scope of work: a canadian perspective · scope of work: a canadian perspective. john clark, aaci,...

Real Estate Division

1

Scope of Work:A Canadian Perspective

John Clark, AACI, P.AppFriday December 3, 2010

REAL ESTATE DIVISION

2Scope of Work: A Canadian Perspective

SCOPE OF WORKOr

How To Figure Out What Your Client Needs

And Get Paid For It



Your Practice Area

What area of appraisal practice do you work in?

• Private sector• Assessment authority• Government• (Federal/provincial/municipal) • Other

(radio button beside each)



Report Format

Does CUSPAP prescribe the form or format of an appraisal

• Yes/no



Understanding Scope of Work

The purpose of this workshop is to assist Canadian appraisers in understanding the flexibility in the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).



Research

Do all assignments require the same level of research?

• Yes/no



Understanding Intended Use

Any property and any client may present a situation to an appraiser where the intended use of a report can result in an assignment that is relatively simple, very complex, or anything in between



Same client -- different assignment

If you were to undertake an assignment for the same client, on the same property and same effective date, but for two very different intended uses of a report...

...is there a problem if the value conclusions in both reports are not the same: • yes/no



What is Scope of Work?

CUSPAP Definition

The type and extent of research and analysis in an assignment. 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 that could affect the property;

• the extent of data research; and• the type and extent of analysis applied to arrive

at opinions or conclusions.



Credible, or Duly Founded

The scope of work applied must be sufficient to result in opinions/conclusions that are credible in the context of the intended use of the appraisal. The appraiser has the burden of proof to support the scope of work decision and the level of information included in a report.



Scope of Work Concepts

• Problem Identification• Scope of Work Acceptability• Disclosure Obligations



Problem-solving with AppraisalsScope of Work: Stephanie Coleman, Appraisal Institute

Table 1.2: Problem-solving with AppraisalsThe Situation Step 1

Identify the problemStep 2Plan the solution

Step 3Apply the solution

The client wants to sell his property, but he first needs to know how much it’s worth.

How much would the property likely bring upon sale?

Inspect the interior and exterior of the property, gather data on recent sales of competitive properties, and apply the sales comparison approach.

Do it! Develop that opinion of market value

The client, a lender, is considering making a relatively small, low-risk loan to a borrower with good credit

Is the property adequate security for the loan?

Inspect the exterior only (drive by), collect and analyze sale data, and apply the sales comparison approach

Do it! Develop an opinion of market value

The client is representing a party in a lawsuit over construction defects in an office building.

How much loss in value, if any, do the defects cause?

Inspect the interior and exterior of the property; obtain information from engineer on the nature and extent of damage and cost to cure, gather data on recent sales of competitive properties, construction costs, rents, operating expenses; apply the sales comparison, cost, and income approaches.

Do it! Develop an opinion of market value



Application of the Three Approaches to Value Characteristics

Scope of Work: Stephanie Coleman, Appraisal Institute

Table 6.3: Application of the Three Approaches to Value CharacteristicsProcess: Cost approach Sales Comparison

approachIncome Approach

Least Intensive

Most Intensive

Not necessary; omitted Not necessary; omitted Not necessary; omitted

Land valuation via extraction, comparable cost data from readily available sources

Comparable data from files; no adjustments to comparables in analysis

Comparable rental, expense and vacancy data from files; capitalization rates from readily available sources

Comparable cost data from cost manual but verified

Comparable data from readily available sources, confirmed with one or more parties to the transaction; adjustments supportable

Comparable data including capitalization rates from readily available sources; confirmed with one or more parties to the transaction

Land valuation via sales comparison approach with complete verification of sales information; comparable cost date obtained from local contractors

Thorough search of all available data sources; confirmation with one or more parties to the transaction; adjustments via paired sales analysis

Thorough search of all available data sources; confirmation with one or more parties to the transaction; local vacancy survey



Degree of Research & Data CollectionScope of Work: Stephanie Coleman, Appraisal Institute

