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Guidelines for Expert Valuation Report
 

Preface

Accredited Members of the IMA may be called upon to present their professional opinions and offer sworn testimony in courts and tribunals. In those circumstances, the member will be required to present, among other things, a valuation report that conveys the data, analysis, findings and conclusions that formed the basis for an opinion on value.

The request or retainer to obtain a report may be sought from IMA members who possess a wide range of skills and experience. As a practical matter, the first time each IMA member (or other assessment professional) is called upon to submit a valuation report to a court or tribunal, that individual will not yet have "earned the right" to claim to be an expert. The designation as an "expert" is conferred by each court and tribunal, and is reassessed at each appearance; it is not a self- description or synonym for a lengthy career or years of experience.

Acknowledging that the requirement to produce a valuation report will be relevant to a broad cross-section of IMA members at different stages in their careers, it is appropriate for the IMA to offer guidelines to achieve a measure of consistency in the contents and structure of these reports. Members are not required to follow the guidelines slavishly, but rather to use them as a checklist for organizing research, analysis and reporting.

Deviations from the guidelines can be expected as a matter of personal style and acknowledging the different circumstances for which a valuation report may be required. In particular, reporting in the nature of a peer review or to test an assessment derived by other means may follow an abbreviated version of the guidelines.

The IMA therefore encourages each member to apply these guidelines in all assignments and retainers that will expose the member's valuation work to a high degree of scrutiny, peer review and consideration by courts and tribunals.


 

 


Standard Template for an Expert's Property Valuation Report

This document presents guidelines for the format and content of a property valuation report (the "report" or "valuation report") to be produced for the purpose of presenting an expert opinion. The listed sections, and outline of the content in each section, should be applied directly or be readily apparent in a report that will be relied upon by an expert to establish or justify a property valuation.

This document has been drafted with the understanding that the reader will possess a high calibre of technical knowledge, experience in the field of municipal property assessment, and refined writing and communication skills. Accordingly, basic assumptions and terminology are abbreviated for ease of reference.

Finally, references to the author of the valuation report as an "expert" is for convenience.

 

1.    Nature and Scope of the Retainer

This section will outline the structure of the report and provide a high-level overview of its contents. It will specify the relationship between the expert and parties that commissioned the report. This section will also present the expert's credentials to perform the indicated scope of work including the provision of expert evidence and testimony.

a.    Report Title Page

The title page will specify the property being valued, recipient and author of the valuation report, and case or reference number if the report will be used in on-going proceedings before a court or tribunal.

b.    Report Cover Page

The cover page (or letter of transmittal) will specify the title of the report and list the following particulars:

i.    Client, municipal agency, tribunal or court to which the valuation report is directed.

ii.     Location of the individual or multiple properties (the "property") that is the subject of the valuation report.

iii.    Name of the firm or individual that prepared the valuation report.

iv.    Date when the valuation report was completed, either with reference to the completion of data collection, data analysis, or the date on which the final report is issued.

v.     Other details that may be relevant including a legal case or file number of the matter for which the valuation report was commissioned


c.    Letter of Transmittal

The letter of transmittal will refer to the expert's retainer and note conditions or constraints regarding the use or interpretation of the report, including reference to the following particulars:

i.    Date of transmittal.

ii.     Identification of the client or the client's designated representative (e.g., agent or law firm).

iii.    Caption that specifies the title of the valuation report.

iv.    Concise description of the expert's retainer and scope of work, which may include a summary of the client's interests and objectives.

v.    Disclaimers that may be applicable in the judgment of the expert.

vi.    Disclosure of any circumstances that could be interpreted as a real or perceived conflict of interest, or confirmation that no real or perceived conflict of interest exists.

vii.    Other conditions imposed by the expert on recipients or users of the valuation report, including the protection of privileged or confidential information.

viii.    Name and signature of the expert.

d.    Table of Contents

The table of contents will list all numbered sections (and subsections) of the valuation report, with corresponding page references. The listing of sections should generally correspond to the topics below:

i.    Executive summary.

ii.    Relevant experience and background of the expert to serve as a subject-matter expert (with résumé attached as an appendix).

iii.    Introduction and purpose of the report.

iv.    Description of the subject property and prevailing or applicable market conditions (photographs and maps attached as an appendix).

v.    Study approach and methodology.

vi.    Sources of primary and secondary data (bibliography and other source material attached as an appendix).

vii.    Stages of the research and analysis.

viii.    Interpretation, findings and conclusions.

ix.    Report attachments and appendices.


