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This Quick Reference guide has been created to address issues with which AIC Members are most often concerned. The CUSPAP Quick Reference guide and other reference documents found on the AIC website are provided to assist Members to find answers. Members can always contact AIC for more detailed advice.

 


  • Definition 2.26 Extraordinary Assumption

    An assumption, directly related to a specific assignment, which, if found to be false, could materially alter the Member’s opinions or conclusions.

    Practice Note 16.29 Extraordinary Assumptions

    16.29.2.ii.         Extraordinary Assumptions (Hypothetical Conditions):

    • repairs or improvements have been completed;
    • execution of pending lease;
    • rezoning has been achieved;
    • an expropriation scheme is disregarded;
    • a prospective appraisal; [see 7.6]
    • municipal sanitary sewer when none is available;
    • aggregate (retail) or bulk (wholesale) marketing of units.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-As-if-complete-appraisals-EN.pdf

  • Definition 2.13 Client

    The client is the individual or organization for whom the Member renders professional services.  The client is typically the intended user of the assignment.

    Definition 2.38 Intended User

    The client and any other party, as identified by name, as a user of the professional services of the Member, based on communication between the Member and the client.

    Ethics Standard Rule:

    4.3.10: It is unethical for a member to disclose results of an assignment to anyone but the client, except with the client’s permission;

    Ethic Standard Comment:

     5.10 Disclosure [see 4.3.10, 16.6]

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

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

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

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

    5.10.2.iii an authorized Committee of the Institute.

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

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

    5.10.3.ii third parties, when the Member is required to do so by due process of law; or an authorized Committee of the Institute.

    5.10.4 When serving the Institute in any capacity, a Member must not disclose or use confidential information obtained in connection with such service.

    5.10.5 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.

    5.10.6 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 have 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;

    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 professional services. The client is typically the intended user of the assignment. It does not matter who pays for the work.

    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.

    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.

    Practice Note:

    16.12 Client and Intended User 

    16.12.1 A statement similar to the following may be appropriate:

    16.12.1.i “This report is intended for use only by (identify client name) and (identify any other intended users as acknowledged and confirmed by the client, by name).

    The intended user shall be identified by name, which can include an identifiable entity. Examples of acceptable intended user names:

    • “Lender ABC”;
    • “Solicitor D”
    • “Condominium Corporation E”
    • “Strata Corporation F”
    • Agency (Name)
    • City of (Name)
    • Corporation (Name)
    • “This report is intended for the use of those specifically identified and all other use is strictly unauthorized. The appraiser is not liable for any unauthorized use of this report.”

    16.12.1.ii Where the assignment is ordered by an Appraisal Management Company / Mortgage Broker, the report may identify the parties ordering the report in the “Requested By” section of the report to make it clear to the reader that the Appraisal Management Company / Mortgage Broker is neither the client nor the intended user. The client shall be identified as Lending Institution, etc. Name and the Intended User shall be identified as Lending Institution Name, and no other intended user.

    16.12.1.iii Types of intended users such as “To be determined”, “To be confirmed”, “John Doe and his lenders” or other similar references are not acceptable types of intended users. The member is cautioned that the use of vague or undefined intended user names or types is not permitted. This is not intended to preclude loan securitization or institutional underwriting; however, these users must be clearly identified by name.

    16.12.1.iv The Member is cautioned that the use of vague or undefined intended user names or types are not permitted.

    16.12.2 Prior to accepting the assignment, a Member must identify the client and intended user, using care not to violate confidentiality requirements.

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

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

    16.12.4 Members are frequently asked to authorize the use of a report by an unintended third party, i.e., a party other than the one(s) intended for the original report.

    16.12.4.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.

    16.12.5 A report transferred to a third party continues to carry with it the pre-existing ability to attract a claim. By formally acknowledging the right of a third party to rely on the report, you will be extending the right to make a claim as a result of reliance on the report as well as opening up additional possibilities for a claim from the original client, such as a breach of confidentiality.

