Transcript - Austin Real Estate Consultants

AUSTIN REAL ESTATE
CONSULTANTS
www.austinrealestateconsultants.ca
PITFALLS IN THE
APPRAISAL PROCESS
June 2014
Presentation to: Real Estate Expert Summit
Introduction
The following slides are the frame work of a
presentation I made to Ossie Jurock’ Real Estate
Expert Summit. After outlining the appraisal process, I
have highlighted areas where a person, receiving an
appraisal, should carefully review and evaluate their
investment, making sure that the appraisal or research
received has addressed all the relevant issues.
When reviewing data ask yourself “WHY”.
Project Evaluation
Every investor, prior to making a decision to invest
should under take due diligence. This can be achieved
in any of the following ways.
 Your own experience
 New research
 Hiring a consultant
 Order an appraisal
 Rely on promoters’ documentation
An Appraisal
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What is an appraisal?
Are there different types of appraisals?
Why obtain an appraisal?
How is the appraiser remunerated?
A representation of CURRENT circumstances.
Definition of an Appraiser
An appraiser is one who compiles and analyzes
voluminous data of problematical accuracy
from sources of dubious veracity and derives
therefrom a numerical quantification
of unquestionable necessity, analogous to a
nebulous and euphemistic concept representational
of value commensurate with ambient configurations
of the open market and promulgates thereby a
precise written declamation which delineates his
observation,
deliberations and conclusions
An Appraisal
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There are many different reasons for an appraisal
An appraised value is an interpretation of data
Poor data can result in an incorrect value as can an
ill informed interpretation
Determine why & for whom the appraisal was done
Reliance on a conservative appraisal, could result in
a missed opportunity
There can be a range of values for any property
Your Property
Yourself
Your Buyer
Your Bank
Tax department
Assessed Value
Be careful when using the assessed value for
making investment decisions.
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BC Assessment undertake mass appraisal
They may not be aware of physical changes to a
property
Their value is based upon economic rent not
actual rent
The fee simple interest is appraised.
It can be high ( I appeal assessments every
year) or low.
Methods of Valuation
1.
2.
3.
4.
Income approach
Gross rent multiplier
Comparative approach
Cost approach
Income Approach
Components
 Gross
income
 Vacancy
 Expenses
 Yield rate derived from market analysis
Value
= Net Income / Yield rate
Yield rate = Net income/ Price
Value
= Gross Income x Gross rent multiplier
Expenses
Expense comparison should be on a per suite basis or $/sf of
rentable area NOT as % of rent; actual is best.
Each category should be checked out
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Management
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Caretaker
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Insurance
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Water and garbage disposal
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Property Taxes
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Licences
More Expenses
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Repairs & Maintenance
Heat & Light
Cablevision
Elevator
Advertising
Misc; admin
Security/tele,
Capital Reserve
Comparative Approach
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Compares a specific unit of value
Comparative unit derived from sales analysis
 Square
footage
 Suite
 Room
In any comparative analysis, whether it be rental, cap
rate, expenses or unit of comparison, make sure you are
comparing APPLES with APPLES.
Cost Approach
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Land
Building
Depreciation
 Physical
 Economical
 Functional
Value = Land Value plus
Building Cost New x % Depreciation
Cost may be higher than value
Review of Collected Data
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Neighbourhood
Property
Economy
Highest and Best Use
Rental and expense analysis
Capitalization rates
Comparative analysis
Averages – UGH!!!
Reasonableness of Conclusions
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Is the value arrived at in the appraisal logical given
the available data?
Has the appraiser taken all reasonable steps to
arrive at the conclusion?
Does the appraisal or research completed fully
satisfy the needs of the investment analysis?
What other considerations should be taken into
account?
Further Considerations
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Negatives of the property or the area
Reliability of the assembled data
Physical condition of the building
Future requirements for the property
Current and proposed competition
Alternative uses
Value added
Rezoning potential
More Considerations
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Future potential
Risk / Reward relationship
Security of income
Security of capital
Liquidity
Questions?
Peter Austin, AACI. BSc. CArb.
AUSTIN REAL ESTATE CONSULTANTS
4099 Springtree Drive
Vancouver, BC V6L 3E2
Ph: 604-733-3282
Email: [email protected]
URL: www.austinrealestateconsultants.ca