Chapter 10
BUILDING DESCRIPTION
Building Description 209
A n important part of every appraisal is the description of the building or buildings on the site. An appraiser describes each building's design, layout, and construction details, which include structural components, materials, and mechanical systems. The appraiser also determines building size and the condition of each element described. The building description provides the basis for comparing the subject property's improvements with improvements that are considered typical of the subject property's market.
Accurate building descriptions are essential to all valuation assignments. Through them the appraiser obtains a thorough understanding of the physical characteristics of the subject property, which is needed to identify and select suitable comparables. Building descriptions also enable the appraiser to identify the extent and quality of building improvements, calculate their reproduction or replacement costs, and determine most forms of depreciation. Therefore, the quality of building descriptions directly affects the value estimate produced by applying the three approaches to value.
ELEMENTS OF BUILDING DESCRIPTION
An appraiser prepares a building description by considering a variety of specific information in sequence. Primary concerns are the type of use represented by the existing building, the codes and regulations affecting this use, and the building size, plan, and construction. Also important are the structural details of the exterior and interior of the building and its equipment and mechanical systems both original construction and subsequent improvements. An appraiser must view a building objectively and analytically, paying careful attention to all components that ultimately contribute to the determination of the building's highest and best use as improved and any alternative highest and best uses required by the assignment.
Use Classification
Real estate is usually divided into five major use groups: residential, commercial, industrial, agricultural, and special purpose. The planning, construction, and use of buildings are restricted by various laws, codes, and regulations, which are enacted at all levels of government to protect the health, safety, and welfare of the public.
Zoning regulations establish the permitted uses of property. Existing and potential property uses must be checked against zoning regulations to determine if they are conforming or nonconforming uses. When the present use does not conform to current zoning regulations, the appraiser should consider how this fact might affect property value.
Building design and construction are controlled by building, plumbing, electrical, mechanical, fire and safety codes. When violations exist, the appraiser estimates the cost to correct the deficiency and judges the effect on value.
Building Codes
Building codes and standards are enacted at local, provincial, and federal levels. Most provinces have codes that control the kinds of buildings that are constructed within their borders, and require municipalities to maintain such standards. For most, the basis of these codes is the National Building Code. As well, federal and
210 The Appraisal of Real Estate
provincial regulations are established to ensure occupational health and safety, environmental protection, pollution control, and consumer protection. Building codes establish requirements for the construction and occupancy of buildings and contain specifications for building materials, methods of construction, and mechanical systems. These codes also establish standards of performance and address considerations such as structural strength, fire resistance, and adequate light and ventilation.
To describe a building adequately, an appraiser should be familiar with the codes in the area and examine whether the building complies with all applicable codes. A building that is not in compliance probably has less value than a similar building that is. Bringing a building up to code may produce additional expenses for its owners and may limit the building's future use.
Because building codes and material standards for all facets of construction are not uniformly established and enforced, industrial and professional groups such as the Canadian Standards Association have developed model codes and standards, which may also be adopted throughout the country.
Size
To prepare a building description, an appraiser must determine the building's size. This may be a formidable task because the methods and techniques used to calculate building size vary regionally, differ among property types, and may reflect biases that significantly affect value estimates. The appraiser must know the measurement techniques used in the area where the building is located as well as those used to describe properties elsewhere. Appraisers must use, interpret, and report building size measurement techniques consistently within each assignment because failure to do so can impair the quality of the appraisal report.
An appraiser uses the system of measurement commonly employed in the area and includes a description of the system in the appraisal report. One of the most common measurements, gross building area, must always be calculated, but other building measurements can sometimes be ascertained from plans, if they are available. Measurements taken from plans should be checked against actual building measurements because alterations and additions are often made after plans are prepared. The areas of attached porches, freestanding garages, and other minor buildings are always calculated separately.
Standards for measuring residential property have been developed by several federal agencies, including the Canada Mortgage and Housing Corporation (CMHC). Because there is a strong relationship between these agencies and the mortgage market industry, these standards have been used in millions of appraisals. As well, the Canadian Real Estate Association (CREA) and the Building Owners and Managers Association (BOMA) have also developed and promulgated standards for measuring properties.
Typically, appraisers use gross living area, also known less precisely as simply "living area", to measure singlefamily residences and gross building area (GBA) to measure multifamily buildings. Gross living area is defined as the total area of finished, abouegrade residential space. It is calculated by measuring the outside perimeter of the structure excluding exterior wall cladding and includes only finished, habitable, abovegrade living space. Finished basements and attic areas are not included in total gross living area. In the case of bilevel, splitlevel or other multilevel buildings, the gross living area is the sum of the gross area of each floor included within the structure, situated abovegrade.