    16.12.6 In general terms, the Member can permit the use of a report by an unintended third party, however, it is important to 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. A good practice would be to also note them in the reliance letter.

    16.12.7 The older the date of the report, the less relevant the report can be to a third party. It is not unreasonable for the Member to judge the relevancy of the report, considering the passage of time and based on the circumstances at hand, and to decline authorization. It should be clear to the prospective user that there may have been significant changes to the:

    16.12.7.i property,

    16.12.7.ii market conditions

    16.12.7.iii or other since the time of report that would have a material impact on the conclusion.

    16.12.8 When faced with a request to assist the third party, the Member has the choice of writing a reliance letter, completing a new report for the new intended user (provided the Member is not in a conflict of interest), or declining to authorize reliance by a third party.

    16.12.9 Providing a Reliance Letter is at the sole and absolute discretion of the Member and they may choose not to issue one or, if they do issue one, make it subject to a number of additional caveats and, possibly, subject to the payment of an additional fee. The Member should be aware of the implications of providing a reliance letter including, among other things, the additional liability being accepted. Additionally, the Member is strongly advised to 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 the Member to potential liability.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-Letters-of-engagement-EN.pdf

    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:  http://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. 

  • Ethic Standard Rule: 4.3.10:

    It is unethical for a member to disclose results of an assignment to anyone but the client, except with the client’s permission;

    Definition: 2.13: Client: 

    The client is the individual or organization for whom the Member renders professional services. The client is typically the intended user of the assignment.

    Definition: 2.15: Confidential Information: 

    Information, not otherwise publicly available, provided in the trust that the recipient will not disclose it to a third party.

    Ethic Standard Comment: 5.10 Disclosure:

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

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

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

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

    5.10.2.iii an authorized Committee of the Institute.

    Practice Notes

    16.7.6 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.

    16.7.6.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.

    16.7.6.ii Even if this situation is not a problem, the owner may have previously provided confidential information that the owner may not want divulged to the new owner. 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 before proceeding with the second appraisal.

  • Ethics Standard Rule

    4.3.11 It is unethical for a member to fail to reveal any known conflict of interest;

    Ethics Standard Comment 5.11 Conflict

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

    5.11.1.i.    any personal interest in the subject matter,

    5.11.1.ii.           any party related to the assignment, or

    5.11.1.iii.          the outcome of the assignment.

    5.11.2  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:

    5.11.2.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 16.7.8]; and

    5.11.2.ii.   is fully and accurately revealed in the report. [see 16.7.8]

    5.11.3  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. [see 16.7.9]

    5.11.4  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 16.7.6] 

    Practice Note 16.7     Conflict

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

    16.7.2  Recognizing a conflict does not eliminate it.

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

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

    16.7.5  In dealing with a “conflict of obligation”, the most obvious problem is when a Members 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”.

    16.7.5.i.    Such events may include joint instructions from parties involved in a matrimonial dispute that commences in a civilized manner, but subsequently escalates. In this instance, Members can find themselves not only attracting criticism from both partners, but find themselves 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 Members and the profession in general.

    16.7.5.ii.           In such instances, the only defense is a preventive one, with the Members advising the parties to get separate appraisals and, failing this, the Members should consider declining the instructions.

    16.7.5.iii.          This is one of the least complicated of “conflicts of obligation”; others can be far more complicated.

    16.7.6  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.

    16.7.6.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.

    16.7.6.ii.           Even if this situation is not a problem, the owner may have previously provided confidential information that the owner may not want divulged to the new owner. 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 before proceeding with the second appraisal.

    16.7.7  A conflicting interest can arise, for example, if the Member proceeds, during the period that commences at the time the Member is contacted concerning an assignment and expires a reasonable length of time after the completion of such assignment, 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:

    16.7.7.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

    16.7.7.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

    16.7.7.iii.  at the time of such disclosure, the Member gives the client the right to terminate the appraisal assignment without payment of any fee or other charge; and

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

    16.7.8  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

    16.7.9  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.