2.    Qualifications of the Expert

This section of the valuation report will specify the professional credentials of the expert. The listed credentials will comprise education, employment, accreditations, and relevant experience. These facts will establish the expert's technical capabilities to compile and analyse relevant data, and to express an expert opinion regarding the value of the subject property. Furthermore, this section of the valuation report provides an objective context to consider the weight and relevance that may be attached to the expert?s approach, methodology, findings, conclusions and opinions.

a.    Identification of the Expert (Corporate and Individual)

i.     Detailed professional qualifications comprising education, employment experience, accreditations, and list of relevant projects and reports (supported by a curriculum vitae attached as an appendix).

ii.     Abbreviated qualifications of other professionals that the expert relied upon in drafting the valuation report.

iii.     Broad details of corporate qualifications for the firm or other organization in which the expert serves as a partner, principal or salaried employee, and disclosure of the firm's business dealings with the client, if applicable.

b.    Affirmation of the Expert's Independence and Objectivity

i.     Written acknowledgement that the expert adheres to the professional standards and code of conduct of the professional associations in which the expert has membership or accreditation.

 ii.    Written confirmation that the expert's work represents impartial and objective analysis and advice to the agency, court or tribunal that may receive and consider the valuation report.

 iii.    Written confirmation that the analysis, findings and conclusions were not influenced by the expert's employer, or any other third-party, if applicable.

 

3.    Logistics of the Assignment

This section of the valuation report will specify details of the relationship between the expert and client (or employer) that commissioned the  valuation report (annexing the retainer agreement if applicable). This section also lists key associates and resources that the expert relied upon to complete the report (previously summarized under "Qualifications of the Expert".

a.    Date of Retainer

i.    Acknowledgement of the correspondence that the expert relies on as authority to perform, and be paid for, the provision of professional services.

ii.     Key dates when the expert received authority to proceed and the timeframe in which the analysis was performed.

b.    Participants in the Assignment

i.    List the names, qualifications and duties of all professionals that played a direct role in drafting the valuation report.

ii.     List the names and qualifications of firms and professionals that supported the expert in conducting primary research, compiling and analysing empirical data, and drafting or editing the valuation report.

c.    Sources of Data

i.    Summarize the sources of empirical (market) data that were considered in the analysis, whether or not relied upon or cited in the valuation report.

ii.     Specify the timeframe of the analysis with respect to historical data, and the projection period if applicable, that was considered in the valuation report (e.g., to project stabilized net operating income).

iii.     List any conditions that would restrict the public disclosure or secondary use of the empirical data relied upon to produce the valuation report (e.g., for due diligence or peer review). This should include any restrictions imposed on the expert to preserve the confidentiality of data obtained from taxpayers or other restricted sources.


4.    Study Approach and Methodology

This section of the valuation report will specify the way in which the expert undertook quantitative and qualitative research and analysis. The sources and uses of data will be specified, including an explanation of the suitability of the methodology and data to deal with the nature of the subject property, and the valuation issues that were presented to the expert.

a.    Objectives of the Assignment

i.    This section of the valuation report will specify the client's (or agency's) purpose in seeking an expert's valuation of the subject property (or portfolio of assets if applicable). The client's objectives must articulate the property interests to be valued and the valuation year or other period to which the valuation will apply.

b.    Applicable Legislation in the Jurisdiction

i.     This section of the valuation report will identify the jurisdiction in which the property interests were valued, and refer to the legislative authority that guided or informed the definitions and methods for valuation of those interests (e.g., the Assessment Act in Ontario).

 ii.    This section of the report will also identify the public agencies that have jurisdiction over property use, if applicable, to consider assumptions regarding "highest and best use" or if reference must be made to governmental regulations and constraints to development as they pertain to the subject property.

c.    Statement of Issues in the Context of Litigation

i.    When the valuation report is prepared in contemplation of litigation, there may be additional objectives that inform the scope or other aspects of the valuation tasks and report. When those objectives are known (e.g., a list of issues that may have been agreed between the parties), the expert will make reference to those issues and attach any orders or other documentation in an appendix to the report.

d.    Key Definitions of Terminology Applied in the Valuation Report

i.     The valuation report must be understandable to experts and non-experts alike. To achieve this purpose, the definition of key terms that are relevant to, or imbedded in the approach, methodology, assumptions, and sources of data, must be presented.

 ii.    Terminology should conform to industry standards that are in common use in the valuation jurisdiction.


iii.     Definitions and other terminology drawn from texts or other published sources should be attributed to the authors or sources by use of footnotes and endnotes.

iv.    The value or range of values that is produced in the valuation report must be consistent with the objectives of the assignment.

e.    Explanation of Alternative Approaches

i.    There is often more than one approach or methodology that may be applied to prepare a property valuation. Different valuation approaches, however, may require different assumptions and sources of data (e.g., alternative methods of producing an income valuation).

 ii.    Therefore, it is necessary to describe both the approach and methodology that were applied in the valuation report, and account for alternative methods that were available but not considered appropriate for use. The explanation of alternative approaches should state why the expert selected the valuation techniques that were applied in the valuation report.

f.     Sources of Data

i.    The report will specify the types of empirical research that were conducted.

