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A short glossary to help you understand the terms used in your evaluation.

OPTIMAL USE

The best and most profitable use is the one that, at the time of the valuation, gives the building the highest value either in money or in pleasure and/or convenience of a place.

The best use meets the following conditions:

  • a possible use on the physical level;
  • must be permitted by the regulations and the Act;
  • must be financially possible;
  • must be able to materialize in the short term;
  • must be related to probabilities of realization rather than mere possibilities;
  • there must be a demand for the asset valued at its best use;
  • finally, the best use must be the most profitable.

DEFINITION APPARENT AGE

While the chronological age of a building is simply the number of years between the date of completion of the work leading to its realization and a given reference date, its apparent age is the number of years it appears to be, given its condition and usefulness at the same date. For newer, normally maintained buildings, the difference between the two concepts is negligible. On the other hand, the notion of apparent age takes on its full meaning when it is used to qualify older buildings that have been, to varying degrees depending on the case, maintained, repaired, renovated or even extended.

The chronological age is therefore the starting point for the apparent age, which is then influenced by the improvements made and the deterioration and obsolescence that may have occurred. It is usually not higher than the chronological age, but it is still possible. Contrary to what its name might suggest, the apparent age is not the result of an impression made by the person who established it. It is more the result of a structured set of factual observations that can take two forms. According to accepted doctrine, the apparent age of a building can indeed be established:

  • the chronological age of similar buildings of equivalent utility that have undergone only normal maintenance since their construction (i.e. not renovated or expanded);
  • by collecting accurate data on its original date of construction, the date of any additions or renovations beyond normal maintenance, and the condition and state of maintenance of its various components.

To facilitate data processing and calculations, evaluators also use the concept of “apparent year”, which is expressed as a vintage. This variant has the advantage that it can be reused at different reference dates (for example, a building assigned an “apparent year” of 1995 will have an apparent age of 10 years in 2005 and 13 years in 2008).

When it comes to quantifying depreciation for valuation purposes, it is the economic longevity of the subject building that should receive the most attention. Also expressed as the number of years since its construction, the economic life represents the total period during which it is reasonably foreseeable that the subject building will contribute to the value of the property of which it is a part, by responding positively to the functions for which it is intended and to the conditions that make it competitive, when compared to other similar existing buildings (or reference group). The economic life is therefore an estimate of the period during which a building has the capacity to meet the needs of its potential users, which takes into account not only its physical capacity, but also its desirability, particularly in terms of functional and economic aspects. Thus, although the economic life of buildings cannot exceed their physical life, it is generally shorter.

Although useful for quantifying the depreciation of recent or middle-aged buildings, the use of the originally estimated economic life may in other cases be difficult or even implausible, for example when a building is still in use at the end of that period. Therefore, for the purpose of quantifying the depreciation of any aged building, its remaining economic life should also be considered. Expressed as a number of years from the reference date, it represents the entire future period during which it is reasonably foreseeable that the subject building will continue to contribute to the value of the property of which it is a part, by responding positively to the functions for which it is intended and to the conditions that make it competitive, as compared to other existing similar buildings (or reference group). Estimating the remaining economic life is therefore an alternative to estimating the economic life, which quantifies only the future period during which a building will maintain its ability to meet the needs of its potential users, regardless of the period that has already elapsed.

 

DEFINITION OF DEPRECIATION

Depreciation represents the loss in value of buildings and improvements relative to their value when new as indicated by replacement cost or reproduction cost. This loss of value comes from the ageing of the building or from obsolescence resulting from a bad arrangement, a social or economic change.

Depreciation is therefore a decrease in value resulting from physical deterioration or functional and/or economic obsolescence. It represents the difference between the new reproduction cost and the value at the time of the evaluation.

Determining the causes of depreciation and quantifying the resulting decrease in value are essential operations in the valuation of a building by the cost method, because they make it possible to establish the appropriate amount to be subtracted from the new cost in order to obtain an indication of the value.

The depreciated cost thus obtained represents the contribution of the buildings to the total value of the building. Depreciation and new cost are inseparable, since replacements of existing items, considered in the calculation of new cost, have a direct influence on the measurement of certain forms of depreciation.

 

LAND VALUE

The value of the land as assessed in this report is derived from the analysis of land sales with relatively comparable characteristics. The method used is the comparison method and requires certain adjustments to be made to selling prices when necessary. For the purpose of this analysis, we performed the replacement cost replacement calculation using the “MARSHALL & SWIFT” cost directory. Impairments are caused by the condition and nature of the building and the market conditions prevailing at the time of valuation. They can also be caused by a loss or functional excess of the property. Accumulated depreciation includes physical, functional and economic depreciation since it is a global depreciation.