    16.7.10   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.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-Conflict-of-interest-EN.pdf

  • Definition 2.26 Extraordinary Assumption

    An assumption, directly related to a specific assignment, which, if found to be false, could materially alter the Member’s opinions or conclusions.

    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);

    Practice Note 16.29 Extraordinary Assumptions

    16.29.1 Hypothetical Conditions can apply whether the assignment is for the purpose of developing a retrospective, current, prospective, or updated value opinion. 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).  For every Hypothetical Condition, an Extraordinary Assumption is required in the report.

    16.29.2   Examples of extraordinary assumptions and hypothetical conditions:

    16.29.2.i.          Extraordinary Assumptions:

    • an absence of contamination where such contamination is probable;
    • the presence of municipal sanitary sewer where unknown or uncertain;
    • assumed zoning where the zoning is unknown or uncertain;
    • assumed condition where an interior and/or exterior inspection is not possible. [see 16.27]

    16.29.2.ii.         Extraordinary Assumptions (Hypothetical Conditions):

    • repairs or improvements have been completed;
    • execution of pending lease;
    • rezoning has been achieved;
    • an expropriation scheme is disregarded;
    • a prospective appraisal; [see 7.6]
    • municipal sanitary sewer when none is available;
    • aggregate (retail) or bulk (wholesale) marketing of units.

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

    16.29.4     It is strongly advised that the Member provide the entirety of any extraordinary assumption or extraordinary limiting condition below the opinion(s) or conclusion(s) within the report, apart from in the certification.  This, however, may not be practical when there are significant numbers of extraordinary assumptions or extraordinary limiting conditions (e.g. three extraordinary assumptions in a report with all three value approaches would lead to quoting the extraordinary assumption a potential total of 18 times – the letter of transmittal, each of the three approaches conclusions, the reconciliation and the certification); in such a case, it may be more 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; this is the preferable option with respect to the certification.

    16.29.4.i.          An example of referencing the subject matter within a report include:

    • When discussing soil conditions, if it is an extraordinary assumption of the report that the soils can support the intended development, simply stating in the “Soil Conditions” section of a report that “the soils can support the intended development” without an extraordinary assumption can be misleading. Therefore, it would be more appropriate to say “it is an extraordinary assumption of this report that the soils can support the intended development”.

    16.29.5    Theoretically, all assumptions, if found to be false, would alter a Member’s opinions and conclusions.  Therefore, 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.  That is, 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. 

    16.29.5.i.          Examples of these differences would include:

    • Tax records 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 you measure the property to be 7,000 sq.ft. it likely will require a complete revision of the agreement; in this situation it would be prudent to invoke an extraordinary assumption as to what size is being adopted in the report.
    • You are aware that the subject property, a vacant and unimproved industrial property, is located in an area where soils require extensive site preparation work. If your 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 you are informed that your 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 16.30 Extraordinary Limiting Conditions [see 6.2.9]

    16.30.1 Examples of extraordinary limiting conditions:

    16.30.1.i Extraordinary Limiting Conditions:

    • exclusion of a relevant valuation approach; [see 6.2.15]
    • no interior inspection of the subject improvements; [see 16.27.2]
    • no title search; [see 7.8.1.v]
    • no liability insurance coverage. [see 4.3.1, 5.8]

    16.30.1.ii Certain conditions are unacceptable in any assignment where they:

    • compromise a Member’s impartiality, objectivity or independence;
    • 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;
    • limit the contents of a report that results in the report being misleading.

    16.30.2 Assignment limitations affect the level of risk accepted by each party to an assignment. In some assignments, it might be reasonable to apply an Extraordinary Limiting Condition to recognize assignment restrictions, whereas in other assignments, the use of the same limiting condition may not be acceptable.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-As-if-complete-appraisals-EN.pdf

                    http://www.aicanada.ca/wp-content/uploads/PEB-Partially-completed-buildings-EN.pdf

  • Ethics Standard Rule

    4.3.9 It is unethical for a Member to fail to create a work-file for each assignment;

    Ethics Standard Rule Comment 5.9 Records

    5.9.2    A Member must (subject to 5.9.4) 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:

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

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

    5.9.3    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.

