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Access to Files/Workfile

CUSPAP 2018 Definition

Documentation necessary to support a Member’s analyses, opinions and conclusions. [see 4.2.9, 5.7]

 

CUSPAP 2018 Reference

Ethics Standard Rule 4.2.9

It is unethical for a Member to fail to create a work-file for each assignment [5.5. 5.7];

Ethics Standard Rule Comment 5.7 Records

5.7.1    A Member must prepare a work-file in hard copy and/or electronically, for each assignment. The work-file must include:

5.7.1.i. the name of the client and intended users;

5.7.2.ii. true copies of any written reports including drafts documents on any type of media;

5.7.1.iii. summaries of any oral reports (or court transcripts) sufficient to meet the requirements of the applicable Standard and the “Reasonable Appraiser” test;

5.7.1.iv.  a signed and dated certification; and

5.7.1.v.  all other data, information and documentation necessary to support the Member’s opinions, analysis and conclusions and to show compliance with this rule and all other applicable Standards, or references to the location(s) of such other documentation.

5.7.2    A Member must (subject to 5.7.4) retain the work-file and have custody of the work-file, or make appropriate work-file retention, access and retrieval arrangements with the party having custody of the work-file for a period of at least, whichever period expires last:

5.7.2.i. seven (7) years after preparation or

5.7.2.ii. two (2) years after final disposition of any judicial proceeding in which testimony was given or any professional liability insurance proceeding has taken place.

5.7.3    If a Member is unable to retain a copy of the work-file, whether by reason of an employer’s internal rules or by change of employer, all reasonable steps must be taken by the Member to ensure the availability of such reports and work-files when requested.

5.7.4    Members should obtain written commitment from employers that reports and work-files will be made available when required.

5.7.5    A photocopy or an electronic copy of the entire written professional services sent or delivered to a client satisfies the requirement of a true copy. The industry standard medium for electronic storage would be a PDF or equivalent and not within office or on-line appraisal software.

5.7.6    Care should be exercised in the selection of the form, style, and type of medium for written records, which may be handwritten and informal, to ensure they are retrievable by the Member throughout the prescribed record retention period.

5.7.7    A work-file must be in existence prior to and contemporaneous with the issuance of a written or oral report. If a work-file cannot be provided prior to providing an oral report, a written summary of the oral report must be added to the work-file within a reasonable time.

Advertising

CUSPAP 2018 Reference

 A Member must observe only the highest standards of objectivity and impartiality when advertising their professional services or referring to the Institute using advertising media for promotional or solicitation purposes including: print advertisements; leaflets; pamphlets; brochures; electronic media; and corporate, business, and/or personal web sites (e.g., LinkedIn, Facebook, Twitter, Instagram).  

5.3.2              A Member may:

5.3.2.i.        use advertising to solicit clients and business in a manner that does not offend the interests of the public and the profession and to inform prospective clients and the public of the availability of their professional services; and,  

5.3.2.ii.      use advertising to advise as to the range, nature and cost of their professional services. 

5.3.2.iii.    advertise their competence to perform, either directly or indirectly, in any report or advertising media. 

5.3.2.iv.     include a University degree or other professional designations when advertising.

5.3.2.v.       include the name of the Institute or its designations to refer to a Member’s affiliation with the Institute when advertising.

5.3.2.vi.     advertise jointly with another Member.

5.3.3              A Member must not [see 4.2.3, 4.2.4]:

5.3.3.i.        use advertising media which is false, misleading, exaggerated, uses laudatory statements or superlatives to describe their services, or that is contrary to the public interest;

5.3.3.ii.      refer to or make use of the name of the Institute or its professional designations and trademarks in a misleading or deceptive manner;

5.3.3.iii.    refer to or make use of the name of the Institute or its professional designations in a manner that suggests that a business organization is a Member of the Institute and/or holds any professional designation; and/or

5.3.3.iv.     use the Institute logos, trademarks or identity in contravention of the AIC Logo and Guidelines.

5.3.4              A Member must identify their designation or Membership status (AACI, CRA or AIC Candidate Member) in any advertising media for professional services.

Appraisal Review

CUSPAP 2018 Definition

The act or process of developing and communicating an opinion about all or part of an assignment prepared by a Member or non-Member. [see 8, 9, 18.37, 18.38]

 

Professional Excellence Bulletin

Appraisal Review PEB

Approaches to Value

CUSPAP 2018 Definition

The act or process of developing and communicating an opinion about all or part of an assignment prepared by a Member or non-Member. [see 8, 9, 18.37, 18.38]

 

CPV Articles

Challenges to our professionalism (Volume 55, Book 4, 2011)

As-if Complete

CUSPAP 2018 Reference

Real Property Appraisal Standard Comment 7.10 Assumptions and Limiting Conditions (including Extraordinary Assumptions and Extraordinary Limiting Conditions) [see 6.2.9, 8.2.7, 10.1.8, 12.2.9, 14.2.9, 18.24, 12.26]

7.10.1  If an extraordinary assumption is invoked, wherever an opinion or conclusion is stated within a report, the extraordinary assumption must be either stated in its entirety or reference provided to its exact location within the report.

7.10.2  When referencing the subject matter of an extraordinary assumption in a report, it must be clearly indicated that the subject matter is based on the extraordinary assumption.

7.10.3  Before invoking an Extraordinary Limiting Condition, the Member must determine that the scope of work applied will result in analyses, opinions and conclusions that are credible and will not be misleading. The Member must include an explanation and justification of Extraordinary Limiting Conditions in the report. [see 2.20, 18.26]

7.10.4  Extraordinary Assumptions and Extraordinary Limiting Conditions do not require a Hypothetical Condition.

7.10.5  A Member must include in every report as a minimum all of the Assumptions and Limiting Conditions found here https://www.aicanada.ca/forms-templates/ unless clearly not appropriate and clearly not relevant.

7.10.6  If the conditions surrounding an assignment result in it not being covered by the AIC Professional Liability Insurance program, a Member must:

7.10.6.i clearly inform the client in writing prior to accepting the assignment; and

7.10.6.ii include an Extraordinary Limiting Condition to that effect in the Certification and Letter of Transmittal

Real Property Appraisal Standard Comment 7.11.4

For every Hypothetical Condition, and Extraordinary Assumption is required.

Box 18.25.3 – Examples of Extraordinary Assumptions and Hypothetical Conditions

Extraordinary Assumptions

·         an absence of contamination where such contamination is probable

·         municipal sanitary sewer where unknown or uncertain

·         assumed zoning where the zoning is uncertain

·         assumed condition where an interior and/or exterior inspection is not possible

Hypothetical Conditions

·         an absence of contamination where such contamination exists

·         municipal sanitary sewer when none is available

·         assumed residential zoning where agricultural zoning is in place

·         rezoning has been achieved when it has not

·         assumed in renovated condition where a property is original

·         repairs or improvements have been completed

·         execution of pending lease

·         an expropriation scheme is disregarded

·         a prospective appraisal

·         aggregate (retail) or bulk (wholesale) marketing of units

 

Professional Excellence Bulletin

As-if Complete Appraisals PEB

 

Case Summary

Case Summary 30: The member prepared a report with values noted as “as if complete” and “as is” and proceeded to give a final opinion of value that is misleading since it is unclear what his final value represents. The member was unable to produce information readily when requested by AIC during the course of the complaint investigation. [posted September 2, 2010]

CPV Articles

Best Practices – examples from the field (Volume 60, Book 2, 2016)

As-is

CUSPAP 2018 Reference

Real Property Appraisal Standard Comment 7.10 Assumptions and Limiting Conditions (including Extraordinary Assumptions and Extraordinary Limiting Conditions) [see 6.2.9, 8.2.7, 10.1.8, 12.2.9, 14.2.9, 18.24, 12.26]

7.10.1  If an extraordinary assumption is invoked, wherever an opinion or conclusion is stated within a report, the extraordinary assumption must be either stated in its entirety or reference provided to its exact location within the report.

7.10.2  When referencing the subject matter of an extraordinary assumption in a report, it must be clearly indicated that the subject matter is based on the extraordinary assumption.

7.10.3  Before invoking an Extraordinary Limiting Condition, the Member must determine that the scope of work applied will result in analyses, opinions and conclusions that are credible and will not be misleading. The Member must include an explanation and justification of Extraordinary Limiting Conditions in the report. [see 2.20, 18.26]

7.10.4  Extraordinary Assumptions and Extraordinary Limiting Conditions do not require a Hypothetical Condition.

7.10.5  A Member must include in every report as a minimum all of the Assumptions and Limiting Conditions found here https://www.aicanada.ca/forms-templates/ unless clearly not appropriate and clearly not relevant.

7.10.6  If the conditions surrounding an assignment result in it not being covered by the AIC Professional Liability Insurance program, a Member must:

7.10.6.i clearly inform the client in writing prior to accepting the assignment; and

7.10.6.ii include an Extraordinary Limiting Condition to that effect in the Certification and Letter of Transmittal

Real Property Appraisal Standard Comment 7.11.4

For every Hypothetical Condition, and Extraordinary Assumption is required.

Box 18.25.3 – Examples of Extraordinary Assumptions and Hypothetical Conditions

Extraordinary Assumptions

·         an absence of contamination where such contamination is probable

·         municipal sanitary sewer where unknown or uncertain

·         assumed zoning where the zoning is uncertain

·         assumed condition where an interior and/or exterior inspection is not possible

Hypothetical Conditions

·         an absence of contamination where such contamination exists

·         municipal sanitary sewer when none is available

·         assumed residential zoning where agricultural zoning is in place

·         rezoning has been achieved when it has not

·         assumed in renovated condition where a property is original

·         repairs or improvements have been completed

·         execution of pending lease

·         an expropriation scheme is disregarded

·         a prospective appraisal

·         aggregate (retail) or bulk (wholesale) marketing of units


Case Summary

Case Summary 30: The member prepared a report with values noted as “as if complete” and “as is” and proceeded to give a final opinion of value that is misleading since it is unclear what his final value represents. The member was unable to produce information readily when requested by AIC during the course of the complaint investigation. [posted September 2, 2010]

C
CPD Requirements

Worth Knowing

The Appraisal Institute of Canada has a mandatory Continuing Professional Development (CPD) Program designed to ensure that:

  • Designated Members maintain and enhance their knowledge and skills in their area of practice throughout their career.
  • Candidate Members progress through the designation process and meet the academic requirements for designation.

The AIC’s CPD Program encourages and fosters continuous learning, while concurrently ensuring the AIC meets its obligations of protecting the public interest.

CPD is at the core of a strong vibrant valuation profession and contributes to the respect and value of our Designated and Candidate Members in the marketplace.

For more information, see AIC’s Continuing Professional Development (CPD) Policies and Guidelines.

CRA Scope

CUSPAP 2018 Reference

Practice Note 18.28 Highest and Best Use [see 6.2.13]

18.28.4    In determining the scope of practice for a CRA member undertaking an assignment, the test lies in the HBU –actual or assumed – of the property being appraised.

18.28.4 – CRA Scope – Examples

Four-Plex within a 12 Unit Site

A client owns 12 four-plex buildings held in one single-titles parcel. While one of the four-plexes might be thought of as ‘ a dwelling containing not more than 4 self-contained family housing units’ (see CUSPAP 5.4.5) this is really one 48-unit property requiring an AACI co-signor. 

A CRA designated Member may be able to appraise one four-plex based on the extraordinary assumption (hypothetical condition) that it had been subdivided from the larger parcel at the effective date, but should be very clear that the final hypothetical current market value estimate for the single four-plex should not be multiplied by 12 to arrive at a current market value estimate for the whole project. 

Similarly, it is inappropriate to appraise a single unit in a condominium project and imply that the client can multiply that value to arrive at a total value estimate for the entire condominium project.

Residential Care Facility

A CRA designated Member is asked to appraise a residential care facility. The building has 12 bedrooms, two kitchens and several living areas, as well as accommodations for the care staff. It cannot be rationalized that this is “really just a big house” and within the scope of a CRA designation. There must be reasonable evidence to support the highest and best use is a self-contained family housing unit rather than a care facility. It is recommended to have the report reviewed and co-signed by an AACI

Vacant Site

A CRA designated Member is asked to appraise a 12,000 square foot vacant site on the corner of two major thoroughfares. The zoning indicates that development should be for single-family housing.

Given the size of this parcel and the prominent corner location, it is important to carefully consider the highest and best use of the site, which may be for development with a small apartment project, several homes, a small commercial development or mixed-use building.

If the most likely purchaser of the property is a developer who will apply to have the zoning changed to permit another type of project, an AACI should co-sign the report. The test of whether an assignment is within the scope of a CRA is in the highest and best use, and, in this example, major thoroughfares are unlikely sites for single-family dwellings.

Five-Plex

A CRA designated Member is asked to appraise a triplex. When inspecting the property, he/she discovers that it is actually a five-plex because there are two vacant basement units. The client informs him/her that the conditions have to be removed by tomorrow, it is only a finished basement and the units are vacant.

Highest and best use is the test, not the client’s or the homeowner wishes. Some apartment units may have been installed without obtaining approval and are legally permissible.  The CRA designated Member will want to decline the assignment or have an AACI co-sign the report.

Mixed Use Buildings

A CRA designated Member is asked to appraise a vacant two-storey building. The ground floor previously had a commercial use and the second floor contains a residential apartment. The intended use of the appraisal is ‘only a refinance’. He/she must consider whether residential is permitted under zoning and the Highest and Best Use of the ground floor. A small building with ground floor commercial and second floor apartment must be co-signed with an AACI.

Vineyard

A CRA designated Member is asked to appraise a 20 acre vineyard with a residential home. If a hypothetical condition is properly done to exclude the income producing potential, this may be within the scope of a CRA if the intended use is mortgage financing. If the intended use is not mortgage financing, the report must be co-signed with an AACI.

Farm or Forestry

A CRA designated Member is asked to appraise a 160 acre parcel of agricultural or forestry land. If zoning does not permit residential use, the report must be co-signed with an AACI.

18.28.5   Holding a designation from another professional organization does not allow a Member to complete assignments that are not permitted under CUSPAP. A Member may not drop their AIC designation to complete such assignments or outside professional services. [see 5.4]

18.28.6   What follows are key questions for the Member to reflect on as part of assessing the HBU – actual or assumed – of the property being appraised.

CRA SCOPE

Working Your Way Through CUSPAP

In Layman’s Terms

What is the purpose of the appraisal?

Defining the value. What value is being estimated?

What are the terms of reference and the required scope of work?

What is your client asking you to do?

What is the site’s zoning?

What are the permitted uses and land use controls?

