What is an Appraisal? Equity Valuations and Consulting Services Ltd.

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1 What is an Appraisal? Equity Valuations and Consulting Services Ltd.

2 Reid Umlah AACI designation since 1993 Principal of Equity Valuations and Consulting Services Ltd.

3 Experience with First Nations Lands Began appraising First Nations land in the 1990 s Since then, work has included Outstanding road issues Current market values Past use valuations of land Leasing on reserve (In partnership with AANDC and PWGSC)

4 What is an Appraisal? An assessment or estimation of the worth, value, or quality of a person or thing.

5 What is an Appraiser? What Is an Appraiser? Someone who provides an opinion of value. Can anyone be An Appraiser? Technically YES! There is no License required to be an Appraiser in British Columbia. What Constitutes a Professional Appraiser? They render an opinion that is accurate, concise and certified Education Experience

6 The Appraisal Institute of Canada The AIC is a leading real property valuation association with over 4,800 members across Canada and around the world. Established in 1938, the AIC works collaboratively with its 10 provincial affiliated associations to grant the distinguished Accredited Appraiser Canadian Institute (AACI ) and Canadian Residential Appraiser (CRA ) designations.

7 The Appraisal Institute of Canada The AIC is a self-regulating organization that is guided by a Code of Conduct, and Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) to ensure that members: Maintain the highest level of integrity and professionalism; Engage in conduct that will instill confidence and protect the public interest; Provide quality services within their areas of competence; and, Commit themselves to principles that reflect high standards of professionalism.

8 The Appraisal Institute of Canada AIC holds our members to one of the highest of standards in the field of appraising: the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP). These standards regulate not only the appraisal methodology but also the business practice and conduct of our members. CUSPAP provides guidelines that ensure a consumer receives only the highest quality report from AIC members.

9 The Appraisal Institute of Canada Four Standards guide our members; Ethics Standard Appraisal Standard Review Standard Consulting Standard Code of Conduct The Members of the Appraisal Institute of Canada are governed by the Code of Conduct.

10 AIC Regulations The Consolidated Regulations of the Appraisal Institute of Canada provide guidance for all aspects of the Appraisal Institute of Canada. This includes: Admission, Education, Experience and Designation Provincial associations Standards Professional Practice Professional Liability Insurance Status and Recognition

11 AIC Membership Designated Members of AIC hold either an AACI designation or CRA designation. AACI designations permit the member to perform both commercial and residential appraisals. CRA designations indicate that the member specializes in residential properties. Membership Requirements University Undergraduate Degree Successfully completing the AIC 101 Introduction to the Appraisal Profession; and, Successfully completing the Foundations of Real Estate Appraisal Course. (BUSI 330),

12 AIC Membership Then, the Provincial Association must be contacted to apply to be a Candidate Within the first 12 months of becoming a Candidate Member, you will also be required to successfully complete the mandatory 2-day Professional Practice Seminar. You may choose one of the two available formats: Distance/self-directed version (including written exam) or Two-day classroom session (including a written exam)

13 AIC Membership Fifteen (15) AIC/UBC Courses Minimum of 2 years Applied Experience Program with mentoring The final step is to complete AIC s designation requirements, including: Guided Case Study Work Product Review Applied Experience Program Examination Applied Experience Written Exam Professional Competency Interview CONGRATULATIONS! You are now a designated appraiser! As a Designated Member you are now required to maintain credits towards Continuing Professional Development (CPD) to ensure you keep up with industry trends and professional practice requirements.