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

    5.9.5    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. Industry standard medium for electronic storage would be a PDF or equivalent and not within office or on-line appraisal software.

    5.9.6    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.

  • Definition 2.33 Highest and Best Use

    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.

    Real Property Appraisal Standard Rule

    6.2.13 In the report the Member must define, analyze and resolve the highest and best use;

    Real Property Appraisal Standard Comment 7.13 Highest and Best Use

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

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

    7.1.3.3 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 provided with the level of depth and detail required in relation with its significance to the appraisal, and based on the relevant legal, physical and economic factors. [see 7.13.4]

    7.13.4 As land is usually appraised as though vacant and available for development to its highest and best use, opinions are required both as to:

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

    7.13.4.ii the property, as improved.

    Practice Note 16.32 Highest and Best Use

    16.32.1    The highest and best use of a property is an economic concept that measures the interaction of four criteria:

    16.32.1.i.          legal permissibility,

    16.32.1.ii.         physical possibility,

    16.32.1.iii.        financial feasibility,

    16.32.1.iv.        and maximum profitability.

    16.32.2    Estimating the highest and best use of a property is a critical appraisal component that provides the valuation context within which market participants and Members select comparable market information.

    16.32.3    A Member considers highest and best use of the property “as if vacant separately from the highest and best use of the property “as improved”. This is because the highest and best use 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 highest and best use of the site.

    16.32.4    Highest and best use 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.

    16.32.5    If for valid reason, as explained in the report (e.g., rent review, value in use, insurance coverage,) a highest and best use is irrelevant; no Extraordinary Limiting Condition is required.

    16.32.6   One of the most common issues brought before an Adjudicating Hearing Panel are complaints against CRA Members who complete appraisal, review or consulting assignments on assignments beyond the scope of their CRA designation. In determining the scope of practice for a CRA Member undertaking an assignment, the test lies in the highest and best use (HBU) – actual or assumed – of the property being appraised. [see 5.4.19]

    16.32.7   In the context of a professional practice complaint, ethical violations are subject to investigation and sanctions under the AIC disciplinary process and in accordance with AIC Consolidated Regulations.   

    16.32.8   Holding a designation from another professional organization DOES NOT allow Members to complete assignments that are not permitted under CUSPAP, nor does it allow Members to drop their AIC designation to complete such assignments. [see 5.5]

    16.32.9   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.

    IS IT WITHIN THE SCOPE OF MY DESIGNATION

    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 Error! Reference source not found.]  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).

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-Scope-and-Limiting-Conditions-EN.pdf

  • Definition 2.34 Hypothetical Condition:

    That which is contrary to what exists, but is supposed to exist for the purpose of analysis. A Hypothetical Condition requires there to be an Extraordinary Assumption in the report.

    Real Property Appraisal Standard Rule

    6.2.10 In the report the Member must identify any hypothetical conditions;

    Real Property Appraisal Standard Comment 7.10 Hypothetical Conditions

    7.10.1 Hypothetical Conditions may be used when they are required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison. Common hypothetical conditions include, among others, proposed improvements, prospective appraisals and contaminated properties.

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

    7.10.2.i plans, specifications, and/or other documents sufficient to identify the scope and character of the proposed improvements;

    7.10.2.ii evidence indicating the probable time of completion of the proposed improvements; and

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

    7.10.3 A recertification of value does not change the effective date of the appraisal. [see 2.59]

    7.10.4 For every Hypothetical Condition, an Extraordinary Assumption is required in the report. [see 7.9.1]

    7.10.5 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:

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

    7.10.5.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;

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

    7.10.5.iv the appraisal does not consider unforeseeable events that could alter the value conclusion;

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

    7.10.6 Appraisals for expropriation can incur Hypothetical Conditions, and may require the Member to invoke the Jurisdictional Exception protocol. [see 2.42]

    7.10.7 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.