 

Analyzing the immediate and surrounding areas.

§  What is happening in the area? What are the trends?

§  What are the surrounding land uses? Are they similar to the subject actual or assumed Highest and Best Use (HBU)?

§  Who are the buyers?

§  What are the supply and the demand for properties with similar actual or assumed HBUs?

Based on the above, what is the actual or assumed HBU? 

 

§  Is the actual or assumed HBU legally permissible, financially possible? Will it generate the highest net return?

§  Is it reasonable to assume the HBU based on the market conditions, zoning and permitted uses?

§  Is it possible for the HBU to be something other than the actual or assumed HBU?

§  Is it possible that what your client is asking you to provide may not be a permissible or possible assumed HBU?

Does the Member have the qualifications to complete the assignment?

Does the report have to be co-signed by a competent AACI? 

What ordinary assumptions, limiting conditions, hypothetical conditions, extraordinary assumptions and/or extraordinary limiting conditions need to be invoked?

In the report, the Member must identify the value being provided, whether current, retrospective, prospective, or an update. [see 7.7] Depending on the value, the Member may need to make certain assumptions.  

What are the data and appraisal procedures relevant to the assignment?

The data used in the analysis must be comparable to the property being appraised.

§  Actual HBU (“as is” value) will require sales with similar improvements, zoning and permitted uses, etc. (e.g. property as a whole with 50 acres, income-producing farm, dwelling, garage and outbuildings).

§  Assumed HBU (“as if” value) will require data with comparable acreage, improvements, assumed zoning and permitted uses, etc. (e.g., 5 acres, dwelling and garage).

 

Case Summary

Case Summary 4: A Complaint was received regarding a CRA designated member who had completed two appraisal reports for commercial properties without having the reports reviewed and co-signed by an AACI designated member. [posted April 6, 2009]

Case Summary 6: The member, a CRA, had completed and signed an appraisal report on a property outside the scope of his designation. [posted April 6, 2009]

Case Summary 28
: T. Stuart Hammell, a CRA, performed an appraisal that fell outside the scope of practice for a CRA designation and was not co-signed by an AACI. [posted September 2, 2010]

Case Summary 31
: The assignment fell outside the scope of practice of a CRA designation. A member cannot omit his designation on an appraisal report. [posted September 2, 2010]

Case Summary 33
: Mr. Swanson performed an appraisal report that fell outside the scope of the CRA designation. Mr. Swanson has a prior disciplinary record of working beyond the scope of the CRA designation and failing to obtain an appropriately designated co-signer. [posted April 29, 2013]

Case Summary 34
: The member, a CRA, misidentified the zoning in the report and used comparables in the Direct Comparison Approach that fall outside the scope of the CRA designation. The member did not perform a complete Income Approach. [posted May 4, 2012]

 

CPV Articles

CRA Diversification (Volume 60, Book 1, 2016)

CRA Diversification (Volume 59, Book 5, 2015)

 

Candidate Binder

Please click here to view the candidate member handbook.

 

Cannabis

The cultivation of cannabis plants is considered personal information about the owner/occupant; as such, a Member may not disclose information about cannabis plants found in/on a property.

Members are reminded that they should obtain a signed consent from the occupant of the property to take and use photographs of the property before taking pictures. Failing that, verbal consent must be obtained and documented. 

Even with consent, a Member should only photograph a cannabis plant to document the existence of a detrimental condition that may be a result of the cultivation of the plant.

CUSPAP requires Members to disclose any and all concerns observed or revealed during an inspection of, or through research about, a property that affects value.

The existence of cannabis plants may not be disclosed; however, any visible/observable indications of detrimental conditions that may be a result of the cultivation of the plants must be documented, including the existence of:

  • mould, water damage, excess humidity, odours; and/or
  • modifications to the foundation, ducts, vents, wiring, etc.

 

Summary:

  • Members must obtain consent from an owner/occupant/tenant before taking any photographs of a property.
  • The existence of cannabis plants in/on a property, in and of itself, is not to be considered a detrimental condition.
  • Regardless of consent, Members must disclose any aspect of a property that could be considered a detrimental condition.
  • Detrimental conditions that may be a result of the cultivation of cannabis plants must be documented and reported – without reporting the existence of the cannabis plants unless consent has been obtained to do so. These could include:
    • mould,
    • water damage,
    • odour,
    • high humidity,
    • structural changes, including to the foundation; and/or
    • modifications to ducts, vents, wiring etc.

Relevant Documents

 

Professional Excellence Bulletin

 

CPV Articles

 

Helpful Links

Case Law

CPV Articles

Expropriation and the Partial Taking Appraisal (Volume 53, Book 1, 2009)

Client

CUSPAP 2018 Definition

The individual or organization for whom the Member renders or agrees to render professional services. [see 6.2.1, 8.2.1, 10.1.1, 12.2.1, 14.2.1, 18.6]

 

CUSPAP 2018 Reference

Ethics Standard Rule 4.2.10

It is unethical for a Member to disclose results of an assignment to anyone but the client, except with the client’s permission; [see 5.8]

Ethic Standard Comment 5.8 Disclosure [see 4.2.10, 18.1, 18.2]

5.8.1    A member pledges to uphold the confidential nature of the Member/client relationship.

5.8.2    A member must not disclose the analyses, opinions or conclusions in an assignment to anyone other than:

5.8.2.i. the client and those parties specifically authorized by the Member and client to receive such information;

5.8.2.ii. third parties, when the Member is legally required to do so by due process of law (e.g. the Courts or Legislation); or

5.8.2.iii. an authorized Committee or Committee Member of the Institute.

5.8.3    A member must not disclose information provided by a client on a confidential basis to anyone other than:

5.8.3.i. those parties specifically authorized by the client to receive such data;

5.8.3.ii. third parties, when the Member is required to do so by due process of law; or

5.8.3.iii. an authorized Committee or Committee Member of the Institute.

5.8.4    If the performance of a prior assignment is to be kept confidential, a Member must decline a new assignment on the same property, where a condition requires disclosure of any prior assignment.

5.8.5    If The Member must obtain an occupant’s (e.g. tenant, property owner if occupant, occupant of office space, etc.) permission to photograph their personal area of occupancy and notify them that photographs may be included in the report. The Member should include limiting conditions to the effect that s/he is not responsible for the misuse of the photographs by third parties.

Real Property Appraisal Standard Rule 6.2.1

In the report the Member must identify the client by name and intended user by name; [see 7.2, 18.6]

Real Property Appraisal Standard Comment 7.2 Client And Intended User 

7.2.1    The client is the individual or organization for whom the Member renders or agrees to render professional services.

7.2.2    The client/Member relationship lasts at least until the completion of the intended use of the original appraisal, or release from client is granted.

7.2.2.i. A party receiving a copy of an appraisal report does not become an intended user unless authorized, and clearly identified by name and in writing, by the Member and the client.

7.2.2.ii. Where an assignment is prepared by the Member for consideration by a tribunal or court, such as assisting in resolving a formal dispute, an intended user including: a judge, mediator, arbitrator, or other trier of fact does not need to be identified by name.

Practice Note 18.6 Client and Intended User

18.6.1 A statement similar to the following is required:

“This report is intended for use only by (client name) and (intended users by name).  “This report is intended for the use of those specifically identified and any other use is strictly unauthorized. The Member is not liable for any unauthorized use of this report.”

18.6.1.i Examples of acceptable intended user names include:

  • “Lender ABC”;
  • “Solicitor D”
  • “Condominium Corporation E”
  • “Strata Corporation F”
  • Agency (Name)
  • City of (Name)
  • Corporation (Name)

18.6.1.ii. Types of intended users such as “To be determined”, “To be confirmed”, “John Doe and his lenders”, “Jane Doe and her subsidiaries”, “John Smith and his assignees” or other similar references are not acceptable. The use of vague or undefined intended user names or types is not permitted.  

18.6.1.iii. The Client is typically the Intended User of the assignment.

18.6.1.iv. Where the intended use is mortgage financing, the Client and the Intended User should be identified as “Lender ABC” 

18.6.1.v. Where the assignment is ordered by an Appraisal Management Company (AMC), the report may identify the AMC requesting the report in the “Requested By” section of the report to make it clear to the reader that the AMC is neither the client nor the intended user. The client and intended user shall be identified by name; e.g.: “Lender ABC”.

18.6.1.vi. Where the intended use is mortgage financing and the assignment is ordered by a Mortgage Broker or a borrower but no lender has been identified, only a draft report under 18.5.4, 18.5.5, and 18.32.9 should be prepared.

18.6.2 The client/Member relationship lasts at least until the completion of the intended use of the original appraisal or release is granted by the original client. Prior to accepting an assignment from a potential second client, the Member must confirm that the intended use of the original appraisal has been completed.

18.6.2.i. The steps taken to ascertain that a conflict of interest does not exist must be outlined in the Certification.

18.6.3 A Member is frequently asked to authorize the use of a report by an unintended third party, i.e., a party other than one of the intended user(s) of the original report.

18.6.3.i. This most often takes the form of a lender requesting authorization to use the appraisal for underwriting purposes, when the report had originally been prepared for the owner and/or a different lender.

18.6.4 A Member can permit the use of a report by an unintended third party. A Member should ensure that this new party is made aware of the dates associated with the original report to ensure that the value, opinion or conclusion only applies as of the effective date, any special considerations and assumptions, client terms of reference, etc., that entered into the value conclusion.

18.6.5 The older the date of the report, the less relevant the report can be to a third party. A Member should judge the relevancy of the report and decline authorization if the report is not appropriate for the third party use. It should be clear to the prospective user that there may have been significant changes to the:  

18.6.5.i. property,

18.6.5.ii.market conditions; or

18.6.5.iii. some other factor since the time of report that would have a material impact on the conclusion.

18.6.6 When faced with a request to assist the third party, a Member has the choice of:

18.6.6.i. writing a reliance letter; (sample found here: https://www.aicanada.ca/forms-templates/  ) 

18.6.6.ii. completing a new report for the new intended user (provided the Member is not in a conflict of interest); or

18.6.6.iii. declining to authorize reliance by a third party.

18.6.7 Providing a reliance letter to a third party continues to carry the ability to attract a claim. By formally acknowledging the right of a third party to rely on the report, a Member will be extending the right to make a claim as a result of reliance on the report. 

18.6.8 Providing a Reliance Letter is at the sole and absolute discretion of a Member. If a Member issues a reliance letter, it may be subject to a number of additional caveats and fees.   

18.6.9 A Member should be aware of the implications of providing a reliance letter including, the additional liability being accepted. A Member should confirm whether the assumptions and facts of the report (e.g. building condition, tenant profile, vacancies, rents being achieved, etc.) has not materially changed as it could be misleading and open a Member up to potential liability.

Box 18.6.6 – A – Draft Reports and Reliance Letter

9 Critical Steps for Draft Reports and Reliance Letters include:

DRAFT

1.      Identify whether the request is from an Agent or a Client

2.      Identify the Client and User

3.      If the User is temporarily unknown, provide only a Draft report under 18.5.5

4.      Provide a Final report only when the User is known

 

RELIANCE

1.      Identify the new potential Client or potential User who wants to rely on your report

2.      Determine if a reliance letter is appropriate or this must be a new assignment

3.      Consider the risks associated with a reliance letter

4.      Obtain a written release from the prior Clients and Users

5.      Provide the Reliance Letter and the report

Sample Situations:

Draft Report for Mortgage Broker with no Lender

A Member receives a request from Mortgage Broker A asking the Member to prepare an appraisal for mortgage financing purposes. At this point, Mortgage Broker A does not have a lender and asks the Member to prepare the draft report in their name. Mortgage Broker A may be named in the report under “REQUESTED BY” or named as the Client.

The Member completes the draft according to CUSPAP. Several weeks pass and Mortgage Broker A contacts the Member to send the report to Bank B as the lender. Mortgage Broker A and the Member will identify Bank B as the only Intended User. Once authorized in writing, the Member can send the final report directly to Bank B. 

Reliance Letter requested by Mortgage Broker

Later the Member receives an update from Mortgage Broker A. Bank B decided not to lend, but Lender C will. Remember, if Mortgage Broker A is the Member’s Client and Bank B is the Member’s Intended User, the Member has a responsibility to both.

The Member should request Mortgage Broker A to provide him/her with a release from Bank B stating it will not rely on the Member’s report. The Member should obtain written authorization from Mortgage Broker A to provide a copy of the report by way of a Reliance Letter to Lender C.

Once the Member issues the Reliance Letter, Lender C will become an Intended User and the Member is liable to both Lender C and Bank B unless the prior liability was released.

Second Mortgage

Later Lender E calls the Member and asks him/her to provide the report for a second mortgage? The Member has already appraised it for a different Client and different Intended Users.

Since the request did not come from the Member’s Client, Lender E is a potential new Client. The Member needs to approach his/her original client for consent. If the Client provides consent, the Member may choose to take on Lender E as a new Client or provide a Reliance Letter.

Reliance Letter with Lending Institution as Client

The Member receives a request from an AMC asking him/her to prepare an appraisal for mortgage financing purposes for Bank A. The Member’s Client and Intended user is Bank A because AMCs act as an agent for lenders.

Later the Member receives a request for a Reliance letter from a broker because Bank A decided not to lend, but Lender C will. 

The Member should request Bank A to provide him/her with a release stating they will not rely on the report. If Bank A releases the Member from his/her Client-Member relationship, she/he may provide copy of the report by way of a Reliance Letter to Lender C.

Once the Member issues the Reliance Letter, Lender C will become an Intended User and the Member is liable to both Lender C and Bank A unless the prior liability was released.

Along the way, if a Client says “no” and will not provide written authorization to release the Member from a Client/Member relationship, then he/she cannot provide a reliance letter to a prospective new lender.

“If the Member cannot tell his/her prior client or a new one that she/he has appraised the property before, then that is a sign she/he should not appraise it now.”

Consider the risks

Before a Member provides a Reliance Letter, she/he should  ask him/herself these questions:

•    Why did the original intended user not rely on my report to lend?

•    Who is the new potential client/intended user?

•    The report was prepared for first mortgage financing, now they want to rely on it for 2nd mortgage financing. What is the overall loan-to-value ratio? What is the interest rate charged by the new lender?  Is the applicant likely to default? In the event of default, what is the likelihood of recovering the market value later?

•    Is this a high-risk assignment I am willing to take?

The Member will need to direct a new client to contact the Client to ask for them to provide him/her with written authorization to release a copy of the report.  

Box 18.6.6 – B – Is there anyone else to whom the Member can give a copy of the report?

