Valuation Guidelines

1B1 Narrative Appraisal Report

Purpose

The Chief Appraiser of Canada or designate, provides real estate valuation advice to the Federal Government, and is responsible for the development of real property valuation guidelines. Narrative Appraisal Reports are to be prepared in accordance with the PWGSC Policies and Valuation Guidelines appearing herein.

1.0 Preface

1.1 The Federal Government makes decisions on the purchase, lease, development, transfer, and expropriation of real property based in part, on real property appraisals. Real property appraisals used by the Federal Government must therefore meet high standards of documentation, thoroughness and reasoning.

1.2 Provincial, national, and international real estate appraisal organizations have set high professional standards for their members. As a result, PWGSC consulted with and developed its real property valuation standards to meet the minimum content adopted by the major organizations of professional appraisers. In the preceding context PWGSC signed a Memorandum of Understanding with each the Appraisal Institute of Canada (AIC) and l'Ordre des évaluateurs agréés du Québec (OEAQ).

1.3 PWGSC generally requires a Narrative Appraisal Report (1B1), a Short Narrative Appraisal Report (1B2), a Form Appraisal Report (1B3) or an Update Report (1B4). The prominent difference between these reporting formats is the level and depth of information and analysis provided in the report.

2.0 Policy

2.1 In addition to adhering to the professional standards outlined by the organization from which he or she is designated, the appraiser must meet the PWGSC Policies and Valuation Guidelines outlined in sections 2.0 Policy and 3.0 PWGSC Valuation Requirements of this guideline respectively.

2.2 The report must be documented and supported so as to convince an impartial reader of the soundness of the conclusions. The material should be set forth as concisely as possible, in order to achieve effective communication with the reader while conserving the reader's time.

2.3 The appraiser must ensure that his or her appraisal is impartial, objective and does not illegally discriminate or contribute to illegal discrimination through subjective or stereotypical assumptions.

2.4 If, as by prior agreement between the appraiser and PWGSC, the report prepared does not meet the minimum content requirements as set out by his or her respective organization, the report is considered a 'limited' or 'restricted' appraisal. The appraiser must make this fact clear to the reader so as not to mislead, including reasons for departure from the usual minimum content required as well as the effect that this departure may have on the final value conclusions of the report.

2.5 If certain information is not obtainable, restricted due to legislation, or considered confidential under privacy constraints, a clear statement must be made in the report as to why it was excluded and how it was verified, as well as that the information represents an arms length transaction. All information in the appraisers file must be available for viewing by the client.

2.6 The Federal Government must retain copyright to the report, and be given authorization to rely on the report for the purpose(s) stated.

2.7 It is not reasonable for any person other than the Federal Government to rely upon the report without first obtaining the written authorization of both the Chief Appraiser or designate, as well as the appraiser responsible for the report.

2.8 The appraiser designated in the Contract for Services shall be the only signatory of the report, and shall assume full responsibility for the contents and conclusions of the report.

2.9 The appraiser designated in the Contract for Services must inspect the subject property.

2.10 The report is subject to review for compliance with the Contract for Services, as well as the PWGSC Policies and Valuation Guidelines appearing herein. This must be completed to the satisfaction of the Chief Appraiser or designate.

2.11 The Chief Appraiser or designate holds the authority to revise these guidelines as required on a case-by-case basis. Therefore, instructions included in the Contract for Services shall take precedence over those appearing in this guideline.

3.0 PWGSC Valuation Requirements

In addition to adhering to the professional standards outlined by the organization from which he or she is designated, the appraiser must meet the PWGSC Valuation Guidelines outlined in this section and to the level of detail indicated in Appendix A - Appraisal Report Comparison Chart, when preparing a Narrative Appraisal Report for the Federal Government.

The PWGSC Valuation Guidelines are not intended to be an exhaustive list of report inclusions. It is the appraiser's responsibility to adhere to the minimum required content as outlined by the organization from which he or she is designated, and to present information as necessary to make his or her analysis clear and understood.

Note: Metric units of measurements (or metric followed by imperial in brackets) must be used throughout the report.

Part I - Introduction

3.1 Title Page

This includes:

1. Name of owner(s)
2. Address of the property (or a brief legal description, if no postal address is available)
3. Type of property (residential, industrial, commercial, vacant land, etc.)
4. Name of the individual preparing the report
5. Name of the person to whom the report is being addressed

3.2 Letter of Transmittal

A normal letter including:

1. Address of appraiser
2. Current date
3. Name and address of addressee
4. Date and source of authorization to mandate the appraisal
5. Identification of value and interest appraised
6. Effective date of the appraisal
7. Exposure time and critical and/or extraordinary assumptions
8. The signature of the appraiser designated in the Contract for Services

3.3 Table of Contents

3.4 Photographs

If the appraisal includes substantial buildings, place a single enlarged front/side angle view of the major improvement at this point in the report and additional photographs of the subject(s) in the addenda.