    7.10.8 An analysis based on a Hypothetical Condition must result in a credible analysis and must not result in a report that is misleading.

    Practice Note 16.29 Extraordinary Assumptions

    16.29.2.ii. Extraordinary Assumptions (Hypothetical Conditions):

    • repairs or improvements have been completed;
    • execution of pending lease;
    • rezoning has been achieved;
    • an expropriation scheme is disregarded;
    • a prospective appraisal;
    • municipal sanitary sewer when none is available;
    • aggregate (retail) or bulk (wholesale) marketing of units.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-As-if-complete-appraisals-EN.pdf

    http://www.aicanada.ca/wp-content/uploads/PEB-Partially-completed-buildings-EN.pdf

  • Ethics Standard Rule 4.3.3

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

    Ethics Standard Comment 5.4 Misleading Advertising

    5.4.1    Members must observe only the highest standards of objectivity and impartiality when using advertising media, including but not limited to, an advertisement, leaflet, pamphlet, brochure, electronic media, or other material used for promotional or solicitation purposes (“advertising media”), including corporate, business and personal web sites (e.g., LinkedIn, Facebook, Twitter, Instagram).

    5.4.2    Members may use advertising media in the solicitation of clients and business in a manner that does not offend the interests of the public and the profession.

    5.4.3    Members may use advertising media to:

    5.4.3.i.    inform prospective clients and the public of the availability of their professional services; and, 

    5.4.3.ii.   advise such parties as to the range, nature and cost of such professional services. 

    5.4.4    Members must avoid advertising media which is:

    5.4.4.i.    false,

    5.4.4.ii.   misleading,

    5.4.4.iii.  exaggerated,

    5.4.4.iv.   uses laudatory statements or superlatives to describe their services,

    5.4.4.v.    contrary to the public interest.

    5.4.5    AIC Members must identify their designation or Membership status (AACI, CRA or AIC Candidate Member) in any advertising media for professional services. [see 5.4]

    5.4.6    A Member may advertise competence to perform, either directly or indirectly, in any report or advertising media.  A Member may use a University degree or other professional designations.

    5.4.7    A Member may not refer to or make use of the name of the Appraisal Institute of Canada or its professional designations and trademarks in a misleading or deceptive manner.

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

    5.4.9    The name of the Institute or its designations may be used to refer to a Member’s affiliation with the Institute.

    5.4.10  The name of the Institute or its designations may not be used in a manner that suggests that a business organization is a Member of the Institute and/or holds any designation.

    5.4.11  Any reference to the Institute, its designations or trademarks in advertising media must be dignified and in keeping with the highest of professional standards.

    5.4.12  The use of the Institute logos is determined by the Board of Directors. 

    5.4.13  AIC Candidate Members must not:

    5.4.13.i.            use other initials or abbreviations that might be interpreted as a valuation designation. [see 5.1.4]

    5.4.13.ii.           promote the Candidate Membership category in such a way that it might be perceived as a designation (e.g., CRA (or AACI) Candidate or Candidate CRA (or AACI) or any combination or variation thereof).

    5.4.14  A Candidate Member may use a University degree or other professional designations after their name.

    5.4.15  AIC Candidates may identify themselves as:

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

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

    5.4.15.iii. or “AIC Candidate Member”. [see 2.53, 4.3.6, 4.3.7]

    5.4.16  A jurisdictional exception may require an AIC Candidate Member to identify him/herself in an alternative manner (e.g., in Alberta).

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

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

    5.4.17.ii.           the name of the supervisor and his/her designation.

    5.4.18  AIC Members may advertise jointly.

    5.4.19  Any matter related to misleading advertising that is brought to the attention of the Counsellor, Professional Practice may be reviewed by the Counsellor for compliance with the Standards, without the registration of a formal complaint to the AIC by a Member of the public or of the AIC.  The Counsellor may initiate a complaint in order to investigate CUSPAP breaches that could not be resolved through an informal review.

