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Why would I need an appraisal? / What is an appraisal? / Who is a qualified real estate appraiser? / Why should I choose a member of the Appraisal Institute to conduct my appraisal? |
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Why would I need an appraisal?
There are a number of reasons or situations in which you may need an appraisal.
These include:
• to estimate the current market value for purchase or sale
• to obtain financing
• to confirm values for realty or income tax assessments
• to estimate value for expropriation compensation
• to assist in settlements of estates or litigation matters
• to estimate value for insurance coverage or claims
• to assist in investment or business decisions
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What is an appraisal?
An appraisal is an independent valuation of a property for a specific purpose and at a specific point in time. The valuation is determined by using the most appropriate method of valuation. The three common methods of valuation are:
1) The Direct Comparison Approach
The basic premise of the Direct Comparison Approach is that the value of a property is the price paid for comparable properties which have recently sold. The method is to discover sales of properties which can be reasonably used to estimate subject value on a comparative basis. Since sales of properties which are exactly similar to the subject property are seldom found, it is usually necessary to apply a process of adjustment to the selling prices of properties used for comparative purposes in order to reflect the differences with the subject property.
2) The Cost Approach
The method of the Cost Approach is to add the value of the land to the depreciated replacement cost of the buildings and other site improvements. Although the estimate of land value can usually be supported by market data, the estimate of depreciation can be difficult to support, particularly in the case of older buildings. This test of value is usually utilized for special purpose properties (e.g. church, hospital, etc.), where valuation by the other recognized methods is not possible, or may be used in rising markets to serve as a check for the more reliable tests.
3) The Income Approach
This is an appropriate test for a property capable of producing rental income, since the method considers that capability. The relationship between net income and value is established by a capitalization process. Annual income is first calculated from actual rent or from a projection based on rent which the property could expect to obtain in the open market. Deductions are made for operating expenses paid for by the owner, if any. Allowances for possible losses from vacancy and for property management charges are also deducted. The resulting net income before debt service is then capitalized at an appropriate rate.
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Who is a qualified real estate appraiser?
The Appraisal Institute of Canada requires its members to obtain either an AACI or CRA designation. Both designations require stringent education and experience requirements to be met and job performance to be in compliance with the Code of Ethics and Rules of Professional Practice established by the Appraisal Institute.
The AACI designation denotes fully accredited membership and indicates competence in valuing a wide range of real property.
The CRA designation denotes individuals qualified in the valuation of individual dwellings, undeveloped individual dwelling sites, and dwellings containing not more than four self-contained housing units.
All members of the Appraisal Institute of Canada are required to recertify every five years.
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Why should I choose a member of the Appraisal Institute to conduct my appraisal?
A designated member of the Appraisal Institute has had years of education and training. It is their job to keep up to date with changes in market trends and laws that affect real estate values. Combining their knowledge and expertise with a thorough investigation of the property and the area, an appraiser will give you an independent, professional opinion that you can trust. By hiring an Appraisal Institute member to conduct your appraisal you will be hiring:
• someone who will provide objective judgement
• someone who has the education and training required to stand behind their value estimates
• someone who adheres to a professional set of values
• someone who carries mandatory liability insurance
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