Appraisal in Quebec: A Lesson on the difference between “Aggregate retail value” and “Market value”

The properties consisted of scattered land parcels of almost 2000 acres zoned for recreation and tourism, including a golf course and a lodge, in a rural part of Quebec in the vicinity of the Ottawa and the Coulonge Rivers. The rivers and lakes provide boating, fishing, and waterfalls that attract a moderate number of tourists, and second homes are sometimes built or bought by urban residents from Ottawa or Gatineau, about 150 km away.

There had been a few lot sales over the last 12 years at prices sometimes exceeding $100,000 (CAD) for the best lakefront lots. The developer had employed a Canadian residential appraiser to appraise a few lots between 2008 and 2012, but never ordered an appraisal of the entirety of the property holdings, which would have required a commercial appraiser. Instead of ordering new appraisals, the developer just had the original appraiser (from Gatineau, 150 km away) send annual letters expressing his opinion that values had not changed. This does not quite meet the standard of a current market value appraisal, though. When lots don’t sell as predicted, an appraiser must always consider that the market may have changed.

More important to understand, though, is the common mistake that laymen make in assuming that market value of the entirety of lots is the sum of the retail lot values, or “aggregate retail value”.  This would only be true if the entirety of the lots could be sold in less than a year. In a slow-moving market like rural Quebec, though, the absorption would take many decades. The American Uniform Standards of Professional Appraisal Practice (USPAP) and U.S. federal banking regulations are clear that “market value” is not aggregate retail value but must be discounted for time and holding costs to be considered “market value” for lending purposes.

From a lender’s point of view, “bulk sale value” is the more acceptable estimate of value. If the lender must foreclose, they want to know how much money they can get back in a reasonable amount of time, usually no more than a year. A lender is not going to wait 36 years for all the lots to sell out. That requires an appraiser to do a lot of discounting for holding costs, marketing costs and expected rates of return on such an investment. For this reason, there are often great disparities between “aggregate retail value” and “market value” for such large properties.

As beautiful as rural Quebec is, I was disappointed in my search for French cuisine. Staying in Bryson, Quebec, I asked the front desk clerk if there was a restaurant in town. She said yes. I asked “So, what’s its name?” She said “Restaurant”. As with the other Quebec restaurants in the area, the menu items were confined to sandwiches, burgers and pizzas. It seemed like any American restaurant, except when the waitress stopped by to ask “C’est bon?” [Is it good?] This question took me by surprise, as the whole order had been taken in English, and being on the border with Ontario, most people in this area spoke to me in English.

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