  • 2.53     PROFESSIONAL ASSISTANCE:

    Professional assistance involves support to the Member that has a direct and significant bearing on the outcome of his or her assignment.

    A Member may rely on significant professional, appraisal, review, consulting or reserve fund planning assistance of an employee. 

    Such assistance would generally be provided by insured Members of the Institute or other professionals. Inspection of a property is professional assistance as it forms part of the analysis leading to an opinion.

    2.67     TECHNICAL ASSISTANCE:

    Technical 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, i.e. assistance that requires a Member to be properly insured under the Professional Liability Insurance Program.  Technical assistance does not extend to:

    • inspection,
    • selection of market data
    • or assistance that leads to the analyses, opinions and conclusions in the report.

    A Member may rely on technical assistance from a non-Member. 

    Ultimately, the responsibility for the finished product rests with the Member signing the report.  Examples of technical assistance include, among others: data collection; collating reports; preparing appendices, maps and sketches; spelling and grammar checking.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-Home-Inspections-EN.pdf

  • Real Property Appraisal Standard Comment 7.6.2 Effective Date

    7.6.2 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 from the date of inspection when market conditions have not or are not expected to have changed. A Reliance Letter relating to a Current Value Opinion must not be issued if there has been a significant and material change to the subject property.

    Practice Note 16.10 Report

    16.10.7.ix Reliance letters to third parties must outline the terms of reference of the draft and the limitations.

    Practice Note 16.12 Client and Intender User

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

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

    16.12.4 Members are frequently asked to authorize the use of a report by an unintended third party, i.e., a party other than the one(s) intended for the original report.

    16.12.4.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.

    16.12.5 A report transferred to a third party continues to carry with it the pre-existing ability to attract a claim. By formally acknowledging the right of a third party to rely on the report, you will be extending the right to make a claim as a result of reliance on the report as well as opening up additional possibilities for a claim from the original client, such as a breach of confidentiality.

    16.12.6 In general terms, the Member can permit the use of a report by an unintended third party, however, it is important to 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. A good practice would be to also note them in the reliance letter.

    16.12.7 The older the date of the report, the less relevant the report can be to a third party. It is not unreasonable for the Member to judge the relevancy of the report, considering the passage of time and based on the circumstances at hand, and to decline authorization. It should be clear to the prospective user that there may have been significant changes to the:

    16.12.7.i property,

    16.12.7.ii market conditions

    16.12.7.iii or other since the time of report that would have a material impact on the conclusion.

    16.12.8 When faced with a request to assist the third party, the Member has the choice of writing a reliance letter, completing a new report for the new intended user (provided the Member is not in a conflict of interest), or declining to authorize reliance by a third party.

    16.12.9 Providing a Reliance Letter is at the sole and absolute discretion of the Member and they may choose not to issue one or, if they do issue one, make it subject to a number of additional caveats and, possibly, subject to the payment of an additional fee. The Member should be aware of the implications of providing a reliance letter including, among other things, the additional liability being accepted. Additionally, the Member is strongly advised to confirm whether the assumptions and facts of the report (e.g. building condition, tenant profile, vacancies, rents being achieved, etc.) has not materially changed.

    Box 16.12.9 – Reliance Letter

    [Name of new intended user]

     

    Attention:  [Name]

     

    RE:            Appraisal Report [Project #]

                Property identification: (the “Property”)

                Effective date of the appraisal report:

     

    We, the undersigned, understand that [NEW INTENDED USER NAME] proposes to rely on this report to provide financing to (the “Borrower”).

    prepared an appraisal of the above-referenced property as at , for [state the intended use] for [original client name] which estimated the market value of the Property to be $.  We have been requested by [CLIENT AND/OR ORIGINAL INTENDED USER] to provide a reliance letter, authorizing [NEW INTENDED USER NAME] to rely on the appraisal report, for [1ST OR 2ND MORTGAGE OR SPECIFY PURPOSES].  We have received consent from [ORIGINAL CLIENT NAME], the borrower, to provide a reliance letter for the stated use.

