Before this valuation assignment, I last appraised in
during the Fall of 2010, and the boom has continued since then. The property being appraised this time was almost one square mile of cropland right outside the city limits of Saskatchewan Regina, SK, presently cultivated with canola and wheat, but in the process of being rezoned for mixed use to accommodate the expansion of the city of , a city of 200,000 residents in the southeastern part of the province. Regina
Appraising land in
is an easy assignment compared to most international work. Each province has its own land registry system capable of providing comparable sales, and the prices for sales data are low in Canada Saskatchewan ($20 got me 150 sales), and the last time I appraised in , their sales data were free. In Alberta , the provincial land registry wholesales the data to middlemen such as Landcor, which costs several times as much, but is still a bargain. British Columbia
A couple of issues relating to the conversion of farmland to residential development relate to the ability of the soils to support vertical construction and the potential for toxic contamination of the soil by pesticide use. Another newly built Regina-area subdivision several miles northwest of the subject is currently sinking in the mud, for instance, due to the failure to discover the unsuitability of the soils until it was too late.
I normally like to read a geotechnical study and environmental report during the appraisal of a subdivision instead of copping out with the use of “assumptions and limiting conditions” that everything is assumed to be all right. A lot of money has been lost with assumptions, and I disagree with the appraisal profession's mindset that placing "assumptions and limiting conditions" in appraisal reports is good appraising. It is not good appraising; it is dangerous appraising. Complicating the situation, though, was a lender client who let the developer set the stage for intransigence by refusing to show purchase contracts.
Although this was a Canadian property, I still follow USPAP (Uniform Standards of Professional Appraisal Practice set by the Appraisal Foundation, a
institution), one of which is Standards Rule 1-5(a): “analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal”. My request to see the purchase agreements spooked the developer, who called the client to call off my request due to the fear that I would practice “anchor bias”, the tendency among real estate appraisers to “hit the purchase price” in 96 to 97% of appraisals. U.S.
The developer’s fear was unfounded, as I do not practice anchor bias and am also mindful of USPAP Standards Rule 1-4(c): “When analyzing the assemblage of the various estates or component parts of a property, an appraiser must analyze the effect on value, if any, of the assemblage. An appraiser must refrain from valuing the whole solely by adding together the individual values of the various estates or component parts.” This assemblage would probably be more valuable than the sum of its parts.
The comparable sales were rather consistent in this
While I disapprove of the practice of most appraisers and valuers to defer essential issues as buildability and environmental contamination to “Assumptions and Limiting Conditions”, which often don’t get read by clients, I had to in this instance. If the soils or water table make construction infeasible or the soils are contaminated by pesticides, the value of the property reverts back to agricultural land values, a significant diminution of value. I made my estimate of value conditional upon the receipt of an acceptable geotechnical report and environmental report and prominently displayed this by my conclusion of value, and then presented a separate value of the property as agricultural land just in case the developer refused to present relevant documents. So far, this developer continues to refuse to cooperate.
As for why I ask to see purchase contracts, this is a USPAP rule (not required in Canada but sometimes followed), and it often alerts me to sales concessions, flips (when the seller is not the registered property ower), sales between related parties, or suspicious discrepancies, such as when a buyer or seller misspells their own name (suggesting forgery) or doesn't sign at all. The reason why I ask who the sellers are is if the sellers' names are different from the recorded property owner's names, the transaction becomes more suspicious. In a classic illegal flip, the buyer uses a disguise, such as an LLC or LP, to purchase the property at a lower price and then sell the property to himself at a much higher price, thereby fooling lenders and appraisers. The first time I saw this a doctor paid $1.8 million for an apartment building and then sold it to himself for $2.7 million, thereby tricking the lender into lending too much money on the property.
Lenders need to consider the consequences, though, of letting borrowers decide which questions they can decide to answer or not answer, which is tantamount to letting the borrower dictate appraisal policy and letting the fox run the hen house.
Next stop, Ecuador.