The Homeowner, who was Mortgage Broker A’s client and who ultimately paid for the appraisal, is dissatisfied.  The Homeowner wants a copy of the appraisal for which he/she has paid. Since the Homeowner was never the Member’s client, she/he cannot give them a copy of the appraisal without written permission from his/her client.

Providing a copy of a report to the homeowner (a third party)

Often a homeowner will ask for a copy of a report that has been undertaken for a lender.  Unless the homeowner is named as a client in the report Members cannot provide a copy without the authorization of their client.

Members are required to maintain the confidential nature of their relationship with their client – the party for whom they are providing the services.

The client receives a copy of the report therefore it belongs to them. The client will decide if a copy can be released, and to whom, but because the Member is the author of the report, consent to release must also be obtained from the Member.

When a broker or banker makes a request, they typically are the Client since they made the request, regardless of who pays for the report.   

As per CUSPAP (found here:  https://www.aicanada.ca/about-our-profession/cuspap/), an appraisal report will include wording similar to:

“This report is intended for use only by ABC Bank” or

“This report is intended for use only by ABC Bank and Ms. Mary X”

When an appraisal has restrictive wording like the examples above, AIC members cannot share the report with anyone but clients ABC Bank and/or Ms. X. 

AIC members are required to uphold the confidential nature of their client relationship and have a fiduciary duty to their Clients.

 

Professional Excellence Bulletin

Letters of Engagement PEB

 

CPV Articles

Professional practice matters: stay out of trouble Part 2 (Volume 61, Book 2, 2017)

Legal Privilege and Its Application to Appraisers (Volume 62, Book 3, 2018)

 

Articles

Who is my client 

Co-Signing

Professional Excellence Bulletin

Co-Signing Reports PEB

 

Case Study

Case Summary 4: A complaint was received regarding a CRA designated member who had completed two appraisal reports for commercial properties without having the reports reviewed and co-signed by an AACI designated member. [posted April 6, 2009]  

 

Communiqué

Did You Know? Candidate Co-signing Registry (December 1, 2017)

Competence

CUSPAP 2018 Definition

Having sufficient knowledge, skill and experience required to perform a specific assignment. [see 4.2.7]

Condominium

Professional Excellence Bulletins

Confidentiality

CUSPAP 2018 Reference

Ethics Standard Rule: 4.2.10

It is unethical for a Member to disclose results of an assignment to anyone but the client, except with the client’s permission; [see 5.8]

Definition: 2.10: Client

Client is the individual or organization for whom the Member renders or agrees to render professional services. [see 6.2.1, 8.2.1, 10.1.1, 12.2.1,14.2.1, 18.6]

Ethic Standard Comment: 5.8 Disclosure

5.8.1 Members pledge to uphold the confidential nature of the Member/client relationship.

5.8.2 A Member must not disclose the analyses, opinions or conclusions in an assignment to anyone other than:

5.8.2.i. the client and those parties specifically authorized by the Member and client to receive such information;

5.8.2.ii. third parties, when the Member is legally required to do so by due process of law (e.g. the Courts or Legislation); or

5.8.2.iii. an authorized Committee or Committee Member of the Institute.

Practice Notes 18.3 Conflict

18.3.6 A continual problem for Member is a second appraisal instruction on the same property, but from a different client. A circumstance may arise when a Member, who had previously completed an appraisal for an owner contemplating a sale, is requested to appraise the property for the purchaser or the purchaser’s financial institution. This instance can be termed “successive representation” but can also be termed a “no-win” situation for the Member.

18.3.6.i. It is obvious that, under such circumstances, the Member is under great pressure to at least re-affirm the original value. To do otherwise would be to cast doubt on the original appraisal, which would hardly enhance the Member’s standing in the eyes of the owner; but to ignore the actual sale value could do a disservice to the new client.

18.3.6.ii. Even if this situation is not a problem, the original client may have previously provided confidential information that the original client may not want divulged to the new client. Failure to include that information in the second report, if material, would lead to a breach of the Standards, whereas including the information would betray the confidentiality promised to the original client, again a breach of the Standards. This situation is best resolved by declining the second set of instructions if you are privy to confidential information. In any event, the consent of the first client must be obtained in writing before proceeding with the second appraisal.

 

CPV Article(s)

Conflict

CPV Articles

The membership pledge and commitment (Volume 54, Book 2, 2010)

Wearing two hats (Volume 53, Book 2, 2009)

Conflict of obligation (Volume 51, Book 4, 2007)

Conflict of Interest

CUSPAP 2018 Reference

Ethics Standard Rule 4.2.11

It is unethical for a member to fail to reveal any known conflict of interest; [see 5.9,18.3]

Ethics Standard Comment 5.9 Conflict

5.9.1    Members pledge to develop, support and communicate each analysis, opinion and conclusion without regard to:

5.9.1.i. any personal interest in the subject matter;

5.9.1.ii. any party related to the assignment; or

5.9.1.iii . the outcome of the assignment.

5.9.2    It is unethical for a Member to accept an assignment if the Member has any direct or indirect, current or contemplated, personal interest in the subject matter or the outcome of the assignment, unless such personal interest:

5.9.2.i. is revealed to the client in writing and acknowledged by the client in writing prior to acceptance of the assignment, or as soon as the conflict is revealed or perceived [see 18.3.8]; and

5.9.2.ii. is fully and accurately revealed in the report. [see 18.3.8]

5.9.3    The payment and/or receipt of concealed fees, commission or things of value or of non-value in connection with the procurement of any professional service assignment is unethical.

5.9.4    Disclosure of fees, commissions or things of value connected to the procurement of an assignment must appear in the certification of the written report and in any transmittal letter in which conclusions are stated

5.9.5    The client must be made aware of and consent to any fees, commissions or things of value, including referral fees, connected to the procurement of referral of an assignment prior to accepting the assignment.

5.9.6    Referral fees do not have to be disclosed in the report if:

5.9.6.i. the referral is because of the competency and ability of a Member to undertake the assignment;

5.9.6.ii. the referral fee does not increase the total fee charged to the client;

5.9.6.iii . the client is informed in writing of the referral and referral fee arrangements; and

5.9.6.iv. the client consents.

5.9.7    Members must take all steps necessary to ensure that they are not in conflict when they have previously completed an appraisal on a property and are requested to reappraise the property – known as “successive representation”. [see 18.3.6] 

Practice Note 18.3 Conflict

18.3.1  A conflict of interest arises when the perception or potential for the ability of the Member to exercise the required unbiased professional judgment is undermined.

18.3.2  Recognizing a conflict does not eliminate it.

18.3.3  Declaration to the client may not resolve the conflict; circumstances may require withdrawal from the assignment.

18.3.4  Conflicts of interest fall into two categories: a “conflict of obligation”, where a Member cannot satisfy one obligation without sacrificing another; and a “conflicting interest”, where the self-interest of a Member, or some other party to whom the Member is obligated, cannot be satisfied without failing to satisfy the client’s interest.

18.3.5  In dealing with a “conflict of obligation”, the most obvious problem is when a Member has two or more clients whose interests at first glance appear to be in harmony, but upon subsequent events or a closer analysis prove to be in conflict. This has been termed “simultaneous representation”.

18.3.5.i. An example: joint instructions from parties involved in a matrimonial dispute that commences in a civilized manner, but subsequently             deteriorates. In this instance, a Member can find themselves not only           attracting criticism from both parties, but also the centre of attention as a    dispute over the matrimonial assets assumes an ever-increasing profile. The end result is at least one of the parties has a very poor opinion of the Member and the profession in general.

18.3.5.ii. In such instances, the only defense is a preventive one, with the Member advising the parties to get separate appraisals. Failing this, the Member should consider declining the instructions. This is one of the least complicated examples of “conflicts of obligation”; others can be far more complicated

18.3.5.iii. Despite these issues, there are circumstances where a member may act for two or more parties without a conflict arising, even if the parties have different interests. Members should be cautious, be aware of applicable legislation and receive all instructions in writing from both parties.

18.3.6  A continual problem for Members is a second appraisal instruction on the same property, but from a different client. A circumstance may arise when a Member, who had previously completed an appraisal for an owner contemplating a sale, is requested to appraise the property for the purchaser or the purchaser’s financial institution. This instance can be termed “successive representation” but can also be termed a “no-win” situation for the Member.

18.3.6.i. It is obvious that, under such circumstances, the Member is under great pressure to at least re-affirm the original value.  To do otherwise would be to cast doubt on the original appraisal, which would hardly enhance the Member’s standing in the eyes of the owner; but to ignore the actual sale value could do a disservice to the new client.

18.3.6.ii. Even if this situation is not a problem, the original client may have previously provided confidential information that the original client may not want divulged to the new client. Failure to include that information in the second report, if material, would lead to a breach of the Standards, whereas including the information would betray the confidentiality promised to the original client, again a breach of the Standards. This situation is best resolved by declining the second set of instructions if you are privy to confidential information. In any event, the consent of the original client must be obtained in writing before proceeding with the second appraisal.

18.3.7  A conflicting interest can arise, for example, if during the period beginning when the Member is contacted concerning an assignment and ending a reasonable length of time after the completion of such assignment, the Member proceeds to deliberately acquire property or assume a position that could possibly affect the Member’s professional judgment or violate the fiduciary duty to the client unless, prior to such acquisition or change of position:

18.3.7.i. the Member carefully considers the facts and reasonably concludes that the proposed acquisition or change of position will not affect professional judgment or violate any fiduciary duty to the client; and

18.3.7.ii. the Member makes full disclosure to the client and obtains from the client a written statement consenting to or approving such acquisition or change of position; and

18.3.7.iii. at the time of such disclosure, the Member gives the client the right to terminate the assignment ; and

18.3.7.iv. the facts concerning such acquisition or change of position are completely and accurately described in each written and oral report resulting from the assignment.

18.3.8  As a general rule, in all circumstances where a Member proceeds subsequent to a declaration of conflict, such a conflict must be first confirmed in writing as well as referred to in any reports. 

18.3.9  In order to avoid the perception of bias or conflict of interest it is recommended that a Member disclose to the client any professional services relative to the subject property if appropriate.

 

Professional Excellence Bulletin

Conflict of Interest PEB

 

CPV Articles

Professional practice matters: how complaints are administered (Volume 61, Book 3, 2017)

Stay out of trouble: some Dos and Don’ts if you want to avoid a Professional Practice Complaint (Volume 61, Book 1, 2017)

 

Communiqué

Did You Know? Conflicts of Interest (Oct 1 2017)

Consent

See PIPEDA/Privacy Matters

Consulting

CUSPAP 2018 Definition

The act or process of analysis of data and provision of recommendations or conclusions on diverse questions or problems involving real estate, and/or machinery and equipment; the scope of this type of professional service differs from appraisal or review assignments. [see 10, 11, 12, 13]

 

Professional Excellence Bulletins

Protect Yourself When Doing Sales Data Consulting

 

CPV Articles

Self-Regulation (Volume 60, Book 4, 2016)

Contamination

Professional Excellence Bulletins

Valuation of Impaired and Contaminated Properties

 

CPV Articles

Managing Contamination (Volume 59, Book 3, 2015)

 

D
Depreciation

CPV Articles

Understanding reserve fund studies (Volume 59, Book 4, 2015)

Managing contamination (Volume 59, Book 3, 2015)

Depreciation: a common flaw (Volume 58, Book 4, 2014)

Desktop/Drive by Report

See FAQ #21 to #31 on our Forms page here

Communiqué

AIC’s Position on Drive-By and Desktop Appraisals (April 4, 2016)

April 12, 2016 Communiqué 11

February 12, 2016 – Communiqué 3

February 1, 2016 – Communique 2

Detrimental Conditions

CUSPAP 2018 Definition

An issue or condition that may cause a diminution in value including:

  • physical (e.g., deficient soil bearing capacity or construction deficiency);
  • external (e.g., proximity to railway or under an airport flight path);
  • environmental (e.g., soil or groundwater contamination);
  • natural (e.g., flooding or earthquake zone); and/or
  • sociological (e.g., crime scene).
Digital Signatures

What is a digital signature? 

It is the affixing of a digital signature certificate to an electronic document. 

What is a digital signature certificate? 

It is a computer artefact issued and cryptographically protected by a Certification Authority (e.g. Notarius or Adobe) attesting to the veracity of the information declared in the certificate. This information may include:

  • Full name
  • Email address
  • Public Key
  • Validity period and the serial number of their certificate.

What does a digital signature do?

A digital signature affixed to a document by an appraiser:

  • Guarantees the origin of the document. The origin of the document includes proof of the identity of the signer, signer AIC’s professional affiliation (at the time of the signature) as well as the date and time when the document’s finalization;
  • Ensures the integrity of the document (as well as its data contents), so that the document has not been altered since its completion;
  • Establishes the authenticity of the document. The authenticity implies that everything that is necessary to prove its origin and integrity is embedded in the document;
  • Ensures the longevity of the document. Longevity provides the ability to open, read, authenticate and preserve the reliability of a document over time, or any period exceeding about twelve years (rule of thumb).

How do I get my own digital signature? 

For instructions detailing how to set up your digital signature, click here.

https://helpx.adobe.com/ca/acrobat/using/digital-ids.html

https://helpx.adobe.com/ca/acrobat/kb/edit-signed-PDF.html

To obtain a digital signature through Notarius, please visit AIC’s page on Notarius’ website: https://notarius.com/AIC

E
Easements

See Property Rights

Expert Witness

CPV Article(s)

Worth Knowing

Effective 1 January 2010 in Ontario Courts were amendments to the rules of civil procedures governing expert evidence for use in the courts. These rules streamline the use of experts and reaffirm the independence of experts in litigation. It is important to understand the role you may play as an expert in real property valuation. There are ostensibly two roles :

  • Independent Real Value Expert: is an appraiser that is retained by one party engaged in litigation to provide appraisal services. You may not be retained nor provide any appraisal services to the other party in the litigation.
  • Neutral Real Value Expert: is an appraiser that is jointly retained by both or all parties engaged in litigation to provide expert appraisal services. This role may be fulfilled in the litigation as a Real Value Expert Mediator, Real Value Expert Arbitrator, or in the courts or tribunal.
  • Sample Contract – Serving as Neutral Expert
  • Sample Contract Clauses – Serving as Neutral Expert
  • Excerpt of Summary and Findings of Ontario Civil Justice Reform Project pertaining to Expert Evidence, November 2007,

These forms, incorporated into the Ontario Rules of Civil Procedures came into effect January 1, 2010 for any member appearing as an expert witness before any court or tribunal in Ontario. 