Table 6.6: Degree of Research and Data Collection Necessary in Each AssignmentAssignment 1 Assignment 2 Assignment 3

Inspection/Identification No inspection (“desktop”)

Exterior inspection (“drive-by”)

Interior and exterior, thorough

Physical and Economic Factors

Several extraordinary assumptions will be necessary with regard to uncertain but relevant property characteristics such as size, condition, and other property characteristics

Some information concerning relevant property characteristics will be obtained from visual, exterior inspection. Some extraordinary assumptions will be necessary with regard to uncertain but relevant property characteristics

Most information concerning relevant property characteristics will be obtained from visual, exterior inspection. Virtually no extraordinary assumptions will be used with regard to uncertain but relevant property characteristics

Extent of Data Research

Data used in prior assignments

Readily available data Exhaustive search



Problem Identification

CUSPAP Section 6.2.1

identify the client and any other intended users;

CUSPAP Section 6.2.2identify the intended use of the appraiser’s opinions and conclusions;

CUSPAP Section 6.2.3identify the purpose of the assignment, including a relevant definition of value;

CUSPAP Section 6.2.5

identify whether the appraisal is current, retrospective, prospective or an update;

CUSPAP Section 6.2.7identify the effective date of the appraiser’s opinions and conclusions;

CUSPAP Section 6.2.9identify the location and characteristics of the property and the interest appraised;

CUSPAP Section 6.2.10identify all assumptions and limiting conditions;

CUSPAP Section 6.2.11identify any hypothetical conditions (including proposed improvements).



Scope Determination

CUSPAP has a Scope of Work Rule in each of the three Practice Standards (Appraisal, Review and Consulting).



Scope Disclosure

In a report an appraiser must identify the scope of work necessary to complete the assignment;

An appraiser must have sound reasons to support the scope of work decisions, and must be prepared to support the decision to exclude any information or procedure that would appear to be relevant to the client, an intended user or the “reasonable appraiser”. (one who maintains a level of performance that would be acceptable to the professional practice peer group.)



W- FIVE

Section 6 of CUSPAP sets out the 27 elements that must be considered and/or included in an appraisal report.

Some of these can be paraphrased as:

Who: hired you?What: is the purpose of the

assignment?Where: is the property?When: is the effective date?Why: were you hired?



“Scope of work allows appraisers to expand their range of

services beyond the traditional ones and opens doors to new

opportunities.”

Stephanie Coleman, MAI, SRA, Scope of Work (Chicago: Appraisal

Institute, 2006).



Case Studies

One Property

One client

One Effective Date

Three Different Assignments



Scenario 1

Assignment 1:Client is the owner of a single family dwelling andis negotiating with a lender for a mortgage. Theclient needs a value opinion for lending purposes.

Research Task Estimated time to completeNeighbourhood Analysis

Supply/demand

Inspection of Comparable Sales

Financing verification –comparable sales



Scenario 2

Assignment 2Same client has been offered a position in adifferent city and is being offered a guaranteed saleprice on their residence, as well as equivalentreinstatement in the new, but more expensive city.

Research Task Estimated time to complete

Neighbourhood AnalysisSupply/demandInspection of Comparable SalesFinancing verification –comparable sales



Scenario 3

Assignment 3Client is still dealing with the lender, and theiremployer, but just got notice that the spouse will notbe relocating, and the client needs to prepare forlitigation to buy out the spouse.

Research Task Estimated time to complete

Neighbourhood Analysis

Supply/demand

Inspection of Comparable SalesFinancing verification –comparable sales



Group Discussion

• Discuss the Scope of Work for the different scenarios which could be included in the Letter of Transmittal to be sent to the client.

• Describe the level of research to be undertaken in each Assignment, and the estimated time to complete the research work



Questions?

Results for each Assignment



Thank you

scope of work: a canadian perspective · scope of work: a canadian perspective. john clark, aaci,...

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