14 How Long Does it Take to Complete the Program? This depends on the type of degree you have, which program you are pursuing, or if you receive any exemptions from courses. PGCV Program at least 2.5 years CRA Program average 2 3 years. AACI Program average 4 6 years

15 AIC Designated Appraisers AIC-designated appraisers are trained to complete appraisal, appraisal review, and appraisal consulting assignments within their area of competence. This may include: Single-family homes Office buildings Shopping centres Rental properties Condominiums Hotels and other lodging facilities Retirement and long-term care facilities Industrial sites Recreational sites Farms, orchards, vineyards Redevelopment sites

16 AIC Designated Appraisers Many AIC-designated appraisers also offer specialized skills including: Arbitration and negotiation Expert testimony and litigation support Cost-benefit analysis Feasibility studies Market analysis and market rent studies Reserve fund studies Asset/portfolio management Business valuation Property management Tax assessment appeals First Nations Land Issues

17 Types of Appraisals Narrative (Most detailed) Short Narrative (More brief and to the point with a focus on the analysis) Form (A standardized format combining check-off boxes and narrative comments-mainly used for single family residential)

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19 Appraisal Process Step 1: Terms of Reference Terms of Reference act as a specific guide to the appraisal process and by their nature can have an impact on the assumptions that may be incorporated into an appraisal and the methodology that may be used in completing the assignment.

20 Appraisal Process Terms of Reference should include: Who the client is What is to be Valued Pre-Paid Market Rent Annual Market Rent Other Date of Valuation Current Retrospective Purpose of the Report Other Pertinent Information Special Instruction or Extraordinary Assumptions

21 Appraisal Process Step 2: Gather Factual Data Area Inspection Site Inspection Servicing Information Land Use Regulations

22 Appraisal Process Step 3: Highest and Best Use or Permitted Use Highest and Best Use may be defined as: the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supportable, financially feasible, and that results in the highest value 1. Factors impacting "Highest and Best Use". Supply and Demand Site Development Costs Land Use Regulations Economic Conditions Competition 1 The Appraisal Institute. The Appraisal of Real Estate, Canadian Edition, Illinois Not-For-Profit Corporation, 1992.

23 Appraisal Process Permitted Use: Restricted use of the property as stated in the lease Can be different than Highest and Best Use.

24 Analysis Prepaid/Annual Rent Land Leases can be prepaid for a certain period of time or rent can be charged annually. The term of the lease can impact either situation. Typically with a 99 year lease no adjustment is needed between the prepaid rent and the market value estimate. A lesser term may require some adjustment. Annual rent is typically estimated for a 4-5 year period. Once the market value of the land is established then an appropriate rate of return is applied to arrive at an annual lease rate.

25 Analysis Generally the first step in the analysis is to estimate the market value of the assumed fee simple interests. This sets the foundation for the value of pre-paid and annual rent.

26 Analysis There are six basic methods appraisers use to estimate market value of the land: 1. The Direct Comparison Approach Considered the most reliable method 2. The Abstraction Method 3. The Extraction Method 4. The Development Method 5. The Land Residual Method 6. Ground Rent Capitalization

27 Example 99 Year Prepaid Lease 7.92 HA vacant lot Proposed for mixed housing Direct Comparison Approach This Summary of Land Comparables chart includes both offreserve fee simple parcels and prepaid lease rates for onreserve parcels

28 Example Appropriate adjustments were made for time, location and physical features to lead to a concluded fee simple value of: Typically a prepaid 99 year lease is consistent with fee simple market value.

29 Analysis To arrive at an annual rent, the starting point would be the fee simple value estimate. To determine an annual rent, an appropriate rate of return is applied to the fee simple value. Such rates can vary from about 3% to 8% depending on the permitted use, term, etc. Est. Rate of Est. MV Return Annual Rent $2,376,000 x 7% = $166,320.

30 Example Where annual lease rates are available, Direct Comparison can also be used. Here four annual lease rates are set out, all on reserve. After applying appropriate adjustments an annual rent per acre can be determined From this data, a rate from $15,000/HA to $17,000/HA is suggested.

31 Advantages of FN Land Development Location of FN Lands can be strategic for many uses; The development process on FN lands is not governed by potentially restrictive municipal zoning and permitting rules (allowing reserve lands to be developed creatively to the highest and best use as dictated by the market and the wishes of the partners); The availability of pre-paid, 99 year leases which provide complete certainty with respect to financing and marketing; If approached strategically, the development permitting and approval process on reserve lands can be negotiated on a much faster basis than a development on fee simple lands in a municipality.

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