3.5 Executive Summary

Limited to basic facts and the value estimated by each approach.

Part II - Factual Data

3.6 Definition of the Appraisal Problem

1. Intended Use of the Report
2. Purpose of the Assignment
3. Property Rights Appraised
4. Definition of Value
5. Effective Date of Value

3.7 Scope of Work

Describe the extent of collecting, confirming and reporting the data.

N.B.: Please note that the appraiser is required to discuss their ability to investigate matters mentioned in part II (more specifically Sections 3.12 to 3.18).

3.8 Assumptions and Limiting Conditions

This includes:

1. Assumptions and limiting conditions on which the value conclusion is based
2. Assumptions made by the appraiser or by client instructions with respect to a matter which is critical and/or extraordinary to the value conclusion, i.e., a proposed zoning change on which the Highest and Best Use is based
3. The limiting conditions must not restrict the Federal Government's copyright to the appraisal report
4. The limiting conditions must not restrict the Federal Government's authorization to rely on the report for the purpose(s) stated
5. The use of the report is restricted to the Federal Government, unless written authorization is obtained from both the Chief Appraiser or designate, and the appraiser responsible for the report
6. The following wording should be used in the limiting conditions:

   It is not reasonable for any person other than the Federal Government to rely upon the report without first obtaining written authorization of both the Chief Appraiser of Canada or designate, and the appraiser. The report was prepared under the assumption that no other person will rely on it for any other purpose and that all liability to all such persons is denied.

3.9 Identification of the Property

This includes:

1. Municipal address. If no municipal address exists, provide sufficient identification data over and above the legal description to clearly identify the property, referencing, if necessary, other established points
2. Legal description. If the legal description is lengthy, refer to it in the report and include a full description in an addenda

3.10 Regional and City Data

Describe the geographic location of the community and social, political or economic data pertinent to the subject property and its final value.

3.11 Neighbourhood Data

Describe social, political and economic factors pertinent to the subject property and its final value.

3.12 The Site

This includes:

1. A site plan or sketch
2. Size, frontage, shape and dimensions
3. Describe access to the site and location of the site with respect to side streets, within the block or within the neighbourhood
4. Include details with respect to topography, easements, soil conditions, mineral deposits
5. Describe adjacent properties, and whether they are detrimental to or harmonious with the subject property
6. Describe hazardous factors i.e., floods, odours, etc.
7. Indicate site contamination
8. Discuss detrimental factors revealed in an environmental site assessment

3.13 Services Available to the Site

These include:

1. Municipal services and utilities available
2. Well and septic tank (the latter condition may be included in Site Improvements)
3. Size, capacity and adequacy of services
4. Location of services if not at the site
5. Probability and cost to extend services to the site

3.14 The Building(s)

A description of the buildings, including:

1. Date of Inspection
2. Type of building
3. Chronological age, effective age, and remaining economic life
4. Basic type of structure and building materials used in the main components
5. Gross and net area (cubic or by square meter)
6. Description and size of the rental areas, where applicable, including method or source of measurements used
7. Type of occupancy
8. General condition of building and systems as a basis for estimating the physical obsolescence
9. Description of the functional design and accessibility as a basis for estimating the functional obsolescence
10. Outstanding work orders

3.15 Site Improvements

Include items such as landscaping, driveways, retaining walls and other improvements to the site.

3.16 Assessments and Taxes

This includes:

1. Current assessed value and tax rate and the possibility of any significant changes
2. Discuss whether taxes are fully paid to the date of appraisal or if any arrears exist
3. Discuss whether the subject's assessed value appears equitable
4. Information regarding local improvement charges included in the annual taxes

3.17 Sales History

This includes:

1. Current owner
2. Dates and data with respect to changes of ownership for at least the three years prior to the date of the appraisal
3. Current agreement of sale, option or listing of the subject property
4. Major additions or alterations carried out

3.18 Encumbrances on Title

Include pertinent details regarding mortgages, financial obligations, easements, etc.