 

Exposure Time/Marketing Time

CUSPAP 2018 Definition

Exposure time: The estimated length of time the property interest being appraised would have been offered on the market before the hypothetical consummation of a sale at the estimated value on the effective date of the appraisal. 

Marketing time: Marketing time is an opinion on the amount of time it might take to sell a property interest in real estate at the concluded market value level during the period immediately after the effective date of an appraisal.

 

Case Study

Case Summary 24: The report did not provide sufficient sales evidence to support the conclusions within the report and that the analysis ignored the terms and conditions of the leases in place. In addition, the report failed to identify a reasonable exposure time linked to the market value estimate. [posted September 2, 2010]

 

CPV Articles

The request for a ‘forced sale’ valuation (Volume 57, Book 1, 2013)

Extraordinary Assumptions

CUSPAP 2018 Definition

An assumption, directly related to a specific assignment, which, if found to be false, could materially alter the opinions or conclusions. [see 7.10, 7.11.4, 9.4, 18.25]

 

CUSPAP 2018  Reference

Definition 2.19 Extraordinary Assumption

An assumption, directly related to a specific assignment, which, if found to be false, could materially alter the opinions or conclusions.[see 7.10, 7.11.4, 9.4, 18.25]

Real Property Appraisal Standard Rule 6.2.9

In the report the Member must identify all assumptions and limiting conditions (including extraordinary assumptions and extraordinary limiting conditions);[see7.10, 18.24, 18.25, 18.26]

Real Property Appraisal Standard – Comments 7.10 Assumptions and Limiting Conditions (including Extraordinary Assumptions and Extraordinary Limiting Conditions) [see 6.2.9, 8.2.7, 10.1.8, 12.2.9, 14.2.9, 18.24, 18.26]

7.10.1  If an extraordinary assumption is invoked, wherever an opinion or conclusion is stated within a report, the extraordinary assumption must be either stated in its entirety or reference provided to its exact location within the report.

7.10.2  When referencing the subject matter of an extraordinary assumption in a report, it must be clearly indicated that the subject matter is based on the extraordinary assumption.

7.10.3  Before invoking an Extraordinary Limiting Condition, the Member must determine that the scope of work applied will result in analyses, opinions and conclusions that are credible and will not be misleading. The member must include an explanation and justification of Extraordinary Limiting Conditions in the report [see 2.20, 18.26]

7.10.4  Extraordinary Assumptions and Extraordinary Limiting Conditions do not require a Hypothetical Condition.

7.10.5  A Member must include in every report as a minimum all of the Assumptions and Limiting Conditions found here https://www.aicanada.ca/forms-templates/ unless clearly not appropriate and clearly not relevant.

7.10.6  if the conditions surrounding an assignment result in it not being covered by the AIC Professional Liability Insurance program, a Member must:

17.10.6.i. clearly inform the client in writing prior to accepting the assignment; and

 17.10.6.ii. include an Extraordinary Limiting Condition to that effect in the Certification and Letter of Transmittal

Practice Note 18.25 Extraordinary Assumptions and Hypothetical Conditions [see 6.2.9, 6.2.10, 8.2.7, 10.1.8, 10.1.9, 12.2.9, 12.2.10, 14.2.9, 14.2.10]

18.25.1 Extraordinary Assumptions and Hypothetical Conditions can apply whether the assignment is for the purpose of developing a retrospective, current, prospective, or updated value opinion.

18.25.2   Extraordinary Assumptions presume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property, or about conditions external to the subject property such as market conditions or trends, or the integrity of data used in an analysis.

18.25.3            Extraordinary Assumptions (Hypothetical Conditions) presume as fact but untrue information about physical, legal or economic characteristics of the subject property or external conditions.

18.25.3. Examples of Extraordinary Assumptions and Hypothetical Conditions

Extraordinary Assumptions

·         an absence of contamination where such contamination is probable

·         municipal sanitary sewer where unknown or uncertain

·         assumed zoning where the zoning is uncertain

·         assumed condition where an interior and/or exterior inspection is not possible

Hypothetical Conditions

·         an absence of contamination where such contamination exists

·         municipal sanitary sewer when none is available

·         assumed residential zoning where agricultural zoning is in place

·         rezoning has been achieved when it has not

·         assumed in renovated condition where a property is original

·         repairs or improvements have been completed

·         execution of pending lease

·         an expropriation scheme is disregarded

·         a prospective appraisal

·         aggregate (retail) or bulk (wholesale) marketing of units

18.25.4     An Extraordinary Assumption is required for every Hypothetical Condition.

18.25.5     When invoking Hypothetical Conditions, it must be clear to the reader that the property condition does not in fact exist as at the date of appraisal, and the analysis performed to develop the opinion of value is based on a hypothesis (e.g., the 5 acre question whereby the property is assumed to be a dwelling on 5 acres when in fact, it is not).

18.25.6            A Member should provide the entirety of any Extraordinary Assumption or extraordinary limiting condition below the opinion(s) or conclusion(s) within the report as well as in the certification. If, not practical when there are significant numbers of Extraordinary Assumptions or Extraordinary Limiting Conditions it may be appropriate to provide a reference under the opinion(s) and conclusion(s) to where any Extraordinary Assumption or Extraordinary Limiting Condition can be found in the report.

18.25.6 – Referencing Extraordinary Assumptions – Example

When, making an Extraordinary Assumption that the soils can support the intended development, stating “the soils can support the intended development” without an Extraordinary Assumption can be misleading.

It would be more appropriate to say “it is an Extraordinary Assumption of this report that the soils can support the intended development”.

18.25.7            Assumptions, if found to be false, would alter a Member’s opinions and conclusions.  In determining whether an assumption is material and requires an Extraordinary Assumption, a Member should view the issue in the context of a market value transaction between a hypothetical vendor and a hypothetical purchaser. In undertaking their due diligence, would the assumption you are making fundamentally change the conditions of the purchase such that the deal needs to start anew or would it simply require a minor amendment?  If the former is the case, an Extraordinary Assumption should be made.  

Box 18.25.7 – Examples of Assumptions or Extraordinary Assumption

·         Tax records or building plans indicate that the area of a single family dwelling is 5,000 sq.ft. but during the inspection you measure the dwelling to be 5,050 sq.ft.  This may require some adjustment to the price but likely not fundamentally alter the transaction.  However, if the Member measures the property to be 7,000 sq.ft. it likely will require a complete revision of the agreement; in this situation it would be necessary to invoke an Extraordinary Assumption as to what size is being adopted in the report.

·         The Member is aware that the subject property, a vacant and unimproved industrial property, is located in an area where soils require extensive site preparation work.  If the comparable properties are located in the area, an assumption that the subject has soil characteristics similar to those in the surrounding area would generally suffice as the soil conditions are likely to be accounted for in the purchase price of the comparables.  If the Member is informed that the soil conditions may be especially poor in comparison to the surrounding area, though there is no definitive information, it would be more appropriate to make the extraordinary assumption.

Practice Note 18.26 Extraordinary Limiting Conditions [see 6.2.9, 8.2.7, 10.1.8, 10.1.9, 12.2.9, 14.2.9]]

18.26.1 Examples of Extraordinary Limiting Conditions:

18.26.1.i. exclusion of a relevant valuation approach; [see 6.2.15]

18.26.1.ii. no interior inspection of the subject improvements [see 18.23.4]

18.26.1.iii. no title search [see 7.9.1.v]

18.26.1.v. no liability insurance coverage [see 4.2.1]

18.26.2.Limiting Conditions are unacceptable in any assignment where they:

18.26.2.i. compromise a Member’s impartiality, objectivity or independence;

18.26.2.ii. limit the scope of work to such a degree that the results are not credible given the purpose of the assignment and the intended use of the results; and/or

18.26.1.iii. limit the contents of a report that results in the report being misleading

18.26.3 The practice of appraisal requires a rudimentary ability to interpret legal documents (e.g., title) pertinent to real property. Unless legally qualified, the Member should not comment on legal matters beyond those typically required in the appraisal process [see 7.9.1.v]

18.26.4 It should be clear in the report that the Member is not providing a report on title but only describing the interest appraised

18.26.5 Legal aspects such as the effect of existing leases can directly impact property value and need to be considered

18.26.5.i. If a lease is to be disregarded and the assignment is of the fee simple interest and not the leased fee, an Extraordinary Assumption (Hypothetical Condition) is required.

18.26.5.ii. Reports that take existing lease into account should identify their conclusions as representing the value of the leased fee, not simply the market value of the property.

Box 18.26.4 – Fee Simple versus Leased Fee

The term Fee Simple is commonly used even though it rarely exists since most investment properties have some encumbrance or lease in place.

A Member should determine whether fee simple (unencumbered by a lease), leased fee or leasehold interest valuation is the most appropriate for the client who may be a lessor, a tenant, investor or lender.

If the assignment requires a value based on the existing lease and contract rent, it is typically leased fee value.

If the assignment requires a valuation based on market or economic rents, it is typically a fee simple value.

Resources are available to assist a Member to determine values based on different interests. A Member may find market rent leased fee interests are equivalent to the fee simple because the lease contract is a personal property interest that is added to, not removed from, the bundle of rights. For a real life example, consider the difference between two big box stores – one dark/vacant (fee simple) and one leased (leased fee).

 

Case Study

Case Summary 9: The member completed an appraisal report on a rural property with special instructions by the client to ignore the commercial aspects of the property. The member fulfilled this request and sent the appraisal to a lender without explanation of the limiting conditions and extraordinary assumptions he had made. The complainant was concerned that the appraisal report could be construed to be misleading. [posted April 6, 2009]

 

CPV Articles

CUSPAP, the Ontario Expropriations Act and Jurisdictional Exception (Volume 60, Book 2, 2016)

Best practices – examples from the field (Volume 60, Book 1, 2016)

Reading the whole report (Volume 59, Book 1, 2015)

The request for a ‘forced sale’ valuation (Volume 57, Book 1, 2013) 

F
Fee Member

CUSPAP 2018 Definition

A Member who renders professional services on a fee-for-service basis and/or where the product of the service may be provided to any party other than the Member’s employer, firm, partnership or personal corporation. 

CPV Articles

The Market Value of an Appraisal (Volume 55, Book 1, 2011)

Contract Risks and Analysis (Volume 55, Book 1, 2011)

 

Fee Simple

See Property Rights

File Retention

CUSPAP 2018 Definition

Documentation necessary to support a Member’s analyses, opinions and conclusions. [see 4.2.9, 5.7]

 

CUSPAP 2018 Reference

Ethics Standard Rule 4.2.9

It is unethical for a Member to fail to create a work-file for each assignment [5.5. 5.7];

Ethics Standard Rule Comment 5.7 Records

5.7.1    A Member must prepare a work-file in hard copy and/or electronically, for each assignment. The work-file must include:

5.7.1.i. the name of the client and intended users;

5.7.2.ii. true copies of any written reports including drafts documents on any type of media;

5.7.1.iii. summaries of any oral reports (or court transcripts) sufficient to meet the requirements of the applicable Standard and the “Reasonable Appraiser” test;

5.7.1.iv.  a signed and dated certification; and

5.7.1.v.  all other data, information and documentation necessary to support the Member’s opinions, analysis and conclusions and to show compliance with this rule and all other applicable Standards, or references to the location(s) of such other documentation.

5.7.2    A Member must (subject to 5.7.4) retain the work-file and have custody of the work-file, or make appropriate work-file retention, access and retrieval arrangements with the party having custody of the work-file for a period of at least, whichever period expires last:

5.7.2.i. seven (7) years after preparation or

5.7.2.ii. two (2) years after final disposition of any judicial proceeding in which testimony was given or any professional liability insurance proceeding has taken place.

5.7.3    If a Member is unable to retain a copy of the work-file, whether by reason of an employer’s internal rules or by change of employer, all reasonable steps must be taken by the Member to ensure the availability of such reports and work-files when requested.

5.7.4    Members should obtain written commitment from employers that reports and work-files will be made available when required.

5.7.5    A photocopy or an electronic copy of the entire written professional services sent or delivered to a client satisfies the requirement of a true copy. The industry standard medium for electronic storage would be a PDF or equivalent and not within office or on-line appraisal software.

5.7.6    Care should be exercised in the selection of the form, style, and type of medium for written records, which may be handwritten and informal, to ensure they are retrievable by the Member throughout the prescribed record retention period.

5.7.7    A work-file must be in existence prior to and contemporaneous with the issuance of a written or oral report. If a work-file cannot be provided prior to providing an oral report, a written summary of the oral report must be added to the work-file within a reasonable time.

Fraud

CPV Articles

Protecting yourself against valuation fraud (Volume 59, Book 1, 2015)

Dealing with appraisers: avoiding undue influence

 

Communiqué

March 1, 2018 – Communique 3

May 5, 2017 – Communiqué 6

March 1, 2017 – Communiqué 4

March 2, 2015 – Communique 2

 

Worth Knowing

MORTGAGE FRAUD. Red Flags for Valuation Professionals.

H
Highest & Best Use

CUSPAP 2018 Definitions

The reasonably probable use of real property, that is physically possible, legally permissible, financially feasible, and maximally productive, and that results in the highest value. [see 6.2.13, 18.28]

 

CUSPAP 2018  Reference

Real Property Appraisal Standard Rule 6.2.13

In the report the Member must define, analyze and resolve the highest and best use; [see 2.26, 7.14, 18.23.1.ii, 18.28]

Real Property Appraisal Standard Comment 7.14 Highest and Best Use [see 2.26, 6.2.13, 18.23.1, 18.28]

7.14.1 The report must contain the Member’s opinion as to the highest and best use of the property; unless an opinion as to highest and best use is irrelevant.

7.14.2 If the purpose of the assignment is to provide a market value, the Member’s support and rationale for the opinion of highest and best use is required.

7.14.3 The Member’s analysis of the highest and best use (as if vacant and as improved) and reasoning in support of the opinion and conclusion must be

17.14.3.i. provide with the depth and level of detail required in relation to its significance to the report; and

17.14.3.ii. based on the relevant legal, physical and economic factors. [see 7.14.4]

7.14.4 Opinions on the highest and best use of a property are required on both:

7.14.4.i the land, as if vacant, and;

7.14.4.ii the property, as improved.

Practice Note 18.28 Highest and Best Use [see 6.2.13]

18.28.1    Estimating the Highest and Best Use (HBU) of a property is a critical appraisal component that provides the valuation context within which market participants and a Member selects comparable market information.

18.28.2    A Member considers HBU of the property “as if vacant” separately from the HBU of the property “as improved”. This is because the HBU of the site as if vacant and available for development determines the value of the land, even if the property’s existing improvement does not represent the HBU of the site.

