada (AIC). The AIC, founded in 1938, is dedicated to serving the public interest through continually advancing high standards for the appraisal profession.

The AIC grants the following designations:

AACI, Accredited Appraiser Canadian Institute or P.App, Professional Appraiser - Appraisers with these designations are qualified to work on all types of real estate.

CRA, Canadian Residential Appraiser – Appraisers with this designation are qualified to work on residential property (up to four units).

Both designations ensure that appraisers provide a completely objective opinion of value, independent of any other business interests. These designations are earned after a rigorous program of education courses, and after demonstrating supervised appraisal experience in the market.

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