    The contents of this report are confidential and will not be disclosed by the author to any party except as provided for by the provisions of the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) and/or when properly entered into evidence of a duly qualified judicial or quasi-judicial body. The appraiser acknowledges that the information collected herein is personal and confidential and shall not use or disclose the contents of this report except as provided for in the provisions of the Canadian Uniform Standards of Professional Appraisal Practice and in accordance with the appraiser’s privacy policy.  [NEW INTENDED USER NAME] agree that in accepting this report they shall maintain the confidentiality and privacy of any personal information contained herein and shall comply in all material respects with the contents of the appraiser’s privacy policy and in accordance with the Personal Information Protection and Electronic Documents Act (PIPEDA).

    The appraiser has agreed to enter into the assignment as requested by the client named in the report for the use specified by the client and intended user(s) stated in the report. The client has agreed that the performance of this appraisal and the report format are appropriate for the intended use.

    Written consent from the author and supervisory appraiser, if applicable, must be obtained before any part of the appraisal report can be used for any purpose by anyone except the client and other intended users identified in the report, and [NEW INTENDED USER NAME]. 

    Where the client is the mortgagee and the loan is insured, liability is extended to the mortgage insurer. Liability to any other party or for any other use is expressly denied regardless of who pays the appraisal fee.

    Written consent and approval must also be obtained before the appraisal (or any part of it) can be altered or conveyed to other parties, including mortgagees (other than the client) and the public through prospectus, offering memoranda, advertising, public relations, news, sales or other media.

    This appraisal report, its content and all attachments/addendums and their content are the property of the author who has signed this report. The client and [NEW INTENDED USER NAME] and any appraisal facilitator are strictly forbidden, and no permission is expressly or implicitly granted or deemed to be granted, to modify, alter, merge, publish (in whole or in part) screen scrape, database scrape, exploit, reproduce, decompile, reassemble or participate in any other activity intended to separate, collect, store, reorganize, scan, copy, manipulate electronically, digitally, manually or by any other means whatsoever this appraisal report, addendum, all attachments and the data contained within for any commercial, or other, use.

    Subject to the above, I, (we,) the undersigned, hereby authorize (New Intended User Name) to rely on the report for the referenced subject matter.

    Yours sincerely,

    Cc:  [ORIGINAL CLIENT]

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-Reliance-Letters-EN.pdf

  • Real Property Standard Comment 7.6 Effective Date

    7.6.3    Retrospective Value Opinion 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 for the reader not to be misled and to understand market conditions as of the retrospective effective date. Data subsequent to the effective date may be considered as confirmation of trends evident at that date.  Extraordinary Assumptions and/or Extraordinary Limiting Conditions must be clearly stated in the report citing the conditions from which the retrospective value opinion was developed.

    Real Property Standard Comment 7.7 Date of Report

    7.7.1    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.

    Compliance is required with the Standards in effect as at the date of the report.

    Practice Note 16.16 Retrospective Value Opinion

    16.16.1    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.

    16.16.2            Competence is required as at the date of the report, but not necessarily at the retrospective effective date.

  • Practice Note 16.37   Agreement for Sale/Option/Listing/Prior Sales

    16.37.1    The 3 year sales history is a mandatory requirement under CUSPAP and other internationally recognized standards of practice, and the scope of work of an assignment cannot be limited due to accessibility to data. 

    16.37.2    Agreements for Sale/Option/Listing and Prior Sales, must be analyzed and reported if available to the Member in the normal course of business.

    16.37.2.i.          It is important to note that what defines the “normal course of business” is not for individual interpretation. CUSPAP, other standards of practice and Canadian and international case law recognize and define the spirit and intent of “normal (or ordinary) course of business”. The basic premise of “normal course of business” aligns with the concepts of Member due diligence and the “Reasonable Appraiser”.  