1.    Details of primary research including surveys, interviews, field investigations, materials testing and other forms of observation and data compilation.

2.    Details of secondary research that was performed including reference to syndicated or published surveys, documents including leases, licenses, agreements, annual reports and other published data, and statistics compiled by public agencies including census data, inflation rates, taxation rates and MLS transactions.

3.    A bibliography of reference documents referred to or relied upon should be included in an appendix to the report.

g.    Key Assumptions

i.    Data obtained from empirical sources will be supplemented by assumptions, often referred to as contingent or limiting conditions, which constrain the scope of analysis. In this section of the valuation report, the expert will list the principal assumptions, which may include the following:

1.    The legal description and other physical dimensions of the subject property are assumed to be correct.


2.    The fee simple interest and title to the subject property are assumed to be free of legal restrictions and are marketable.

3.    Encroachments, easements, and other legal or physical limitations on marketability, use or value of the subject property are not considered except if expressly communicated to the expert.

4.    Opinions, estimates, data and statistics furnished by others in the course of investigations, are assumed to be legitimate, impartial and correct.

5.    Governmental authorities and applicable legislation will not change from the circumstances that were known at the time of the valuation.

6.    Economic conditions and trends will not change from the circumstances that were known at the time of the valuation.

7.    Key assumptions regarding the treatment of business enterprise value, encumbrances, and other value- enhancing and value-limiting considerations.

 

 

5.    Stages of the Research and Analysis

a.    Explanation of Data Collection Procedures

i.    This section will describe the steps that were taken to obtain data from each listed source, and any constraints that were encountered relative to the survey or data collection plans of the expert.

b.    Explanation of Due Diligence Procedures

i.    This section will describe the steps that were taken to verify the accuracy, reliability and impartiality of data that were obtained from secondary sources, including any cautionary remarks from the expert with respect to constraints observed or inherent in the secondary sources of data.

c.    Horizon of the Study and Projected Market Conditions

i.     The expert will specify the time period of any forward-looking analysis that was applied in the valuation report (e.g., with respect to projected cash flows or the marketing period for the subject property).

ii.     The expert will also express an opinion regarding factors, events or conditions during the forecast period, and implications if any for the valuation.


d.    Description and Assessment of the Subject Property

This section of the valuation report will present relevant characteristics of the subject property that directly influence the valuation (i.e., permit the identification of comparable properties or affect the classification of the property within its sector or segment of the market).

i.    Building class, features and amenities.

ii.     Land and floor area, and other physical dimensions or conditions of the property and improvements.

iii.    Location relative to municipal services, transportation and other features that influence visibility, accessibility and marketability.

iv.    Attributes of municipal services, transit and transportation, and other local or regional characteristics that influence comparability to other properties and marketability.

v.    Pertinent details of permitted land use pursuant to land use regulations affecting the subject property including Official Plan, zoning by-laws, and other property designations that may be applicable (e.g., constraints arising from proximity to an noxious land use).

vi.    Statement as to conformity of existing land use and improvements with permissions and entitlements (e.g., legal but non-conforming).

vii.    Narrative analysis of the foregoing and implications for property valuation including the premium or discount that may be associated with each relevant factor, and that may contribute to a consideration of equity.

e.    Description and Assessment of Improvements.

i.    With respect to the major improvements and subsidiary components that are affixed to the property, the description  will consider the following factors that are relevant to establishing comparability with other properties and calculating value:

1.    Age and condition

2.    Design and layout

3.    Structural and interior finishes

4.    Other physical features that are deemed to be relevant by the expert.

ii.    Consideration should be given to depreciation & obsolescence including physical depreciation and actual functional obsolescence, both curable and incurable. Locational obsolescence (usually incurable) should be commented on.


f.     Description and Assessment of Market Conditions.

i.     Prevailing market characteristics including vacancies and new development, plus relevant economic trends.

ii.     Historical and current occupancy rate.

iii.     Tenant mix and covenants.

iv.     Reported and advertised rental rates, including tenant inducements and leasehold improvements.

v.     Prevailing capitalization rates.

vi.     Development costs (if applicable) segregated into hard costs (site preparation, construction of improvements and other capitalized expenditures), and soft costs (planning approvals, construction management and other deductible expenses).

vii.     Economic conditions including recent trends in population growth, unemployment rate, consumer price index, mortgage and borrowing rates, and for the applicable sectors, sale prices, lease rates, vacancy rates and measures of investor confidence.

viii.     Narrative analysis of the foregoing and implications for property valuation.