18.28.3    HBU of land or a site is the use among all reasonable alternative uses that yields the highest present land value, after payment for labour, capital and co-ordination. The conclusion assumes that the parcel of land is vacant or can be made vacant by demolishing any improvements.

18.28.4    In determining the scope of practice for a CRA member undertaking an assignment, the test lies in the HBU –actual or assumed – of the property being appraised.

18.28.4 – CRA Scope – Examples

Four-Plex within a 12 Unit Site

A client owns 12 four-plex buildings held in one single-titles parcel. While one of the four-plexes might be thought of as ‘ a dwelling containing not more than 4 self-contained family housing units’ (see CUSPAP 5.4.5) this is really one 48-unit property requiring an AACI co-signor. 

A CRA designated Member may be able to appraise one four-plex based on the extraordinary assumption (hypothetical condition) that it had been subdivided from the larger parcel at the effective date, but should be very clear that the final hypothetical current market value estimate for the single four-plex should not be multiplied by 12 to arrive at a current market value estimate for the whole project. 

Similarly, it is inappropriate to appraise a single unit in a condominium project and imply that the client can multiply that value to arrive at a total value estimate for the entire condominium project.

Residential Care Facility

A CRA designated Member is asked to appraise a residential care facility. The building has 12 bedrooms, two kitchens and several living areas, as well as accommodations for the care staff. It cannot be rationalized that this is “really just a big house” and within the scope of a CRA designation. There must be reasonable evidence to support the highest and best use is a self-contained family housing unit rather than a care facility. It is recommended to have the report reviewed and co-signed by an AACI

Vacant Site

A CRA designated Member is asked to appraise a 12,000 square foot vacant site on the corner of two major thoroughfares. The zoning indicates that development should be for single-family housing.

Given the size of this parcel and the prominent corner location, it is important to carefully consider the highest and best use of the site, which may be for development with a small apartment project, several homes, a small commercial development or mixed-use building.

If the most likely purchaser of the property is a developer who will apply to have the zoning changed to permit another type of project, an AACI should co-sign the report. The test of whether an assignment is within the scope of a CRA is in the highest and best use, and, in this example, major thoroughfares are unlikely sites for single-family dwellings.

Five-Plex

A CRA designated Member is asked to appraise a triplex. When inspecting the property, he/she discovers that it is actually a five-plex because there are two vacant basement units. The client informs him/her that the conditions have to be removed by tomorrow, it is only a finished basement and the units are vacant.

Highest and best use is the test, not the client’s or the homeowner wishes. Some apartment units may have been installed without obtaining approval and are legally permissible.  The CRA designated Member will want to decline the assignment or have an AACI co-sign the report.

Mixed Use Buildings

A CRA designated Member is asked to appraise a vacant two-storey building. The ground floor previously had a commercial use and the second floor contains a residential apartment. The intended use of the appraisal is ‘only a refinance’. He/she must consider whether residential is permitted under zoning and the Highest and Best Use of the ground floor. A small building with ground floor commercial and second floor apartment must be co-signed with an AACI.

Vineyard

A CRA designated Member is asked to appraise a 20 acre vineyard with a residential home. If a hypothetical condition is properly done to exclude the income producing potential, this may be within the scope of a CRA if the intended use is mortgage financing. If the intended use is not mortgage financing, the report must be co-signed with an AACI.

Farm or Forestry

A CRA designated Member is asked to appraise a 160 acre parcel of agricultural or forestry land. If zoning does not permit residential use, the report must be co-signed with an AACI.

18.28.5   Holding a designation from another professional organization does not allow a Member to complete assignments that are not permitted under CUSPAP. A Member may not drop their AIC designation to complete such assignments or outside professional services. [see 5.4]

18.28.6   What follows are key questions for the Member to reflect on as part of assessing the HBU – actual or assumed – of the property being appraised.

CRA SCOPE

Working Your Way Through CUSPAP

In Layman’s Terms

What is the purpose of the appraisal?

Defining the value. What value is being estimated?

What are the terms of reference and the required scope of work?

What is your client asking you to do?

What is the site’s zoning?

What are the permitted uses and land use controls?

 

Analyzing the immediate and surrounding areas.

§  What is happening in the area? What are the trends?

§  What are the surrounding land uses? Are they similar to the subject actual or assumed Highest and Best Use (HBU)?

§  Who are the buyers?

§  What are the supply and the demand for properties with similar actual or assumed HBUs?

Based on the above, what is the actual or assumed HBU? 

 

§  Is the actual or assumed HBU legally permissible, financially possible? Will it generate the highest net return?

§  Is it reasonable to assume the HBU based on the market conditions, zoning and permitted uses?

§  Is it possible for the HBU to be something other than the actual or assumed HBU?

§  Is it possible that what your client is asking you to provide may not be a permissible or possible assumed HBU?

Does the Member have the qualifications to complete the assignment?

Does the report have to be co-signed by a competent AACI? 

What ordinary assumptions, limiting conditions, hypothetical conditions, extraordinary assumptions and/or extraordinary limiting conditions need to be invoked?

In the report, the Member must identify the value being provided, whether current, retrospective, prospective, or an update. [see 7.7] Depending on the value, the Member may need to make certain assumptions.  

What are the data and appraisal procedures relevant to the assignment?

The data used in the analysis must be comparable to the property being appraised.

§  Actual HBU (“as is” value) will require sales with similar improvements, zoning and permitted uses, etc. (e.g. property as a whole with 50 acres, income-producing farm, dwelling, garage and outbuildings).

§  Assumed HBU (“as if” value) will require data with comparable acreage, improvements, assumed zoning and permitted uses, etc. (e.g., 5 acres, dwelling and garage).

 

Case Study

Case Summary 1: The Candidate member produced a one page appraisal report that conformed to no prescribed reporting standard having limited descriptive detail, no comparable sale information, no highest and best use analysis; and no discussion pertaining to zoning, land use controls and any future planning considerations. [posted April 6, 2009]

Case Summary 2: The member cosigned a one page appraisal report that conformed to no prescribed reporting standard having limited descriptive detail, no comparable sale information, no highest and best use analysis; and no discussion pertaining to zoning, land use controls and any future planning considerations. [posted April 6, 2009]

Case Summary 7: The crux of the complaint focuses on the omission of a discussion of highest and best use within the report. The work file for the appraisal report consisted of three pages. [posted April 6, 2009]

Case Summary 25: The zoning of the property was identified as being agricultural and no further details were provided. The highest and best use analysis in the report made mention of the future development for the property. The supporting argument for the conclusion that the highest and best use for the property was country residential was not adequate. [posted September 2, 2010]

 

CPV Articles

Highest and best use analysis (Volume 56, Book 2, 2012)

Shades of gray: highest and best use (Volume 55, Book 3, 2011)

Highest and best use analysis (Volume 54, Book 3, 2010)

Expropriation and the partial taking appraisal (Volume 53, Book 1, 2009)

Hypothetical Conditions

CUSPAP 2018 Definition

That which is contrary to what exists, but is supposed to exist for the purpose of analysis. [see 6.2.10, 10.1.9, 12.2.10, 14.2.10, 18.25]

 

CUSPAP 2018 Reference

Real Property Appraisal Standard Rule 6.2.10

In the report the Member must identify any hypothetical conditions; [see 7.11, 18.25]

Real Property Appraisal Standard Comment 7.11 Hypothetical Conditions

7.11.1 Hypothetical Conditions may be used when they are required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison.

7.11.2 With respect to proposed improvements or modifications, the Member shall examine and have available for future examination:

7.11.2.i plans, specifications, and/or other documents sufficient to identify the scope and character;

7.11.2.ii evidence indicating the probable time of completion; and

7.11.2.iii reasonably clear and appropriate evidence supporting development costs, anticipated earnings, occupancy projections, and the anticipated competition at the time of completion.

7.11.3 A recertification of value does not change the effective date of the appraisal. [see 2.51]

7.11.4 For every Hypothetical Condition, an Extraordinary Assumption is required.

7.11.5 Hypothetical Conditions can apply whether the assignment is for the purpose of developing a retrospective, current, prospective, or update value opinion. The Member must avoid making unsupported assumptions. It must be clear to the reader that:

7.11.5.i the property condition does not in fact exist as at the effective date;

7.11.5.ii the analysis performed to develop the opinion of value is based on a hypothesis, specifically that the property condition is assumed to exist when, in fact, it does not;

7.11.5.iii certain events need to occur, as disclosed in the report, before the property condition will in fact exist;

7.11.5.iv the report does not consider unforeseeable events that could alter the value conclusion; and

7.11.5.v a the absence of the hypothesis would likely result in a different value conclusion.

7.11.6 Reports for expropriation can require Hypothetical Conditions, and may require the Member to invoke a Jurisdictional Exception. [see 2.35]

7.11.7 The Hypothetical Condition must be clearly disclosed in the report, with a description of the hypothesis, the rationale for its use and its effect on the result of the assignment.

7.11.8 An analysis based on a Hypothetical Condition must result in a credible analysis and must not result in a report that is misleading. [6.2.10]

Practice Note 18.25 Extraordinary Assumptions and Hypothetical Conditions [see 6.2.9, 6.2.10, 8.2.7, 10.1.8, 10.1.9, 12.2.9, 12.2.10, 14.2.9, 14.2.10]

18.25.1 Extraordinary Assumptions and Hypothetical Condition can apply whether the assignment is for the purpose of developing a retrospective, current, prospective, or updated value opinion.

18.25.2 Extraordinary Assumptions presume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property, or about conditions external to the subject property such as market conditions or trends or the integrity of data used in an analysis.

18.25.3 Extraordinary Assumptions (Hypothetical Conditions) presume as fact simulated but untrue information about physical, legal or economic characteristics of the subject property or external conditions.

18.25.3 – Examples of Extraordinary Assumptions and Hypothetical Conditions

Extraordinary Assumptions

·         an absence of contamination where such contamination is probable

·         municipal sanitary sewer where unknown or uncertain

·         assumed zoning where the zoning is uncertain

·         assumed condition where an interior and/or exterior inspection is not possible

Hypothetical Conditions

·         an absence of contamination where such contamination exists

·         municipal sanitary sewer when none is available

·         assumed residential zoning where agricultural zoning is in place

·         rezoning has been achieved when it has not

·         assumed in renovated condition where a property is original

·         repairs or improvements have been completed

·         execution of pending lease

·         an expropriation scheme is disregarded

·         a prospective appraisal

·         aggregate (retail) or bulk (wholesale) marketing of units

18.25.4 An Extraordinary Assumption is required for every Hypothetical Condition.

18.25.5 When invoking Hypothetical Conditions, it must be clear to the reader that the property condition does not in fact exist as at the date of appraisal, and the analysis performed to develop the opinion of value is based on a hypothesis (e.g., the 5 acre question whereby the property is assumed to be a dwelling on 5 acres when in fact, it is not).

18.25.6 A Member should provide the entirety of any Extraordinary Assumption or extraordinary limiting condition below the opinion(s) or conclusion(s) within the report as well as in the certification.  If, not practical when there are significant numbers of Extraordinary Assumptions or Extraordinary Limiting Conditions, it may be appropriate to provide a reference under the opinion(s) and conclusion(s) to where any Extraordinary Assumption or Extraordinary Limiting Condition can be found in the report.

Box 18.25.6 – Referencing Extraordinary Assumptions – Example

When making an Extraordinary Assumption that the soils can support the intended development, stating “the soils can support the intended development” without an Extraordinary Assumption can be misleading.

It is more appropriate to say “it is an Extraordinary Assumption of the report that the soils can support the intended development”.

18.25.7 Assumptions, if found to be false, would alter a member’s opinions and conclusions. In determining whether an assumption is material and requires an Extraordinary Assumption, a member should view th3e issue in the context of a market value transaction between a hypothetical vendor and a hypothetical purchaser. In undertaking their due diligence, would the assumption you are making fundamentally change the conditions of the purchase such that the deal needs to start anew or would it simply require a minor amendment? If the former is the case an Extraordinary Assumption should be made.

Box 18.25.7 – Examples of Assumption or Extraordinary Assumption

·         Tax records or building plans indicate that the area of a single family dwelling is 5,000 sq.ft. but during the inspection you measure the dwelling to be 5,050 sq.ft.  This may require some adjustment to the price but likely not fundamentally alter the transaction.  However, if the Member measures the property to be 7,000 sq.ft. it likely will require a complete revision of the agreement; in this situation it would be necessary to invoke an Extraordinary Assumption as to what size is being adopted in the report.

·         The Member is aware that the subject property, a vacant and unimproved industrial property, is located in an area where soils require extensive site preparation work.  If the comparable properties are located in the area, an assumption that the subject has soil characteristics similar to those in the surrounding area would generally suffice as the soil conditions are likely to be accounted for in the purchase price of the comparables.  If the Member is informed that the soil conditions may be especially poor in comparison to the surrounding area, though there is no definitive information, it would be more appropriate to make the extraordinary assumption.

 

Professional Excellence Bulletin

As-if Complete Appraisals PEB

Partially Completed Building PEB

I
Inspection

CUSPAP 2018 Definition

An observation, site visit, walk through, viewing or non-invasive visual examination of a property.

 

Professional Excellence Bulletins

Insurance Coverage and Stand-Alone Home Inspections PEB

Intended User

CUSPAP 2018 Definition

A party identified by name as a user of the professional services of the Member, based on communication between the Member and the client. [see 6.2.1, 8.2.1, 10.1.1, 12.2.1, 14.2.1, 18.6]

 

CUSPAP 2018 Reference

Ethics Standard Rule 4.2.10

It is unethical for a Member to disclose results of an assignment to anyone but the client, except with the client’s permission; [see 5.8]

Ethic Standard Comment 5.8 Disclosure [see 4.2.10, 18.1, 18.2]

5.8.1    A member pledges to uphold the confidential nature of the Member/client relationship.

5.8.2    A member must not disclose the analyses, opinions or conclusions in an assignment to anyone other than:

5.8.2.i. the client and those parties specifically authorized by the Member and client to receive such information;

5.8.2.ii. third parties, when the Member is legally required to do so by due process of law (e.g. the Courts or Legislation); or

5.8.2.iii. an authorized Committee or Committee Member of the Institute.

5.8.3    A member must not disclose information provided by a client on a confidential basis to anyone other than:

5.8.3.i. those parties specifically authorized by the client to receive such data;

5.8.3.ii. third parties, when the Member is required to do so by due process of law; or

5.8.3.iii. an authorized Committee or Committee Member of the Institute.

5.8.4    If the performance of a prior assignment is to be kept confidential, a Member must decline a new assignment on the same property, where a condition requires disclosure of any prior assignment.

