Comparison method
This method estimates the market value of the subject property based on observations of similar properties that have recently sold and are located in the same or similar area as the subject property. This method is considered to be direct evidence par excellence, as the data comes from the market and reflects its trends at the date of the valuation. It requires the collection and analysis of transactions of “comparable” properties in order to establish parity relationships that are likely to reflect an indicative tangent of the probable market value sought, following the consideration of relevant adjustments for certain disparate aspects. As with the cost method, it can be stated that this method is based on the substitution principle. This principle assumes that an informed buyer will not pay more than it would cost to purchase a similar building providing an equivalent service. The appropriateness of this method is based on the fact that the properties selected for comparison have similar characteristics to the subject, while generally being economically similar units. This method consists of comparing sales of comparable properties and adjusting them to the particular characteristics and conditions of the property being appraised. This approach remains the preferred method when market conditions and parity data are sufficient for the property being appraised.
Costing method
This method first assesses the market value of the land as if it were vacant and in its best and most profitable use, and adds it to the depreciated cost of the building and its improvements as of the date of the assessment. The new replacement cost is the opportunity cost of constructing, at current prices, a building of equivalent utility, quality and design to the building under consideration, using similar and modern materials, using current standards, concepts and design patterns. Subsequently, depreciations related to physical deterioration due to the passage of time, functional obsolescence and economic obsolescence are subtracted to obtain the depreciated replacement cost of the building which is deemed to correspond to the current physical, functional and economic condition of the building under study. This method is considered indirect evidence, as the tracked value is not derived from the compilation of market data, except for the land value. Empirically, the cost approach represents the amount of money required to produce a good, whereas value appeals to the notion of the existence of a relationship between the desired thing and the buyer’s capabilities, combined with the vagaries of the market. Originally, we can state that this method is based on the substitution principle. This principle assumes that an informed buyer will not spend more than it would cost to construct a similar building, taking into consideration the value of the land involved, as well as the various items of physical deterioration and functional and economic obsolescence attributable to the subject building at the time of purchase. The cost method can be used to validate a value result obtained by other methods, to evaluate the contributory value of certain improvements. The cost method can be used to validate a value result obtained by other methods, to evaluate the contributory value of certain improvements.
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.
Cost type
The reproduction cost represents the cost of replacing a building with an identical one. It includes the cost of building a new property that is an exact replica of the other, based on current prices and using the same or similar materials.
Reconstruction cost refers to what it would cost to completely rebuild a building. This cost takes into account both the building elements that must be reproduced and those that can be replaced without detracting from the overall character and architecture of the building. For items that must be reproduced, the appraiser must refer to the definition of reproduction cost. For items that could be replaced, the appraiser must refer to the definition of replacement cost.
Replacement cost is the opportunity cost required to construct at current prices, as of the date of the appraisal, a building of equivalent utility to the one appraised, using similar and modern materials, under current construction standards, designs, and development patterns. Current building standards means the requirements imposed by federal standards. Provincial, regional and/or municipal standards should also be considered if they are more restrictive than federal standards.
Revenue method
This method consists of estimating the market value of the property based on the net income it can generate and the returns required by the market for this type of investment. The basic principle is that the market value of the property is equal to the present value of future earnings. This method is based on the principle of anticipating future income and allows us to establish the value of a property by reflecting the price that an investor would pay, taking into account the income and the rate of return that he or she anticipates on the invested capital. In applying the income approach, it is important to measure the past and present performance of a building in order to determine its future potential. This method applies to commercial properties used to generate investment income. It is important to note that this method must be used considering the result obtained by the comparison method when correlating the final value result, especially when valuing buildings for owner-occupiers.
INSURABLE VALUE
Value for insurance purposes is the value of an asset relative to its insurable loss. This value is often based on the cost of reproduction, replacement or reconstruction of the insured property as defined in the fire insurance policy.
For this type of property, the cost method is recognized as being the most representative in order to establish the replacement cost. Although it is considered indirect evidence to obtain value, for insurable value purposes, we do not look for market value but rather the cost of rebuilding to new. Construction after a loss may result in additional costs before replacement or repairs can be made. This may include complete or partial demolition and/or removal of debris to make the site clear and safe for reconstruction. This can vary depending on the location, type of disaster, type of construction and extent of loss. For example, a burned building may require only simple debris removal, while a partial loss of storm damage may require more complex cleanup and debris removal. After a loss or demolition, while the excavation and foundation may still exist, the need for repair and modification usually discourages its reuse. In addition, after a few years, the value, style, building code or character of the neighborhood may have changed sufficiently that reuse of materials is rarely attempted: when foundations or floor slabs are reused, expenses must be incurred for rehabilitation and alteration. Underground mechanical piping is in much the same category, with little recovery value in relation to reuse. After a disaster, plans, specifications, and engineering are rarely reused on the same site because buildings are usually not rebuilt in exactly the same way. In addition, the plans often remain the property of the architect, so that another use, with the necessary modifications, causes additional costs. In the case of older buildings, plans and specifications may have been lost or misplaced, which also results in additional costs. Architectural fees for supervision pay for necessary functions that can be performed by a builder’s control agency or by a resident engineer or supervisor employed by the owner, but are a necessary cost of construction and must be considered when replacing a structure. Contractor profits and overhead are included in all costs written into the costing methodology since they come from Marshall & Swift and cannot be excluded. They are as much a part of the reconstruction costs as the cost of labor.