3.19 Lease Details

Details of any lease, sub-lease, or rental such as:

1. Lease Term
2. Commencement date
3. Expiry date
4. Renewal options
5. Rental payments
6. Type of lease
7. Allocation of expenses
8. Identification of location and size of demised area
9. Name(s) and occupation(s) of the tenant(s)
10. Net Effective rent (explain the incentives accounted for in the discounting and show calculations)

3.20 Land Use Controls

Describe the nature and detail of any land use controls, including zoning, official plans and restrictions that affect the subject property. Also:

1. Discuss if the property is government owned
2. Discuss if zoned for public/institutional use
3. Probable zoning and rationale if it were under private ownership
4. Potential rezoning or change in land use control
5. Discuss whether any applications for rezoning have been filed
6. Discuss if the existing zoning and land use is consistent with the Official Plan
7. When dealing with “development” parcels or properties with surplus land, investigate and comment on the subdivision/land severance policies of the Official Plan
8. Include copy of pertinent zoning map in addenda

Part III - Analysis and Conclusion

3.21 Highest and Best Use

Include a definition of 'highest and best use'. Where the property is improved, analyze the highest and best use of the site both as if vacant and as improved.

Provide a narrative analysis leading to the highest and best use conclusion, clearly stating the conclusion.

The conclusion must be logical, reasonable, legal (particularly zoning), physically possible, and marketable and one for which there is a demand.

3.22 Appraisal Analysis

This constitutes an explanation of the reasons and thinking behind the methods used in the valuation, to prepare the client for the appraisal techniques that follow.

All conventional valuation approaches (Cost, Income and Direct Comparison) must be considered in the appraisal report. If any approach (es) is (are) not used, the appraiser must provide reasonable explanations for exclusion.

3.23 Land Value as if Vacant

When the direct comparison approach is used to support the estimate of land value, the following is required:

1. Support the indicated value of land with confirmed sales of comparable lands having a similar highest and best use
2. Use 'Listings' and 'Offerings' as supporting data only
3. Present a data chart that includes the following:
   • Registered deed or certificate of title number
     
   • Address or legal description
     
   • Sale Price
     
   • Date of sale
     
   • Date of registration
     
   • Vendor/purchaser
     
   • Dimensions/area
     
   • Shape
     
   • Topography
     
   • Zoning/land use designation
     
   • Rate per unit
     
   • Other factors
4. Use an adjustment chart if appropriate
5. Analyze differences, fully explaining and supporting adjustments
6. Include a map indicating the proximity of the indexes to the subject

When other methods of land valuation are being applied (abstraction, extraction, land residual, subdivision methods), the appraiser must provide sufficient justification of all key elements to the application of the method selected. Adjustment or other comparison charts, if appropriate, should be used to assist the reader in following the appraisal analysis.

3.24 Cost Approach

When this approach is used:

1. Arrange data in sequence beginning with the reproduction or replacement cost, including respective sources
2. When using costing manuals, include a copy of the worksheet in the addenda
3. Explain the dollar amounts of depreciation in narrative form and break them down wherever possible into physical, functional and external depreciation
4. Indicate effective age, economic life/remaining economic life
5. Indicate physical depreciation, percent or amount and reason(s) why it applies
6. Indicate functional depreciation, percent or amount and reason(s) why it applies
7. Indicate external depreciation, percent or amount and reason(s) why it applies
8. Indicate depreciated replacement/reproduction cost
9. Indicate depreciated value of the site improvements, listing the improvements costed
10. Value conclusion

3.25 Income Approach (es)

When this approach is used:

1. Use data that is factual and supported
2. Estimate net effective rent (giving consideration to recovery revenues)
3. Analyze comparable market rent indexes and recognize incentives
4. Allow for vacancy and credit losses
5. Include an itemized estimate of expenses and reserves, including respective sources
6. Explain the capitalization process, including respective sources of rates and factors from the market
7. Where land or building residual techniques are applied, state appropriate capitalization rates and incomes attributable to land and building

3.26 Direct Comparison Approach

This approach is used:

1. Support the indicated value with confirmed sales of comparable properties with similar highest and best use
2. Use listings and offerings as supporting data only
3. Present a data chart that includes the following:
   • Registered deed or certificate of title number
   • Address or legal description
   • Sale Price
   • Date of sale
   • Date of registration
   • Vendor/purchaser
   • Dimensions/area of lot
   • Shape of lot
   • Zoning/land use designation
   • Dimensions/area of building(s)
   • Description of building(s)
   • Description of significant site improvements
   • Rate per unit
   • Other factors
4. Use an adjustment chart if appropriate
5. Use adjustments that are quantitative or qualitative as appropriate
6. Analyze differences, fully explaining and supporting adjustments
7. Include a map indicating the proximity of the indexes to the subject

3.27 Reconciliation and Final Estimate of Value

Where two or more approaches to value have been used:

1. Discuss the merits of each method
2. Discuss the weighting given to each and rationale
3. Provide the final conclusion

3.28 Exposure Time and Analysis

3.29 Certification

The certification letter should conform to the following:

1. The appraiser designated in the Contract for Services must sign the certification and assume full responsibility for the report, its contents and conclusions
2. The appraiser designated in the Contract for Services must inspect the subject property

Part IV - Supporting Data

3.30 Displays

1. Displays are graphic aids, such as tables, photos, maps etc., placed in the body of the report
2. Wherever possible, place graphic aids in association with the descriptive reference, either on the page facing the narrative or as part of the narrative
3. Use photographs large enough and of high enough quality to enable the reader to visualize the subject and comparable properties
4. Use wide-angle lens and aerial photos wherever feasible

3.31 Addenda

1. Addenda items are graphic aids or information not placed in the body of the report
2. Include maps, plans and photographs that clearly show all aspects of the property
3. Include plot plans, building outline plans and location maps that enable the reader to visualize and understand the subject property and any appraisal problems
4. Include details not contained in Part III Analysis and Conclusion of the report

3.32 Indexes

An index is a comparable sale, listing, rental or option, etc. While there is nothing wrong with the use of the word “comparable”, it is very loose in its definition, since dissimilar things can be compared without providing an indication of value. The use of the word index can be applied to both sales and listings or any other data used. When using Indexes:

1. Number indexes in order through the whole appraisal regardless of type. For example, land indexes numbers 1-2-3-4, property indexes 5-6-7-8. This makes for easy reference and prevents confusion in reading the appraisal. Plot each index on a map with reference number, showing the location of the index relative to the subject property
2. Place index details the addenda and reference them, or show them on a data chart in the body of the appraisal

3.33 Appraiser's Qualifications

1. Academic Qualifications
2. Membership in professional real estate organizations
3. Pertinent practical experience
4. If the appraiser is member of a professional real estate organization that has a mandatory re-certification program, certify that he or she has satisfied the requirements of such a re-certification program

Appendix A

Appraisal Report Comparison Chart^{Footnote 1}

Description

This table highlights the content required and the level of detail needed when preparing a short narrative appraisal report. The first part shows what content should be included in Part 1 Introduction. The second section shows what content should be included in Part II Factual Data and whether the content should be described or stated. Part III Analysis and Conclusion highlights the content that should be included in this section. All content in this section should be described, except for Certification. The last section entitled Part IV Supporting Data shows what content should be included in this section of the short narrative appraisal report. Displays and Addenda are to be included as required and Indexes and Appraiser's Qualifications are to be included.

Content Requirements	Narrative Report	Short Narrative Report	Form Report
Part I Introduction
3.1 Title Page	Include	Include	-
3.2 Letter of Transmittal	Include	Include	-
3.3 Table of Contents	Include	Include	-
3.4 Photographs	Include	Include	Include
3.5 Executive Summary	Include	Include	-
Part II Factual Data
3.6   Definition of the Appraisal Problem	State	State	State
3.7 Scope of Work	Describe	Describe	Describe
3.8 Assumptions and Limiting Conditions	State	State	State
3.9 Identification of the Property	State	State	State
3.10 Regional and City Data	Describe	Summarize	State
3.11 Neighbourhood Data	Describe	Summarize	State
3.12 The Site	Describe	Summarize	State
3.13 Services Available to the Site	Describe	State	State
3.14 The Building (s)	Describe	Summarize	State
3.15 Site Improvements	Describe	Summarize	State
3.16 Assessments and Taxes	Describe	State	State
3.17 Sales History	Describe	Summarize	State
3.18 Encumbrances on Title	Describe	Summarize	State
3.19 Lease Details	Describe	Summarize	State (As required)
3.20 Land Use Controls	Describe	State	State
Part III Analysis and Conclusion
3.21 Highest and Best Use	Describe	State	State
3.22 Appraisal Analysis	Describe	Summarize	State
3.23 Land Value as if Vacant	Describe	Summarize	State
3.24 Cost Approach	Describe	Summarize	State
3.25 Income Approach (es)	Describe	Summarize	State (As required)
3.26 Direct Comparison Approach	Describe	Summarize	State
3.27 Reconciliation and Final Estimate of Value	Describe	Summarize	State
3.28 Exposure Time Analysis	Describe	Summarize	State
3.29 Certification	Include	Include	Include
Part IV Supporting Data
3.30 Displays	As Required	As Required	As Required
3.31 Addenda	As Required	As Required	As Required
3.32 Indexes	Include	Include	Include
3.33 Appraiser's Qualifications	Include	Optional	Optional

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