Friday, October 22, 2010

Appraisal in northern Saskatchewan

The property consisted of 190 acres in northern Saskatchewan in a summer tourism area. The local topography is glacial moraine, similar to Minnesota and Wisconsin, and features thousands of small lakes. The largest lakes have attracted small villages of summer cottages, most of which are unoccupied during the long winters at this latitude (53 degrees north).

Despite the booming Saskatchewan economy, buoyed by increasing world demand for potash, oil, and wheat, northern Saskatchewan remains a sparsely populated, slow-growing region. The local "Rural Municipality" (the Saskatchewan equivalent of a county), for instance, was last measured as having only 846 residents, increasing at a rate of about 17 new residents per year.

These 190 acres were acquired in 2007 and 2008 with the intention of building another vacation home subdivision. Unlike other vacation home subdivisions in the area, though, this property is not situated on a large lake, but has several small lakes within. Its terrain is quite hilly.

As nearby subdivisions continue to struggle to sell lots, the developer made the decision to seek a zoning change to allow development of a high-density senior "care and wellness facility" (with assisted living) and multifamily housing (fourplexes). This change in plans from conventional residential development to a "care and wellness" facility reminded me of my last appraisal in Costa Rica (see March blog), as the decision to develop a care facility in a remote, rural location usually occurs as an afterthought when the developer runs out of viable options.

Successful assisted living facilities usually have most of the following attributes:

1. Close proximity to a hospital. (The subject property is 35 minutes away from the closest one, and winter road conditions can prolong the journey to the hospital.)

2. Flat terrain. Seniors in ALFs often have trouble walking, and hills, particularly ice-covered hills, can limit their mobility outside the care center building itself. (My own father lives in an ALF in New Hampshire.)

3. Close proximity to relatives and friends. (The subject property is 113 km north of Saskatoon, a city of 223,000, the presumed source of most of the new residents, and the local area is very sparsely populated -- 846 residents in the entire rural municipality.)

4. Desirable climate. That needs no further explanation. On the plane ride to Calgary, for instance, I met a senior couple from Alberta (next to Saskatchewan) who had just made an offer on a house in Las Vegas.

In other words, there seems to be no compelling reason for most seniors to relocate to remote northern Saskatchewan. Sending Granny to isolated north Saskatchewan, moreover, doesn't seem much kinder than the ancient Inuit custom of launching infirm seniors into the sea on ice floes.

One nice thing about appraising in Canada is the provincial land registry systems. Sales data can be obtained for free in Alberta, for a small fee in Saskatchewan, or for a higher fee in British Columbia from a private vendor, such as Landcor. Most legal descriptions are based on the TRS system (township-range-section), and can be easily located on maps.

My client was interested only in the "as is" value of the site. Searching within a nine-mile radius plus the local rural municipality, land sales in the last 18 months ranged from $200 to $1500 per acre, and there had been no land sales above $295,000. The requested loan amount was more than $10,000 per acre.

The developer had hired his own Canadian appraiser, who estimated the value at $20,000 per acre, but this value was predicated on several undisclosed "hypothetical conditions", such as the subject land being rezoned and legally subdivided, and able to sell out its lots. Current zoning only allows two to four dwellings on the entire 190 acres, though.

Unlike the U.S., Canada does not statutorily require an appraiser to estimate "as is" value or to disclose hypothetical conditions in the report, which can seriously impair the credibility of a Canadian appraisal report. That might be the reason I get sent so often to Canada.
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Vernon Martin, MSRE, CFE said...

I've heard from some Canadian appraisers on the issue of required disclosure of extraordinary assumptions and hypothetical conditions, and at least two Canadian appraisal organizations have professional standards requiring such disclosures.

So far, I have not heard of any statutory requirement for such disclosures in Canada, which may be why some designated Canadian appraisers have omitted such disclosures.

I mean no disrespect to Canadian appraisers and I have also observed ethical lapses in appraisers the world over, including the U.S.
That is the nature of the valuation business, with some appraisers bending the rules to favor a temporary client.

USPAP is law in the United States, so the creation of a misleading appraisal with the use of undisclosed hypothetical conditions and extraordinary assumptions places civil and criminal liabilities on U.S. appraisers, which provides a strong incentive for many of us to remain honest.

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