Clark - Appraisal Institute of Canada

Presentationtitle goes here01/01/20081

Scope of Work:A Canadian PerspectiveJohn Clark, AACI, P.AppJune 2011

SCOPE OF WORKFIGURE OUT WHAT YOURCLIENT NEEDS?DESIGN AND DELIVERTHE SOLUTION&GET PAID FOR IT

New Construction TechniquesValue ImpactScope of WorkJune 2011http://www.youtube.com/watch?v=E76uJi744Do4

Understanding Scope of WorkThe purpose of this workshop is to assist Canadianappraisers in understanding the flexibility in theCanadian Uniform Standards of Professional AppraisalPractice (CUSPAP).

Understanding Scope of WorkAny property and any client can require solutions that maybe very simple or very complex:or anything in betweenScope of WorkJune 20116

What is Scope of Work?Scope of WorkJune 20117

What is Scope of Work?CUSPAP DefinitionThe type and extent of research and analysis in anassignment.Scope of work includes, but is not limited to, the following:• the degree to which the property is inspected or identified;• the extent of research into physical or economic factors thatcould affect the property;• the extent of data research; and• the type and extent of analysis applied to arrive at opinionsor conclusions.Scope of Work:A CanadianPerspective8

Scope of Work:Degree of InspectionScope of Work:A CanadianPerspective9

Scope of Work:Extent of Economic ResearchScope of Work:A CanadianPerspective10

Scope of Work:How Much ResearchScope of Work:A CanadianPerspective11

Scope of Work:How Much Analysis?Scope of Work:A CanadianPerspective12

Credible, or Duly FoundedScope of Work:A CanadianPerspective13

Credible, or Duly FoundedThe scope of work applied must be sufficient to result inopinions/conclusions that are credible in the context ofthe intended use of the appraisal. The appraiser hasthe burden of proof to support the scope of workdecision and the level of information included in aScope of Work:A CanadianPerspectivereport.14

Scope of Work Concepts• Problem Identification• Scope of Work Acceptability• Disclosure Obligations

Problem-solving with AppraisalsTable 1.2: Problem-solving with AppraisalsThe Situation Step 1The client wants to sell hisproperty, but he first needsto know how much it’sworth.The client, a lender, isconsidering making arelatively small, low-riskloan to a borrower withgood creditThe client is representinga party in a lawsuit overconstruction defects inan office building.Identify the problemHow much would theproperty likely bring uponsale?Is the property adequatesecurity for the loan?How much loss in value,if any, do the defectscause?Step 2Plan the solutionInspect the interior andexterior of the property,gather data on recent salesof competitive properties,and apply the salescomparison approach.Inspect the exterior only(drive by), collect andanalyze sale data, andapply the sales comparisonapproachInspect the interior andexterior of the property;obtain information fromengineer on the natureand extent of damageand cost to cure, gatherdata on recent sales ofcompetitive properties,construction costs, rents,operating expenses;apply the salescomparison, cost, andincome approaches.Step 3Apply the solutionDo it! Develop thatopinion of market valueDo it! Develop anopinion of market valueDo it! Develop anopinion of market valueScope of WorkJune 201116

Application of the Three Approaches toValue CharacteristicsTable 6.3: Application of the Three Approaches to Value CharacteristicsProcess: Cost approach Sales ComparisonapproachLeast IntensiveMost IntensiveIncome ApproachNot necessary; omitted Not necessary; omitted Not necessary; omittedLand valuation via extraction,comparable cost data fromreadily available sourcesComparable data from files;no adjustments tocomparables in analysisComparable rental,expense and vacancy datafrom files; capitalizationrates from readily availablesourcesComparable cost data from costmanual but verifiedComparable data from readilyavailable sources, confirmedwith one or more parties tothe transaction; adjustmentssupportableComparable data includingcapitalization rates fromreadily available sources;confirmed with one or moreparties to the transactionLand valuation via salescomparison approach withcomplete verification of salesinformation; comparable costdate obtained from localcontractorsThorough search of allavailable data sources;confirmation with one ormore parties to thetransaction; adjustmentsvia paired sales analysisThorough search of allavailable data sources;confirmation with one ormore parties to thetransaction; local vacancysurveyScope of WorkJune 201117

Degree of Research & Data CollectionTable 6.6: Degree of Research and Data Collection Necessary in Each AssignmentAssignment 1 Assignment 2 Assignment 3Inspection/Identification No inspection (“desktop”) Exterior inspection (“driveby”)Interior and exterior,thoroughPhysical and EconomicFactorsExtent of Data ResearchSeveral extraordinaryassumptions will benecessary with regard touncertain but relevantproperty characteristicssuch as size, condition, andother propertycharacteristicsData used in priorassignmentsSome informationconcerning relevantproperty characteristics willbe obtained from visual,exterior inspection. Someextraordinary assumptionswill be necessary withregard to uncertain butrelevant propertycharacteristicsReadily available dataMost informationconcerning relevantproperty characteristicswill be obtained fromvisual, exteriorinspection. Virtually noextraordinaryassumptions will be usedwith regard to uncertainbut relevant propertycharacteristicsExhaustive searchScope of WorkJune 201118

Problem IdentificationScope of WorkJune 2011CUSPAP Section 6.2.1identify the client and any otherintended users;CUSPAP Section 6.2.2identify the intended use of theappraiser’s opinions and conclusions;CUSPAP Section 6.2.3identify the purpose of theassignment, including a relevantdefinition of value;CUSPAP Section 6.2.5identify whether the appraisal iscurrent, retrospective, prospective oran update;CUSPAP Section 6.2.7identify the effective date of theappraiser’s opinions and conclusions;CUSPAP Section 6.2.9identify the location andcharacteristics of the property and theinterest appraised;CUSPAP Section 6.2.10identify all assumptions and limitingconditions;CUSPAP Section 6.2.11identify any hypothetical conditions(including proposed improvements).19

Scope Determination:A Well-Defined and Written Scope ofWork Can Make the DifferenceScope of WorkJune 201120

Scope DeterminationCUSPAP has a Scope of Work Rule ineach of the three Practice Standards(Appraisal, Review and Consulting).

Scope DisclosureIn a report an appraiser must identify the scopeof work necessary to complete the assignment;Scope of WorkJune 2011An appraiser must have sound reasons tosupport the scope of work decisions, and mustbe prepared to support the decision to excludeany information or procedure that would appearto be relevant to the client, an intended user orthe “reasonable appraiser”. (one who maintains alevel of performance that would be acceptable tothe professional practice peer group.)22

Scope of work allows appraisers to expand their range of servicesbeyond the traditional ones and opens doors to new opportunities.Stephanie Coleman, MAI, SRA, Scope of Work (Chicago: Appraisal Institute, 2006).

Case Studies1. Value for mortgage purposes.2. Value for Financial Reporting.3. Value for Litigation

Case Studies have the same date,client and property.Scope of Work:A CanadianPerspective25

Describe Scope For:Degree of Inspection?Extent of Economic Research?How Much Research?How Much Analysis?Scope of Work:A CanadianPerspective26

Questions?

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