5.8.5    If The Member must obtain an occupant’s (e.g. tenant, property owner if occupant, occupant of office space, etc.) permission to photograph their personal area of occupancy and notify them that photographs may be included in the report. The Member should include limiting conditions to the effect that s/he is not responsible for the misuse of the photographs by third parties.

Real Property Appraisal Standard Rule 6.2.1

In the report the Member must identify the client by name and intended user by name; [see 7.2, 18.6]

Real Property Appraisal Standard Comment 7.2 Client And Intended User 

7.2.1    The client is the individual or organization for whom the Member renders or agrees to render professional services.

7.2.2    The client/Member relationship lasts at least until the completion of the intended use of the original appraisal, or release from client is granted.

7.2.2.i. A party receiving a copy of an appraisal report does not become an intended user unless authorized, and clearly identified by name and in writing, by the Member and the client.

7.2.2.ii. Where an assignment is prepared by the Member for consideration by a tribunal or court, such as assisting in resolving a formal dispute, an intended user including: a judge, mediator, arbitrator, or other trier of fact does not need to be identified by name.

Practice Note 18.6 Client and Intended User

18.6.1 A statement similar to the following is required:

“This report is intended for use only by (client name) and (intended users by name).  “This report is intended for the use of those specifically identified and any other use is strictly unauthorized. The Member is not liable for any unauthorized use of this report.”

18.6.1.i Examples of acceptable intended user names include:

  • “Lender ABC”;
  • “Solicitor D”
  • “Condominium Corporation E”
  • “Strata Corporation F”
  • Agency (Name)
  • City of (Name)
  • Corporation (Name)

18.6.1.ii. Types of intended users such as “To be determined”, “To be confirmed”, “John Doe and his lenders”, “Jane Doe and her subsidiaries”, “John Smith and his assignees” or other similar references are not acceptable. The use of vague or undefined intended user names or types is not permitted.  

18.6.1.iii. The Client is typically the Intended User of the assignment.

18.6.1.iv. Where the intended use is mortgage financing, the Client and the Intended User should be identified as “Lender ABC” 

18.6.1.v. Where the assignment is ordered by an Appraisal Management Company (AMC), the report may identify the AMC requesting the report in the “Requested By” section of the report to make it clear to the reader that the AMC is neither the client nor the intended user. The client and intended user shall be identified by name; e.g.: “Lender ABC”.

18.6.1.vi. Where the intended use is mortgage financing and the assignment is ordered by a Mortgage Broker or a borrower but no lender has been identified, only a draft report under 18.5.4, 18.5.5, and 18.32.9 should be prepared.

18.6.2 The client/Member relationship lasts at least until the completion of the intended use of the original appraisal or release is granted by the original client. Prior to accepting an assignment from a potential second client, the Member must confirm that the intended use of the original appraisal has been completed.

18.6.2.i. The steps taken to ascertain that a conflict of interest does not exist must be outlined in the Certification.

18.6.3 A Member is frequently asked to authorize the use of a report by an unintended third party, i.e., a party other than one of the intended user(s) of the original report.

18.6.3.i. This most often takes the form of a lender requesting authorization to use the appraisal for underwriting purposes, when the report had originally been prepared for the owner and/or a different lender.

18.6.4 A Member can permit the use of a report by an unintended third party. A Member should ensure that this new party is made aware of the dates associated with the original report to ensure that the value, opinion or conclusion only applies as of the effective date, any special considerations and assumptions, client terms of reference, etc., that entered into the value conclusion.

18.6.5 The older the date of the report, the less relevant the report can be to a third party. A Member should judge the relevancy of the report and decline authorization if the report is not appropriate for the third party use. It should be clear to the prospective user that there may have been significant changes to the:  

18.6.5.i. property,

18.6.5.ii.market conditions; or

18.6.5.iii. some other factor since the time of report that would have a material impact on the conclusion.

18.6.6 When faced with a request to assist the third party, a Member has the choice of:

18.6.6.i. writing a reliance letter; (sample found here: https://www.aicanada.ca/forms-templates/  ) 

18.6.6.ii. completing a new report for the new intended user (provided the Member is not in a conflict of interest); or

18.6.6.iii. declining to authorize reliance by a third party.

18.6.7 Providing a reliance letter to a third party continues to carry the ability to attract a claim. By formally acknowledging the right of a third party to rely on the report, a Member will be extending the right to make a claim as a result of reliance on the report. 

18.6.8 Providing a Reliance Letter is at the sole and absolute discretion of a Member. If a Member issues a reliance letter, it may be subject to a number of additional caveats and fees.   

18.6.9 A Member should be aware of the implications of providing a reliance letter including, the additional liability being accepted. A Member should confirm whether the assumptions and facts of the report (e.g. building condition, tenant profile, vacancies, rents being achieved, etc.) has not materially changed as it could be misleading and open a Member up to potential liability.

Box 18.6.6 – A – Draft Reports and Reliance Letter

9 Critical Steps for Draft Reports and Reliance Letters include:

DRAFT

1.      Identify whether the request is from an Agent or a Client

2.      Identify the Client and User

3.      If the User is temporarily unknown, provide only a Draft report under 18.5.5

4.      Provide a Final report only when the User is known

 

RELIANCE

1.      Identify the new potential Client or potential User who wants to rely on your report

2.      Determine if a reliance letter is appropriate or this must be a new assignment

3.      Consider the risks associated with a reliance letter

4.      Obtain a written release from the prior Clients and Users

5.      Provide the Reliance Letter and the report

Sample Situations:

Draft Report for Mortgage Broker with no Lender

A Member receives a request from Mortgage Broker A asking the Member to prepare an appraisal for mortgage financing purposes. At this point, Mortgage Broker A does not have a lender and asks the Member to prepare the draft report in their name. Mortgage Broker A may be named in the report under “REQUESTED BY” or named as the Client.

The Member completes the draft according to CUSPAP. Several weeks pass and Mortgage Broker A contacts the Member to send the report to Bank B as the lender. Mortgage Broker A and the Member will identify Bank B as the only Intended User. Once authorized in writing, the Member can send the final report directly to Bank B. 

Reliance Letter requested by Mortgage Broker

Later the Member receives an update from Mortgage Broker A. Bank B decided not to lend, but Lender C will. Remember, if Mortgage Broker A is the Member’s Client and Bank B is the Member’s Intended User, the Member has a responsibility to both.

The Member should request Mortgage Broker A to provide him/her with a release from Bank B stating it will not rely on the Member’s report. The Member should obtain written authorization from Mortgage Broker A to provide a copy of the report by way of a Reliance Letter to Lender C.

Once the Member issues the Reliance Letter, Lender C will become an Intended User and the Member is liable to both Lender C and Bank B unless the prior liability was released.

Second Mortgage

Later Lender E calls the Member and asks him/her to provide the report for a second mortgage? The Member has already appraised it for a different Client and different Intended Users.

Since the request did not come from the Member’s Client, Lender E is a potential new Client. The Member needs to approach his/her original client for consent. If the Client provides consent, the Member may choose to take on Lender E as a new Client or provide a Reliance Letter.

Reliance Letter with Lending Institution as Client

The Member receives a request from an AMC asking him/her to prepare an appraisal for mortgage financing purposes for Bank A. The Member’s Client and Intended user is Bank A because AMCs act as an agent for lenders.

Later the Member receives a request for a Reliance letter from a broker because Bank A decided not to lend, but Lender C will. 

The Member should request Bank A to provide him/her with a release stating they will not rely on the report. If Bank A releases the Member from his/her Client-Member relationship, she/he may provide copy of the report by way of a Reliance Letter to Lender C.

Once the Member issues the Reliance Letter, Lender C will become an Intended User and the Member is liable to both Lender C and Bank A unless the prior liability was released.

Along the way, if a Client says “no” and will not provide written authorization to release the Member from a Client/Member relationship, then he/she cannot provide a reliance letter to a prospective new lender.

“If the Member cannot tell his/her prior client or a new one that she/he has appraised the property before, then that is a sign she/he should not appraise it now.”

Consider the risks

Before a Member provides a Reliance Letter, she/he should  ask him/herself these questions:

•    Why did the original intended user not rely on my report to lend?

•    Who is the new potential client/intended user?

•    The report was prepared for first mortgage financing, now they want to rely on it for 2nd mortgage financing. What is the overall loan-to-value ratio? What is the interest rate charged by the new lender?  Is the applicant likely to default? In the event of default, what is the likelihood of recovering the market value later?

•    Is this a high-risk assignment I am willing to take?

The Member will need to direct a new client to contact the Client to ask for them to provide him/her with written authorization to release a copy of the report.  

Box 18.6.6 – B – Is there anyone else to whom the Member can give a copy of the report?

The Homeowner, who was Mortgage Broker A’s client and who ultimately paid for the appraisal, is dissatisfied.  The Homeowner wants a copy of the appraisal for which he/she has paid. Since the Homeowner was never the Member’s client, she/he cannot give them a copy of the appraisal without written permission from his/her client.

Providing a copy of a report to the homeowner (a third party)

Often a homeowner will ask for a copy of a report that has been undertaken for a lender.  Unless the homeowner is named as a client in the report Members cannot provide a copy without the authorization of their client.

Members are required to maintain the confidential nature of their relationship with their client – the party for whom they are providing the services.

The client receives a copy of the report therefore it belongs to them. The client will decide if a copy can be released, and to whom, but because the Member is the author of the report, consent to release must also be obtained from the Member.

When a broker or banker makes a request, they typically are the Client since they made the request, regardless of who pays for the report.   

Per CUSPAP (found here: https://www.aicanada.ca/about-our-profession/cuspap/), an appraisal report will include wording similar to:

“This report is intended for use only by ABC Bank” or

“This report is intended for use only by ABC Bank and Ms. Mary X”

When an appraisal has restrictive wording like the examples above, AIC members cannot share the report with anyone but clients ABC Bank and/or Ms. X. 

AIC members are required to uphold the confidential nature of their client relationship and have a fiduciary duty to their Clients.

 

Professional Excellence Bulletin

Letters of Engagement PEB

 

CPV Articles

Professional practice matters: stay out of trouble Part 2 (Volume 61, Book 2, 2017)

L
Leasehold

CUSPAP 2018 Definition

A legal agreement which grants right to use, occupy, or control all or part of a property, to another party, for a stated period of time based on the terms and covenants of the lease including, among other things, the rental rate. [see 6.2.17, 18.26.5]

Letter of Engagement

Professional Excellence Bulletins

Letters of Engagement PEB

 

CPV Articles

Draft Reports: When are they appropriate? What are your obligations? (Volume 61, Book 1, 2017)

Letter of Transmittal

CUSPAP 2018 Definition

A party identified by name as a user of the professional services of the Member, based on communication between the Member and the client. [see 6.2.1, 8.2.1, 10.1.1, 12.2.1, 14.2.1, 18.6]

 

CPV Articles

Professional practice matters: stay out of trouble Part 2 (Volume 61, Book 2, 2017)

Limiting Conditions

Residential Forms Limiting Conditions – Forms and Templates

Professional Excellence Bulletin

Scope and Limiting Conditions PEB

CUSPAP

2.37 LIMITING CONDITION:

A statement in an assignment identifying conditions that impact the conclusion.

Real Property Appraisal Standard Rule

6.2.9 In the report the Member must identify all assumptions and limiting conditions (including extraordinary assumptions and extraordinary limiting conditions);

Review Standard Rule

8.2.7 In the report the reviewer must identify all assumptions and limiting conditions for the review that was undertaken;

Consulting Standard Rule

10.1.8 In the report the Member must identify all assumptions and limiting conditions;

Reserve Fund Planning Standard

12.2.9 In the report the Member must identify all assumptions and limiting conditions;

Machinery and Equipment Standard Rule

14.2.9 In the report the Member must identify all assumptions and limiting conditions (including extraordinary assumptions and extraordinary limiting conditions);

Real Property Appraisal Standard Comment

7.10 Assumptions and Limiting Conditions (including Extraordinary Assumptions and Extraordinary Limiting Conditions) [see 6.2.9, 8.2.7, 10.1.8, 12.2.9, 14.2.9, 18.24,

18.26]

7.10.1 If an extraordinary assumption is invoked, wherever an opinion or conclusion is stated within a report, the extraordinary assumption must be either stated in its entirety or reference provided to its exact location within the report.

7.10.2 When referencing the subject matter of an extraordinary assumption in a report, it must be clearly indicated that the subject matter is based on the extraordinary assumption.

7.10.3 Before invoking an Extraordinary Limiting Condition, the Member must determine that the scope of work applied will result in analyses, opinions and conclusions that are credible and will not be misleading. The Member must include an explanation and justification of Extraordinary Limiting Conditions in the report. [see 2.20, 18.26]

7.10.4 Extraordinary Assumptions and Extraordinary Limiting Conditions do not require a Hypothetical Condition.

7.10.5 A Member must include in every report as a minimum all of the Assumptions and Limiting Conditions found here https://www.aicanada.ca/members- home/professional-practice-resources/forms-templates/ unless clearly not appropriate and clearly not relevant.

7.10.6 If the conditions surrounding an assignment result in it not being covered by the AIC Professional Liability Insurance program, a Member must:

7.10.6.i clearly inform the client in writing prior to accepting the assignment; and

7.10.6.ii include an Extraordinary Limiting Condition to that effect in the Certification and Letter of Transmittal.

Practice Notes

18.24 Assumptions and Limiting Conditions [see 6.2.9, 8.2.7, 10.1.8, 12.2.9, 14.2.9]

18.24.1 Ordinary Assumptions and Limiting Conditions are typically grouped together in a specific section of the report. While they may apply to most assignments, the Member should not copy and paste and boilerplate statements without any customization for each assignment. Examples of ordinary assumptions and limiting conditions:

18.24.1.i Ordinary Assumptions

  • reliability of data sources;
  • compliance with government regulations;
  • normal financing;
  • marketable title;
  • no defects in the improvements; bearing capacity of soil;
  • no encroachments;
  • diligence by intended user.

18.24.1.ii Limiting Conditions:

  • denial of liability to non-intended users and for any non-intended use;
  • conclusions may be valid only at the date of valuation/effective date;
  • responsibility denied for legal factors;
  • fees for attendance at legal proceedings to be agreed;
  • report must not be used partially;
  • possession of report does not permit publication;
  • disclosure for peer review may be required;
  • cost estimates are not valid for insurance purposes;
  • value conclusion is in Canadian dollars;
  • denial of responsibility for any unauthorized alteration to a report;
  • validity requires original

18.26.2 Limiting Conditions are unacceptable in any assignment where they: compromise a Member’s impartiality, objectivity or independence;

18.26.2.i limit the scope of work to such a degree that the results are not credible given the purpose of the assignment and the intended use of the results; and/or

18.26.2.ii limit the contents of a report that results in the report being misleading.