    16.37.2.ii.         “The normal course of business is controlled to a large degree by the scope of work in a specific assignment. The ‘normal course of business’ is determined by the actions of a Member’s peers and by the expectations of parties who are regularly intended users for similar assignments; it is not any one Member’s practices or any one Member firm’s policies. In developing a[n]…appraisal, a Member must not commit a substantial error of omission or commission that significantly affects an appraisal.  Diligence is required to identify and analyze the factors, conditions, data, and other information that would have a significant effect on the credibility of the assignment results.”

    16.37.3     Agreements for Sale can be obtained from a realtor or financial institution. Lenders as matter of course obtain Agreements for Sale to assist in their due diligence as part of underwriting a loan. Where Members 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.

    16.37.4    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 the Member to obtain the information (Member due diligence). However, where information is available to and accessible by the Member as part of the normal course of business, to make a business decision not to purchase or access the data would not fall under the “normal course of business”.

    16.37.5    Box 16.37 speaks to the extent of a title search. 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 go a long way in fraud detection and prevention.  Although access to data is becoming more and more decentralized and can be costly, Members must be mindful of their obligations arising out of the “normal course of business”.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-Data-verification-EN.pdf  

    http://www.aicanada.ca/wp-content/uploads/PEB-Information-sources-EN.pdf

  • Definition 2.64 Scope of Work

    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.

    Real Property Appraisal Standard Rule

    6.2.4 In the report the Member must define the scope of work necessary to complete the assignment;

    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. Scope of work includes, but is not limited to, the extent of:

    7.5.1.i inspection (inspection of the subject property is mandatory, subject to any Extraordinary Limiting Condition) [see 16.27, 16.28.2, 16.30]

    7.5.1.ii research into physical, legal, social, political, economic or other factors that could affect the property [see 7.14]

    7.5.1.iii data research and verification, inspection of comparable data [see 7.14.3]

    7.5.1.iv analysis applied

    7.5.1.v any limitations to the assignment arising from the terms of the assignment, per the client’s instructions. An extraordinary assumption or extraordinary limiting condition may be required to accommodate a client’s instructions.

    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 appraisal. 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 16.15

    16.15.2    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.

    Box 16.15.1 ~ Scope of Work Example

    Inspection:  We inspected the interior and exterior of the property on (date), accompanied by (Name).  Our identification of the property also involved a review of mapping prepared by the local municipality, and our earlier files on the property.  The photographs appended were taken (date).

    Type of Analysis (The following example relates to an update assignment):  The approaches as applied to our previous report of (insert date) were investigated as to their relevance to this assignment, including a review of market data necessary to properly apply these approaches.  In this regard the (Direct Comparison, Income and/or Cost Approaches – as appropriate) have been applied and later reconciled to a final estimate of value.

    Data Research:  We received our instructions from (name), who provided information on the property and on changes to it since our (date) appraisal.  Publications produced by the (local authority) provided information on applicable land use controls.  Sources of market evidence included, as appropriate, the local real estate board, Land Title Office transactions – including those reported by Data Systems and local assessors, and real estate agents, vendors and purchasers active in the market.  The (name) service provided information on the state of title.

    Audits and Technical Investigations:  We did not complete technical investigations such as:

    ·         Detailed inspections or engineering review of the structure, roof or mechanical systems;

    ·         An environmental review of the property;

    ·         A site or building survey;

    ·         Investigations into the bearing qualities of the soils; or

    ·         Audits of financial and legal arrangements reported by (name) concerning the leases.

    Verification of Third Party Information:  The analysis set out in this report relied on written and verbal information obtained from a variety of sources we considered reliable.  Unless otherwise stated herein, we did not verify client-supplied information, which we believed to be correct.  The mandate for the appraisal did not require a report prepared to the standard appropriate for court purposes or for arbitration, so we did not fully document or confirm by reference to primary sources all information herein.

    Professional Excellence Bulletin: http://www.aicanada.ca/wp-content/uploads/PEB-Scope-and-Limiting-Conditions-EN.pdf

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