 

6.    Interpretation and Reporting

This section of the report will consolidate all relevant factors that influence property use and value. Key attributes of the site and situation of the subject property will be summarized, along with relevant comparable properties that share similar attributes, and which may be relevant in consideration of equity.

a.    For all Valuation Methodologies:

i.     Presentation of a rank-order list of factors that are relevant, and influenced the expert's opinion of the value of the subject property.

ii.     Implications of any circumstances arising from the market or property analysis that influenced the expert's use of market and property data (e.g., non-arms,length transactions, insufficient actual or comparable transactions).

iii.     Explanation of adjustments applied to market or empirical data that would not be self-evident to casual or trained readers of the valuation report.

b.    For valuations that are based exclusively on comparable properties and related transactions:

i.     Explanation of the relevance and weight attached to each comparable.

ii.     Explanation of the scoring or averaging of factors as they were applied to the subject property.

iii.     Consideration of the "equity" achieved by the valuation with reference to the comparable properties.

iv.     Valuation results applicable to the subject property and explanation of the reasonableness of that conclusion.

c.    For valuations that are based, in whole or in part on financial analysis:

i.     Explanation of capital costs applied to the cost or income valuation.

ii.     Explanation of operating and maintenance costs applied to the cost or income valuation.

iii.     Explanation of each line item of revenue and expense applied to the cost or income valuation.

iv.     Explanation of other adjustments to cost figures and indices.

v.     Explanation of adjustments to property-specific or market data that were applied in deriving net operating income.

vi.     Explanation of inputs to the capitalization rate including transactions, rate studies and professional judgment.

vii.     Explanation of the source and value of effective tax rates applied to the capitalization rate, if applicable.

d.    The resulting property valuation (specific or range) for the applicable years.

The expert will summarize the valuation arrived at by one or more methodologies, and the assumptions, calculations and results of the reconciliation to produce a final estimate of value (or range if applicable).

e.    Potential implication of factors that were not considered in the analysis.

The expert will state the known or unknown implications of key factors that could not be determined or were assumed in the context of the analysis. These factors may include sources of data that are known to exist but were not available to the expert, or the implications of slightly different assumptions that were plausible but determined to not apply to the valuation analysis.

 

7.    Findings and Conclusions

This section of the report will address the objective of the valuation report and state the expert's conclusions and opinions, and are repetitive to the same topics that will be addressed on the report cover page, including:

a.    Recapitulation of key issues and objectives of the assignment.

b.    Summarized results of the analysis with respect to each stated issue and objective.

c.    Final opinion of value and effective date


 

 

Appendix A

Subject Property Selection Criteria

 

1.0       The appraisal assignment, irrespective of the type of property selected, must be a valuation of the ?fee simple? (unencumbered by the existence of any leases, mortgages, etc.).

 

2.0       Examples of property types that are generally best suited to demonstrate your knowledge:

2.1        Urban residential house built prior to 2000.

2.2        Small walkup apartment.

2.3        Small industrial building.

2.4        Retail strip store.

2.5        Small office building.

Note: Irrespective of the type of property selected, the analysis has to include the Market Data, Income and the Cost approaches to value.

 

3.0       Further considerations on the selection of an appropriate property:

3.1        Property must be improved with at least one structure.

3.2        Owner's consent, (virtual properties will not be accepted).

3.3        Sufficient market data on subject and comparable properties:

i.              To develop a full narrative appraisal report sufficient market information must be available to apply the three traditional approaches to value.

ii.             There should be sufficient sale, rental and cost evidence to support your analysis and conclusions.

3.4        To demonstrate understanding of depreciation do not select a new property.

3.5        In order to prove appropriate depreciation on income producing properties; the site must be improved with at least one structure, be subject to the "highest and best use" principle and be a minimum of five years old.

3.6        The subject property must contain a minimum of one example of curable physical deterioration.

 

4.0       As an addendum to the expert valuation report, the candidate may attach "Appendices" and "Resume".

 

Dec. 30, 2014

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