Case Study

Case Summary 9: The member completed an appraisal report on a rural property with special instructions by the client to ignore the commercial aspects of the property. The member fulfilled this request and sent the appraisal to a lender without explanation of the limiting conditions and extraordinary assumptions he had made. The complainant was concerned that the appraisal report could be construed to be misleading. [posted April 6, 2009

Case Summary 27: The report indicated that the existing use of the property was residential which was not correct. The report did contain limited observations that indicated that the report was hypothetical in nature; however, no reference was made to extraordinary limiting conditions. The report does not use the terminology “hypothetical” market value estimate and does not clearly set out requisite extraordinary limiting conditions that would be necessary to estimate market value “as if” converted back for residential use. Because the Member has been suspended, a hearing was requisitioned in order that the Adjudicating Committee could determine a final decision regarding the file, which would then be placed on the Member’s record. Should the Member apply for re-instatement at a later date, he will first have to meet any conditions in the final decision before reinstatement. [posted September 2, 2010]


CPV Articles

CUSPAP, the Ontario Expropriations Act and Jurisdictional Exception (Volume 60, Book 2, 2016)

Best practices – examples from the field (Volume 60, Book 1, 2016)

Reading the whole report (Volume 59, Book 1, 2015)

M
Machinery & Equipment

CUSPAP 2018 Definition

Note: Machinery and Equipment: A term that describes the physical facilities available for production, including: the installation and service facilities, together with all other equipment designed or necessary for manufacturing purposes, regardless of the method of installation.  It also includes those items of furniture and fixtures necessary for the administration and proper operation of the enterprise. [see 14]

Note: Equipment: includes all machinery and other apparatuses or implements used in an operation or activity (all machinery is equipment, but all equipment is not necessarily machinery). [see 14]

Note: Equipment Classes: typical equipment classes include: production machinery; support equipment; motor control centers and switchgear; power wiring; process piping; foundations and structural supports; material handling and storage equipment; general plant equipment; plant and motor vehicles; laboratory and test equipment; office furniture, fixtures, and equipment; computer equipment; tools; special tooling; patterns and templates; construction in progress; special classes; and inventory. [see 14]

Note: Furniture: a particular type of equipment utilized in ancillary functions of an operation. It is designed to provide a convenient and efficient work location for personnel or necessary storage facilities. [see 14]

Note: Machinery: the term encompassing man-made mechanical devices, usually electrically powered, that are designed to create a product or in some manner alter the state of a material or partial product. [see 14]

Note: Trade Fixtures: Fixtures utilized for the purpose of carrying on a trade or business. In a retail operation, they are sometimes considered specialized furniture or fixtures designed to display products. [see 7.9.1.iv, 7.21.3]

 

CPV Articles

Professional Appraiser’s Perspective on Appraising Machinery and Equipment (Volume 60, Book 3, 2016)

 

Communiqué

October 1, 2017 – Communique 11

September 1, 2017 – Communiqué 10

April 3, 2017 – Communiqué 5

March 27, 2017 – Message to Members

Mandatory Clauses

See Limiting Conditions

Marijuana

See Cannabis

Mass Appraisals

CUSPAP 2018 Definition

The process of valuing a universe of properties as of a given date utilizing standard methodology, employing common data, and allowing for statistical testing. [see 2.47, 2.50, 3.1.1, 3.2.1, 3.3.1, 3.4.1, 5.4.6.iii, 16, 17]

 

CPV Articles

Transforming the Real Estate Industry Using Technology (Volume 59, Book 3, 2015)

Assessing condos using 3D GIS (Volume 58, Book 4, 2014)

Other Relevant Information

Automated Valuation Models

Property Valuation: Why is it important in today’s economy?

BUSI 344: Statistical and Computer Applications in Valuation

Measurement Practices

Professional Excellence Bulletin

Measurement Practices PEB

Appraising the Individual Condominium Housing Unit PEB

What if You Have Made a Mistake PEB

 

CPV Articles

How to measure and calculate residential square footage (Volume 53, Book 1, 2009)

 

Other ressources

Real Estate Council of Alberta – Guide to the Residential Measurement Standard in Alberta

Appraisal Institute – Reducing Appraiser Liability: Using the ANSI Residential Measuring Standards

 

Worth Knowing

Determining the size of a building may seem like the easiest step in preparing a building description, but it can be a formidable task for an appraiser who is not prepared for its inherent difficulties. The methods and techniques used to calculate building size vary regionally, differ among property types, and may reflect biases that significantly affect opinions of value. The appraiser must know the measurement techniques used in the area where the building is located as well as those used to describe properties elsewhere. Failure to apply measurement techniques and report building dimensions consistently within an assignment can impair the quality of the appraisal report.

Gross building area is usually calculated. Measurements taken from plans should be checked against actual building measurements because alterations and additions are often made after plans are prepared. The areas of attached porches, freestanding garages, and other minor buildings are always calculated separately.

No mandated Canadian standards exist for building measurement. A widely accepted measurement standard for residential properties is Square Footage – Method for Calculating: ANSI Z765-2003 by the National Association of Home Builders (NAHB) Research Centre with the American National Standards Institute (ANSI).

Office buildings present challenges for appraisers because they are measured differently in different regions. The Building Owners and Managers Association International (BOMA) has established a method for measuring office building floor area. This widely used method is described in BOMA’s publication Standard Method for Measuring Floor Area in Office Buildings, which is updated periodically.

For further details, see AIC’s Building Measurement Guidelines.

Misleading Advertising

CUSPAP 2018 Reference

Ethics Standard Rule 4.2.3

It is unethical for a member to knowingly act in a manner that is misleading;

Ethics Standard Comment 5.3 Misleading Advertising

5.3.1    A member must observe only the highest standards of objectivity and impartiality when advertising their professional services or referring to the Institute using advertising media for promotional or solicitation purposes including: print advertisements; leaflets; pamphlets; brochures; electronic media; and corporate, business, and/or personal web sites (e.g., LinkedIn, Facebook, Twitter, Instagram).

5.3.2    A Member may:

5.3.2.i. use advertising to solicit clients and business in a manner that does not offend the interests of the public and the profession and to inform prospective clients and the public of the availability of their professional services; and,

5.3.2.ii. use advertising to advise as to the range, nature and cost of their professional services.

5.3.2.iii. advertise their competence to perform, either directly or indirectly, in any report or advertising media.  

5.3.2.iv. include a University degree or other professional designations when advertising. 

5.3.2.v. include the name of the Institute or its designations to refer to a Member’s affiliation with the Institute when advertising. 

5.3.2.vi. advertise jointly with another Member.  

5.3.3    A Members must not:

5.3.3.i. use advertising media which is false, misleading, exaggerated, uses laudatory statements or superlatives to describe their services, or that is contrary to the public interest;  

5.3.3.ii. refer to or make use of the name of the Institute or its professional designations and trademarks in a misleading or deceptive manner; 

5.3.3.iii. refer to or make use of the name of the Institute or its professional designations in a manner that suggests that a business organization is a Member of the Institute and/or holds any professional designation; and/or  

5.3.3.iv. use the Institute logos, trademarks or identity in contravention of the AIC Logo and Guidelines. 

5.3.4    A Member must identify their designation or Membership status (AACI, CRA or AIC Candidate Member) in any advertising media for professional services.

5.3.5    A Member’s business entity that is wholly or partially owned or controlled by that Member must not solicit professional services in a manner that is misleading or otherwise contrary to the public interest, the profession, or the Standards.

5.3.6    Candidate Members must not [see 4.2.3, 4.2.4, 4.2.6]:

5.3.6.i. identify themselves as an “accredited appraiser” or a “Designated appraiser” or with any term/title that might be interpreted as a valuation designation; 

5.3.6.ii. use initials or abbreviations that might be interpreted as a valuation designation;  

5.3.6.iii. promote the Candidate Membership in such a way that it might be perceived as a valuation designation (e.g., CRA [or AACI] Candidate or Candidate CRA [or AACI] or any combination or variation thereof). 

5.3.7    AIC Candidates Members must identify themselves as:

5.3.7.i. “Candidate Member of the Appraisal Institute of Canada”; or 

5.3.7.ii. “Candidate Member of the AIC”; or 

5.3.7.iii. “AIC Candidate Member”. [see 4.2.6] 

5.3.8    A jurisdictional exception may require AIC Candidate Members to identify themselves in an alternative manner (e.g., in Alberta).

5.3.9    In any report or advertising media (excluding signature blocks only) an AIC Candidate Member must identify:

5.3.9.i. that they are working under the supervision of a Designated Member of the AIC;

5.3.9.ii. the name of the supervisor and his/her designation. [see 2.14]

N
Non-fee

CUSPAP 2018 Definition

A Member who renders professional services exclusively for the internal use of his/her employer and whose professional services reports are kept in-house and are not provided to an outside party, although a fee may be paid by that outside party to cover the cost of the preparation of the report.  

Notwithstanding the above, government and crown corporation employees may register as non-fee appraisers, (including those who are employed by one government department but provide professional services to other governments, government departments or government-owned corporations), whether or not a fee is paid for the services provided. [see , 16, 17, 18.32.3]

Note 1: Notwithstanding above, a Member who is temporarily unemployed or holding employment that does not relate to professional services may register as a non-fee appraiser for the period during which he/she is not providing any professional services.

P
Professional Assistance

CUSPAP 2018 Definition

2.46       PROFESSIONAL ASSISTANCE: Support to the Member that has a direct and significant bearing on the outcome of an assignment including property inspections, analysis, and development of opinions and estimates. [see 2.59, 7.26, 18.32]


CUSPAP 2018 Reference

7.26.1          By signing a report, a Member assumes responsibility for the report, including any Professional Assistance, unless limitations to responsibility have been outlined in the certification.

7.26.2          A Member may rely on Professional Assistance provided by a Member who is:

7.26.2.i.    a Member in good standing with the AIC; and

7.26.2.ii.  competent to perform the Professional Assistance according to the Reasonable Appraiser [see 2.51]; and

7.26.2.iii.not a Student, Associate, Honorary, or Retired Member; and

7.26.2.iv. if a Candidate Member, properly registered with the Member in the Candidate Registry.

7.26.3          A Member may rely on Professional Assistance provided by a non-member in two instances:

7.26.3.i.    inspections which the Member would be qualified and competent to perform themselves and only if the non-member:

  • is an employee of an organization approved by the AIC; or
  • is a member in good standing of a Professional Association/Organization approved by the AIC; and
  • if required by provincial and/or national legislation/regulation, is licensed/certified to perform inspections; and
  • is a reputable and credible professional/tradesperson and competent to perform the inspection; and
  • has a minimum of ten years of experience relevant to inspection; or has education equivalent to or greater than UBC BUSI 400 Residential Property Analysis, Laval GUI-2103: Real estate and sustainable developmentor Seneca RPA 306: Construction and Cost Techniques and
  • carries liability insurance for errors and omissions that is appropriate and adequate for inspection; and
  • is properly registered with the Member.

7.26.3.ii.  services (e.g. Land Planning, Engineering, Surveying, Accounting) not included in definition 2.48 only if the non-member:

  • is a member in good standing of a Professional Association/Organization; and
  • if required by provincial and/or national legislation/regulation, is licensed/certified to perform the Professional Assistance being provided; and
  • is a reputable and credible professional/tradesperson and competent to perform the Professional Assistance being provided; and
  • carries liability insurance for errors and omissions that is appropriate and adequate for the scope and type of the Professional Assistance being provided.

7.26.4          A Member is responsible for ensuring that any individual providing Professional Assistance, including inspections, in the preparation of a report meets the requirements outlined in sections 7.26.2and 7.26.3.

7.26.5          A Member must disclose in the certification of the report:

7.26.5.i.    all individuals who provided Professional Assistance; and

7.26.5.ii.  the extent of Professional Assistance.

7.26.6          An Extraordinary Assumption and/or a Limiting Condition regarding the Member’s reliance upon Professional Assistance provided by a non-member must be included in the certification of a report.

7.26.7          A Member may rely on Clerical Assistance from Members and/or non-members and is not required to disclose Clerical Assistance in the certification of a report.

7.26.8          If the certification bears the signature of one or more Members as joint authors, then all signatories assume responsibility for the entire contents of the report unless limitations have been outlined in the certification. A Member may only co-sign a report with an AIC Member who is in good standing and properly insured under the Professional Liability Insurance Program.  

7.26.9          Candidate Members must be properly registered in the Candidate Registry by a Designated Member prior to co-signing reports or providing professional assistance.  

7.26.10      A CRA-designated Member working toward the achievement of the AACI designation is not required to be registered in AIC’s Candidate Co-signing Registry. 

7.26.11      Co-signing Members must include both signatures for reports, progress inspection reports, reliance letters or any related assignment report that would require a co-signature.  If one signature is not included, there must be prior written authorization from a co-signer on a per assignment basis only and not a blanket delegation. 

7.26.12      Another person with authorization may sign the certifying Member’s name, unless contrary to the law of the relevant jurisdiction.  Delegation must be provided in writing on a per assignment basis only and not a blanket delegation.

Definition 2.9 Clerical Assistance:

Clerical assistance involves support to the Member in the preparation of a report but does not include any assistance that would be properly classified as Professional Assistance.  Clerical assistance does not extend to inspection, selection of market data or assistance that leads to the analyses, opinions and conclusions in the report.  Examples of clerical assistance include: data collection; collating reports; preparing appendices, maps and sketches; spelling and grammar checking.

 

Professional Excellence Bulletins

Insurance Coverage and Stand-Alone Home Inspections PEB

 

Communiqué

Did You Know? What the mid-cycle change to CUSPAP 2018 means… (August 4, 2018)

R
Reliance Letters

CUSPAP 2018 Definition

Letter of Reliance providing authorization for a different client or intended user to rely on a report [see 18.6, 19]

 

CUSPAP 2018 Reference

Real Property Appraisal Standard Comment 7.7.2 Effective Date

7.7.2 Current Value Opinion refers to an effective date contemporaneous with the date of the report, at the time of inspection or, at some other date within a reasonably short period of time from the date of inspection when market conditions have not, or are not expected to have, changed.

Practice Note 18.5.5 Report

18.5.5.vii. A reliance letter to third parties, if appropriate, that must outline the terms of reference of the draft and the limitations.