Building Description 211
Gross building area is the total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls. It includes both the superstructure floor area and the substructure or basement area. Gross building area is also the standard of measurement for all industrial buildings. In addition to the above, the "Standard Method of Floor Measurement for Office Buildings" used by BOMA and the Society of Industrial Realtors, and recommended by CREA provides the following definitions:
a) Rentable area multiple tenancy floor, whether above or belowgrade, should be the sum of all rentable areas on that floor. The rentable area of an office on a multiple tenancy floor should be computed by measuring to the inside finish of permanent outer building walls, or to the glass line if at least 50% of the outer building wall is glass, to the office side of corridors and/or other permanent partitions, that separate the premises from adjoining rentable areas. No deductions shall be made for columns and projections necessary to the building.
b) Rentable area of a single tenancy floor, whether above or belowgrade, should be computed by measuring to the inside finish of permanent outer building walls, or from the glass line where at least 50% of the outer building wall is glass. Rentable area shall include all areas within outside walls, less stairs, elevator shafts, flues, pipe shafts, vertical ducts, airconditioning rooms, fan rooms, janitor closets, electrical closets and such other rooms not actually available to the tenant for his furnishings and personnel and their enclosing walls. Toilet rooms within and exclusively servicing only that floor shall be included in rentable area. No deductions shall be made for columns and projections necessary to the building.
c) To determine the number of square metres in a ground floor rentable store area, measure from the building line in the case of street frontages and from the inner surface of corridor and other permanent partitions and to the centre of partitions that separate the premises from adjoining rentable areas. No deduction should be made for vestibules inside the building line, or for columns or projections necessary to the building. No addition should be made for bay windows extending outside the building line.
d) In the case of industrial and warehouse buildings, in addition to the foregoing, free standing buildings with parking, loading and some usable storage around the building are measured on an "out to out" basis, whereby the outside perimeter wall is used to calculate the gross rentable area. In multitenancy buildings, the floor space is calculated from the outside wall to the centre of the party wall.
Gross leasable area (GLA) is commonly used to measure shopping centres. Gross leasable area is defined as the total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines. It is measured from the centre of joint partitioning to outside wall surfaces. Office buildings present special problems for appraisers because they are measured differently in different areas, and a host of definitions and slightly different terms are found.' Office building descriptions should include measurements of gross, and rentable building areas. Once, most office buildings were measured in terms of net usable area, which is the area actually occupied by a tenant. Now, however, it is the rentable area, as defined above, that is most
212 The Appraisal of Real Estate
frequently used. Notwithstanding the availability of standard definitions for measurement, some alternatives allocate a pro rata portion of the restrooms, elevator lobbies, and corridors to each tenant; one method also includes a pro rata portion of the ground floor main lobby in each tenant's leased area. Office building management may measure singletenant and multipletenant floors in the same building differently. Because these measurements vary with occupancies, an appraiser must apply a consistent method in calculating the floorbyfloor rentable area of a building.
An appraiser should never accept a statement about the size of a subject or comparable property without personally verifying the figure and determining how it was calculated. Moreover, creative leasing techniques have been known to lead to situations where the rentable area set out in the lease differs from that found by independent measurement. If unverified size information is used in an appraisal, the resulting value estimate could be erroneous or misleading. Building measurement is further complicated by different description practices in local and regional markets. For example, if condominiums are compared on a squaremetre basis, results may be skewed if the size of the subject property is expressed in terms of net living area while all market data are expressed in terms of gross saleable area, that is, including balconies. In both cases, square metre area is calculated, but the subject property's measurement must be adjusted to reflect the market standard.
Accurate measurement of building size is essential in the direct comparison approach, especially when the subject and comparable properties vary in size. The selection of units of comparison is based on market analysis, experience, and judgement. The subject property's size measurement can be adjusted to reflect the system of measurement used in the marketplace, or all the properties under consideration can be reduced to a representative unit such as square metres of gross living area, rentable or gross building area.
Building size is also important in estimating effective rent in the income approach to value. Comparable rentals rarely reflect buildings of exactly the same size. Therefore, size adjustments must be made to indicate the market rent of the appraised property. Often, comparable rental information is converted into rent per square metre. The rent for the subject property is estimated by multiplying the selected adjusted rent, based on the comparable data, by the number of square metres of rentable area. Expense figures obtained from market data are also converted into square metre units, which may be used for income analysis as well.
The calculations used in the cost approach to value require measurements of the entire building and certain building components. Two similar buildings with the same square metre area will have different costs if their exterior or interior walls are of different lengths. All significant differences must be considered when the cost of a comparable building is used to estimate the cost of the building being appraised.
BUILDING DESCRIPTION FORMAT
A complete building description includes information about the details and condition of a building's exterior, interior, and mechanical systems. Although there is no prescribed method for describing all buildings, the following outline may be used to establish a format for building descriptions.
Building Description . 213
A. Exterior description
1. Substructure
a. Footings
b. Slabs
c. Piles
d. Columns
e. Piers
f. Beams
g. Foundation walls
2. Superstructure
a. Framing
b. Insulation
c. Ventilation
d. Exterior walls
e. Exterior doors
f. Windows, storm windows, and screens
g. Facade
h. Roof and drain system
i. Chimneys, stacks, and vents
j. Special features
B. Interior description
1. Interior walls and doors
2. Division of space
a. Storage areas
b. Stairs, ramps, elevators, escalators, and hoists
3. Interior supports
a. Beams and columns
b. Flooring system (subflooring)
c. Ceilings
4. Painting, decorating, and finishing
a. Basements
b. Floor coverings
c. Moulding and baseboards
d. Fireplaces
5. Protection against decay and insect damage
6. Miscellaneous and special features
C. Equipment and mechanical systems
1.Plumbing system
a. Piping
b. Fixtures
214 The Appraisal of Real Estate
2. Systems that use energy
a. Hot water system
b. Heating systems
(1) Warm or hot air
(2) Hot water
(3) Steam
(4) Electrical
C. Heating fuels
(1) Coal
(2) Fuel oil