Market Value Definition
A key component to understanding the appraisal process is understanding the definition of market value. The Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) includes the following definition of market value:
"The most probable price which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
Implicit in this definition are the consummation of a sale as of the specified date and the passing of title from seller to buyer under conditions whereby:
buyer and seller are typically motivated;
both parties are well informed or well advised, and acting in what they consider their best interests;
a reasonable time is allowed for exposure in the open market;
payment is made in terms of cash in Canadian dollars or in terms of financial arrangements comparable thereto;
the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."
Most appraisal assignments are current market value appraisals with the effective date being the date of inspection. Unless otherwise instructed by the client, all current market value appraisals are "AS IS" appraisals, based on the condition of the property as seen at the time of inspection and the comparable sales available at that time.
Some appraisal assignments require market value as of a past date, such as a date of separation for marital dissolution appraisals, date of death for estate settlement appraisals or date of conversion from principal residence for capital gains calculation. These are known as "retrospective" appraisals and require reliable information about the condition of the property as of the retrospective effective date. For a typical retrospective appraisal, comparable sales from 180 days prior to the effective date and 90 days beyond the effective date are given consideration. It should be noted that we generally limit our retrospective appraisals to a five year time frame.
Occasionally, an appraisal assignment requires market value based on a future effective date. This is known as a "prospective" appraisal and requires a reliable prediction of future market trends. Our appraisal firm does not currently undertake prospective appraisal assignments.