Practice Note 18.6 Client and Intender User

18.6.1 The client/Member relationship lasts at least until the completion of the intended use of the original appraisal or release is granted by the original client. Prior to accepting the assignment from a second client, the Member must confirm that the intended use of the original appraisal has been completed.

18.6.1.i. The steps taken to ascertain that a conflict of interest does not exist must be outlined in the Certification.

18.6.3 A Member is frequently asked to authorize the use of a report by an unintended third party, i.e., a party other than the one of the  intended user(s)for the original report.

18.6.3.i This most often takes the form of a lender requesting authorization to use the appraisal for underwriting purposes, when the report had originally been prepared for the owner and/or a different lender.

18.6.4 A Member can permit the use of  a report by an unintended third party.  A Member should ensure that this new party is mad aware of the dates associated with the original report to ensure that the value, opinion or conclusion only applies as of the effective date, any special consideration and assumptions, client terms of reference, etc., that entered into the value conclusion.

18.6.5 The older the date of the report, the less relevant the report can be to a third party. A Member should judge the relevancy of the report and decline authorization if the report is not appropriate for the third party use. It should be clear to the prospective user that there may have been significant changes to the:

18.6.5.i property,

18.6.5.ii market conditions ; or

18.6.5.iii some other factor since the time of report that would have a material impact on the conclusion.

18.6.6 When faced with a request to assist the third party, a Member has the choice of:

18.6.5.i writing a reliance letter; (sample found here: https://www.aicanada.ca/forms-templates/ )

18.6.5.ii completing a new report for the new intended user (provided the Member is not in a conflict of interest), or 18.6.5.iii some other factor since the time of report that would have a material impact on the conclusion.

18.6.5.iii. declining to authorize reliance by a third party.

18.6.7 Providing a reliance letter to a third party continues to carry the ability to attract a claim. By formally acknowledging the right of a third party to rely on the report, a Member will be extending the right to make a claim as a result of reliance on the report.

18.6.8 Providing a Reliance Letter is at the sole and absolute discretion of the Member. f a Member issues a reliance letter, it may be subject to a number of additional caveats and fees.

18.6.9 The Member should be aware of the implications of providing a reliance letter including, the additional liability being accepted. A Member should confirm whether the assumptions and facts of the report (e.g. building condition, tenant profile, vacancies, rents being achieved, etc.) has not materially changed as it could be misleading and open a Member up to potential liability.

A sample Reliance Letter available here: https://www.aicanada.ca/forms-templates/

 

Professional Excellence Bulletin

Reliance Letters PEB

 

CPV Articles

Professional Practice Matters: Stay Out of Trouble (Part II) (Volume 61, Book 2, 2017)

Reliance letters: consider the risks (Volume 60, Book 3, 2016)

 

Communiqué

Did You Know? Reliance letters (August 2, 2017)

Relocation Form

For relocation appraisals, the AIC will be working with the Canadian Employee Relocation Council (CERC). There is no 2018 CERC form, so a member may use the most recent CERC forms and take any steps necessary to ensure the completed form is CUSPAP compliant. Members should confirm with their clients as some relocation companies accept the 0518 Full Form.

Report Form

CUSPAP 2018 Definition

Any communication, written or oral, of a professional service that is transmitted to the client or intended user as a result of an assignment. [see 7.1, 9.1, 13.1, 17.1, 17.2, 18.5]

Note 1: These Standards do not dictate the format or style of reports. The substantive content of a report determines its compliance with CUSPAP. When using a form or document created or copyrighted by the AIC, a Member must use the most recent version.

Note 2: Report types may include form reports, short narrative reports, or comprehensive reports in complete or draft formats. Letters of opinion are not acceptable report types.

Reserve Fund Study

CUSPAP 2018 Definition

A budget planning tool which identifies the current status of a Reserve Fund and a Funding Plan to offset the anticipated expenditures for the major repairs and replacement of components, elements or assets, for which a corporation or association is responsible. The Reserve Study consists of two parts: the Physical Analysis and the Financial Analysis Reserve Fund Study. Depreciation Study, Depreciation Reports, Contingency Reserves (“Reserve Fund Study”) are synonyms for the purpose of this standard. [see 12, 13].

 

Professional Excellence Bulletin

Reserve Fund Studies PEB

Retrospective Appraisals

CUSPAP 2018 Reference

Real Property Appraisal Standard Rule 6.2.6

In the report the Member must identify the effective date of the Member’s analyses, opinions and conclusions, and identify whether the opinion is current, retrospective, prospective, or an update. [see 7.7]

Real Property Standard Comment 7.7 Effective Date

7.7.3    Retrospective Value Opinion [see 18.11, 18.23.4] refers to an effective date prior to the date of the report. The use of clear language and consistent terminology in a retrospective report (i.e. past tense throughout) is necessary so that the reader is not misled and clearly understands market conditions as of the retrospective effective date.

             Extraordinary Assumptions and/or Extraordinary Limiting Conditions must be clearly stated in the report citing the conditions under which the retrospective value or opinion was developed.

Real Property Standard Comment 7.8 Date of Report

7.8.1    The date of the report refers to the date of completion of the report. Where retrospective or prospective, the date of the report and the effective date of the appraisal must be included in tandem throughout, to provide the reader with a clear understanding of any distinction in conditions between the two dates.

Practice Note 18.11 Retrospective Value Opinion

18.11.1    A retrospective appraisal is complicated by the fact that the Member already knows what occurred in the market after the effective date. Use of direct excerpts from reports prepared at the retrospective effective date can help the Member and the reader better understand market conditions as of the retrospective effective date.

18.11.2    In preparing a retrospective valuation, hindsight or after-the-fact evidence should not be used unless the subsequent data is consistent with data as of the effective date.

Practice Note 18.23.4

A Member must personally inspect the subject property or identify an extraordinary limiting condition if he/she did not. There are situations where interior and/or exterior inspections are not possible as of the effective date of the appraisal. For example, inspections are not physically possible:

18.23.4.i. where improvements have been destroyed, removed, or not yet built;

18.23.4.ii. if performing a retrospective or prospective appraisal; or

18.23.4.iii. access is denied or not possible.

 

Case Study

Case Summary 12: In the originating complaint, the Complainant questioned the accuracy of some comparable information included in a valuation report of an income producing property. The main concerns with the report were that the member failed to utilize historical subject revenue and expense information available from owner; the income approach was unreasonably excluded and the nature and substance of adjustments in the Direct Comparison Approach were questionable. In addition a retrospective value was given in the report with virtually no supporting market information. [posted April 9, 2009]

S
Sales History Data

CUSPAP 2018 Reference

Real Property Appraisal Standard Rule 6.2.21

In the report the Member must analyze and comment on

6.2.21.i. all Agreement for Sale, Option, or Listing of the property, subject to 7.22, and

6.2.21.ii all prior sales of the property, subject to 7.22. [see 18.31]

Real Property Appraisal Standard Comment 7.22

7.22.1  Any agreement for sale, option, or listing of the property that occurred within one year prior to the effective date of the report, including any pending/current Contract of Purchase and Sale or lease must be analyzed and reported if such information is available to the Member in the normal course of business.

7.22.2  Any sale of the subject property that occurred within three years prior to the effective date of the report must be analyzed and reported if such information is available as at the date of valuation to the Member in the normal course of business,

7.22.3  Any impact on the price paid for the subject property or any effect on value under known undue stimulus must be reported. 

Practice Note 18.31   Agreement for Sale/Option/Listing/Prior Sales [see 6.2.21, 14.2.20]

18.31.1    Agreements for Sale can be obtained from a realtor or financial institution. Lenders typically obtain Agreements for Sale to assist in underwriting a loan. Where a Member are unable to obtain information directly from a realtor, they should contact their client, and/or the AMC who has commissioned the appraisal on behalf of their client, advise them of the situation, and make a request for them to coordinate with their client to obtain the required information.

18.31.2    If the data or information is unobtainable (i.e. for confidentiality or privacy reasons), the report should include a commentary on the efforts taken by a Member to obtain the information., If information is available to and accessible by the as part of the normal course of business, a Member’s business decision not to purchase or access the data would not fall under the “normal course of business”.

18.31.3    Member due diligence in the research and analysis of the sales and listing history of the subject property is an important part of the valuation process and can assist in fraud prevention.  Although access to data can be costly, a Member must follow the “normal course of business” and the Reasonable Appraiser test.

Box 18.31 Agreement for Sale/Option/Listing/Prior Sales Sample Entries

In the analysis of the sales history of the subject property, a Member must exercise due diligence, but this need not necessarily include a search of the public record. The necessity for a search of the public record will depend on the nature and scope of the assignment, according to the reasonable appraiser standard. For example, for residential form appraisals for mortgage purposes it may not be necessary to search public records where the sales history for the subject is available elsewhere. For the purpose of this Practice Note, Public Record means Land Title office/Register of Deeds.

The owner report that the subject property was not under a current agreement or option and was not offered for sale on the open market at the effective date. According to public records, the subject property had not changed hands during the three years prior to the effective date.

The property being appraised is known to be the subject of a pending purchase and sale agreement, but the appraiser was unable to obtain the terms of the agreement. The current owner confirmed that the property is under agreement, but declined to disclose the terms of the agreement or to discuss the nature of the agreement.

·         The subject property is currently offered for sale at a listing price of $xxx,xxx. A copy of the listing agreement with March Smith, real estate broker, is included in the addendum to this report

·         The subject property was sold by John Jones to the current owner on June 1, 20xx, for a reported price of $xxx,xxx. The parties to the transaction have affirmed that the seller received all cash and that the reported price was unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. This sale is analyzed in the Direct Comparison Approach section of the appraisal report.

       According to the public records, there have been no other transfers of the subject property within the past three years.

·         The subject property was sold by John Jones to the current owner on June 1, 20xx, for an unknown price. The appraiser attempted to obtain the purchase price and other terms of the transaction without success. The parties to the transaction declined to discuss the terms or conditions of the sale.

 

Professional Excellence Bulletin

Data Verification PEB

Protect Yourself When Doing Sales Data Consulting PEB

Information Sources PEB

 

CPV Articles

Time Adjustments: Why the average MLS® selling price should not be taken at face value (Volume 61, Book 2, 2017)

Crossing the Data Chasm in CRE: Having the Right Tools is Just the Beginning (Volume 61, Book 1, 2017)

The Application of Multivariate Regression Analysis in Expropriation Matters (Volume 57, Book 3, 2013)

What is the contributory value of a high-end swimming pool, cabana and landscaping? (Volume 55, Book 2, 2011)

Scope of Work

CUSPAP 2018 Definition

The type and extent of an inspection, research and analysis required, any limitations, or other terms to fulfill the intended use of an assignment. The scope of work for an assignment is driven by the client’s terms of reference and the Member’s compliance to CUSPAP. [see , 6.2.4, 7.5, 7.10.3, 7.27, 8.1.1, 8.2.6, 8.2.8, 10.1.7, 12.2.8, 14.2.4, 16.2.3, 17.1.2]

 

CUSPAP 2018 Reference

Real Property Appraisal Standard Rule 6.2.4

In the report the Member must define the scope of work necessary to complete the assignment; [see 7.5. 7.10.3, 7.27]

Real Property Appraisal Standard Comment 7.5 Scope of Work

7.5.1 Scope of work refers to the amount and type of information researched and the analysis applied and includes;

7.5.1.i inspection (inspection of the subject property is mandatory, subject to any Extraordinary Limiting Condition); [18.23. 18.25, 18.26]

7.5.1.ii research into physical, legal, social, political, economic or other factors that could affect the property; [see 7.15]

7.5.1.iii data research and verification, inspection of comparable data; [see 7.15.3]

7.5.1.iv analysis applied; and

7.5.1.v any limitations to the assignment.

7.5.2 The scope of work applied must be sufficient to result in analyses, opinions and conclusions that are credible in the context of the intended use of the report. The Member has the burden of proof to support the scope of work decision and the level of information included in a report.

Practice Note 18.10.1

The scope of work is a fundamental aspect of a review assignment since it determines the nature and depth of the research, analyses, opinions and conclusions.  There is no standard scope of work for a review due to the varying requirements of users. It is necessary to agree with the client on the scope of the assignment prior to undertaking the work.

 

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Scope and Limiting Conditions PEB

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Before You Sign the Report (Volume 55, Book 1, 2011)

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Work Product Review

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Work-file

CUSPAP 2018 Definition

Documentation necessary to support a Member’s analyses, opinions and conclusions. [see 4.2.9, 5.7]

 

CUSPAP 2018 Reference

Ethics Standard Rule 4.2.9

It is unethical for a Member to fail to create a work-file for each assignment [5.5. 5.7];

Ethics Standard Rule Comment 5.7 Records

5.7.1    A Member must prepare a work-file in hard copy and/or electronically, for each assignment. The work-file must include:

5.7.1.i. the name of the client and intended users;

5.7.2.ii. true copies of any written reports including drafts documents on any type of media;

5.7.1.iii. summaries of any oral reports (or court transcripts) sufficient to meet the requirements of the applicable Standard and the “Reasonable Appraiser” test;

5.7.1.iv.  a signed and dated certification; and

5.7.1.v.  all other data, information and documentation necessary to support the Member’s opinions, analysis and conclusions and to show compliance with this rule and all other applicable Standards, or references to the location(s) of such other documentation.

5.7.2    A Member must (subject to 5.7.4) retain the work-file and have custody of the work-file, or make appropriate work-file retention, access and retrieval arrangements with the party having custody of the work-file for a period of at least, whichever period expires last:

5.7.2.i. seven (7) years after preparation or

5.7.2.ii. two (2) years after final disposition of any judicial proceeding in which testimony was given or any professional liability insurance proceeding has taken place.

5.7.3    If a Member is unable to retain a copy of the work-file, whether by reason of an employer’s internal rules or by change of employer, all reasonable steps must be taken by the Member to ensure the availability of such reports and work-files when requested.

5.7.4    Members should obtain written commitment from employers that reports and work-files will be made available when required.

5.7.5    A photocopy or an electronic copy of the entire written professional services sent or delivered to a client satisfies the requirement of a true copy. The industry standard medium for electronic storage would be a PDF or equivalent and not within office or on-line appraisal software.

5.7.6    Care should be exercised in the selection of the form, style, and type of medium for written records, which may be handwritten and informal, to ensure they are retrievable by the Member throughout the prescribed record retention period.

5.7.7    A work-file must be in existence prior to and contemporaneous with the issuance of a written or oral report. If a work-file cannot be provided prior to providing an oral report, a written summary of the oral report must be added to the work-file within a reasonable time.

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Zoning (Land Use Controls)

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Zoning