Here is an example of how a CRA has successfully diversified his practice.
Leigh Walker is a Managing Partner with LawrensonWalker Real Estate Appraisers in Vancouver, British Columbia and specializes in residential appraisals He has worked in the real estate industry since 1993 and is a designated CRA appraiser with the Appraisal Institute of Canada (AIC). He is also a member of the Greater Vancouver Real Estate Board (GVREB), the Canadian Real Estate Association (CREA) and the Mortgage Brokers Association of BC (MBABC). In 2011, Leigh was elected to the Executive of the AIC’s Vancouver Chapter and was appointed to the provincial Board of Directors of the AIC’s BC Association.
What is meant in the appraisal profession by the term ‘impaired properties?’
Impaired properties are those with unique characteristics that have a negative impact on value. Those characteristics can be physical, locational, legal, stigma, etc. The types of impaired properties I tend to come across in my practice are marijuana grow operations, strata properties with large capital projects or special assessments, sites with soil contamination, and, occasionally, crime scene sites.
Is there a significant amount of work for appraisers in this particular area?
My company does not actively seek out this type of work, but, as appraisers in this particular marketplace, we see our fair share. Unfortunately, both illegal and legal marijuana grow operations are part of the landscape in which we operate. There are an estimated 20,000 illegal grow operations that are active in BC, with 4,000 in Vancouver alone. When you add former grow ops and legal grow operations to that total, it is a property scenario we come across often. I would say that my firm encounters a home that has been used as a marijuana grow operation once or twice per week and this has been consistent over the last few years.
How did you get started doing ‘impaired’ properties?
In the mid-1990s, BC experienced what was known as ‘The Leaky Condo Crisis,’ which was a period when a large percentage of condominiums built within a certain time frame experienced significant water ingress problems resulting from premature building envelope failures. The total cost to repair these ‘leaky condos’ was estimated to be approximately $4 billion. During that period, I was performing appraisals extensively for a mortgage insurer who was in the midst of the crisis and quite exposed from a mortgage security point of view. That was when I learned a great deal about how an appraiser goes about valuing impaired properties.
Did you take additional professional development in this area?
At that time, professional development for appraising these types of properties did not exist. Instead, I had to get creative with my research. I made contacts in the building inspection and site remediation industries, which helped me better understand how a marijuana grow operation can physically affect a house.
To better understand strata properties, I took courses offered by the Greater Vancouver Real Estate Board. The courses were designed for Realtors, but were extremely useful from an appraisal perspective as well. I also volunteered on several strata councils as president and member-at-large, which gave me a better understanding of the Strata Property Act and how strata corporations deal with various financial and repair issues.
My best education, however, was working closely with a fantastic mentor. Nothing can replace the passing of knowledge from one generation to another. My mentor was Don Lawrenson, CRA. I joined his firm, Don Lawrenson and Associates Ltd., in 1996 and purchased it from him in 2007. Don is still an appraiser here today.
How do you ensure that you stay within your CRA scope of practice when appraising these types of properties?
In my opinion, this simply boils down to following the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP). We keep close tabs on zoning, highest and best use, four-unit maximum, development potential, etc. We have also developed relationships with a number of commercial firms and we regularly refer assignments to them when we are “out of scope.” A CRA needs to be very conscious of scope and should never hesitate to decline assignments that are outside it. Conversely, I strongly believe that AACIs who do not meet the competency requirements for residential assignments because they primarily work in commercial real estate should refer those assignments to a CRA. The competency requirement cuts both ways.
What parts of an appraiser’s skillset are most called upon when valuing an impaired property?
You will use your investigative skills, your research skills, and your knowledge of the marketplace. What is most interesting is using your skills to better understand how the ‘market’ will react to a particular impairment. Will the impairment scare away buyers or lenders? If so, how does that affect the value?
What are the biggest challenges faced in appraising impaired properties?
The types of properties that are considered impaired are always changing. As I stated earlier, leaky condos were a large part of my work in the late 1990s. However, today, there are very few of those cases and significantly more of the marijuana grow operation variety. In the future, I am sure that we will likely be dealing with some other type of impaired property.
What has been challenging and interesting is determining how various sub-markets view properties that were previously grow operations. Depending on the marketplace and the trends in that market, the stigma associated with the property may be entirely different. For example, I am sure that people in BC view these properties differently than they may do in some other provinces.
Even within BC, the level of stigma associated with a grow op and how long the stigma will last can vary from suburb to suburb. Lenders’ and mortgage insurers’ policies on homes that were former grow ops can also change depending on the market conditions, so it can sometimes be tricky to keep up with all of these moving parts.
What do you find rewarding about this type of work?
Appraising impaired properties is extremely interesting. The majority of appraisal assignments that I do for mortgage purposes often tend to be somewhat monotonous. It is refreshing to take on assignments that are outside the box. While this type of work has made my practice more challenging, from a personal perspective it has also made me more of a well-rounded appraiser.
Would you recommend this type of work to other appraisers?
Absolutely, I think it is important for an appraiser to be both willing and able to take on the assignments that are more challenging. It is frustrating for me to hear that an appraiser has turned down a residential assignment simply because it was difficult. If it is too difficult for a designated member of the premier appraisal organization in the country, then who IS qualified? I am not suggesting that anyone operate outside their competency, but, by taking on more challenging assignments, an appraiser has a genuine opportunity to enhance his or her knowledge and to develop and grow their skillset.
What suggestions or advice would you give an appraiser who is considering taking on an impaired property assignment?
The best advice I can give is to slow down and take your time. It can also be a good idea to contact your client in advance of completing the appraisal and advise them of the situation. Finally, if you are new to this, work closely with a mentor and remember that your report must always comply with CUSPAP.