Timothy Browaty on residential property appraisals

Adrian:

I'm joined today by Tim Browaty of Browaty & Associates, which is a local appraisal firm. Hi, Tim.

Tim:

Hi, Adrian.

Adrian:

Tim, tell me a little bit about yourself and your company.

Tim:

Sure. I'll start talking about the company a little bit. Browaty & Associates was started 38 years ago by my father, Dennis Browaty. We're a full service appraisal firm, and by that I mean, we do both residential and commercial appraisals. So just about any type of property we do appraise across the entire province. Currently, our firm has four designated members of the Appraisal Institute of Canada and two candidate members. Of those six appraisers, four work on commercial properties and two focus on residential. And again, we do really all kinds of appraisals. Whether it's for financing, whether it's for expropriation work, arbitration, feasibility studies, we really have a broad range of skills to farm our various appraisers really across the province over decades.

Tim:

Me, personally, I started with the company in 2006, became a candidate member, and worked towards, again, becoming an AACI designated Appraiser of the Institute of Canada, and I obtained that designation in 2010. Again, I've done basically every type of property appraisal that you can do across the province. Again, the main stuff day-to-day is financing work for various financial institutions, but specializing in different things to really meet our different clients' needs.

Adrian:

What is the main difference for our listeners between a residential and a commercial appraisal?

Tim:

The Appraisal Institute of Canada has two designations. One is the CRA and one is the AACI. So a CRA can do up to four units for residential properties and those appraisals are generally done on form appraisals. So they're a couple pages in length and, again, really focused on small residential properties. The AACI designation allows for a wider range of properties that can be appraised. You're talking your strip malls, your industrial buildings, and your multi-family apartments of five units or more. And those are done on usually what's called a narrative appraisal, and those can be 40, 50 pages in length and are a little more detailed given the larger scope of the properties.

Adrian:

That's interesting. So the criteria where you separate residential versus commercial is actually identical in the mortgage world where a residential mortgage can go up to a fourplex and a commercial mortgage or a commercial loan is anything over four residential units, and, of course, office industrial retail is all considered commercial. So there is actually an alignment between those two categories of appraisals to the mortgage world, which is interesting. What does a typical residential appraisal cover?

Tim:

A typical residential appraisal, what you really see is it's an outline of basic information of the residence, really a general sense of what the property entails as well as looking at the neighborhood. And then what really the appraiser focuses on is finding comparable sales that can be included and researched and analyzed. And from the appraiser's experience and expertise, they're able to make adjustments to those sales that are the most similar and are able to adjust those properties up or down based on how they compare to the house that's being appraised. So, again, it's really the experience and familiarity of these adjustments and the area that allows the appraisers to make the appropriate adjustments to, again, really come in and pinpoint an opinion of value. And, again, it's nice that the appraisers, we're subjective third parties who are really putting together a non-biased opinion of value.

Adrian:

If someone is purchasing a rental property, in many cases, they may opt to request a market rent addition to the residential appraisal. How are market rents analyzed in a residential appraisal?

Tim:

Again, that's the experience of the appraisers and just the day to day experience. Our office having several appraisers, we're able to have a database of rental rates for various types of properties in various parts of the city and province. So if you were looking for a market rent of a property, we're able to go to our database and, again, look at comparable properties and say, "Hey, this building down the street is similar. It's renting for this much. This one down the street's a little bit nicer," and they're able to charge a little more rent. And again, the appraiser, based on our market evidence that we track, are able to really pinpoint what we feel the market rent is for a property based on this evidence.

Adrian:

From a consumer's perspective, specific to residential homes, what are the differences between a market evaluation versus a city tax assessment value versus an appraisal or appraised value?

Tim:

Well, all three are trying to come up with a value of the property, but they all differ fairly significantly in what they're doing. A market evaluation is done by a realtor, and it's, again, really just or information purposes for the owner and for the purposes to potentially assist with a sale. It is not an appraisal. Realtors are on the ground, they've got their boots on the ground, and they've got a good feel for the marketplace, but these evaluations are not an appraisal. They don't necessarily have the depth of the adjustments and the market research to really be an appraisal. City assessments, while everyone knows what they're assessed for because it's so readily available, these are really done by computers in a mass appraisal. No one's really going out from the city generally to look at the properties. It's all based on formulas.

Tim:

And one thing that people don't generally understand about a city assessment is there's a specific date for your assessment. So, for example, the 2021 taxes and the assessment that you see are based on an assessed value as of April 1st, 2018. So, at this point, that value is almost three years old. So while, again, that value might have been somewhat appropriate three years ago, the market's changed a lot in those three years and your assessed value is not really seeing that change for the time. So, again, coming back to the appraised value, this is really, the experts, the appraisers, and the members of the Appraisal Institute of Canada are coming down and seeing the building and really putting together a detailed report to come up with a current value of the property. So, again, they're all trying to do the same thing, but they're all very different and very unique.

Adrian:

Some mortgage lenders in Canada are starting to accept automatic market valuations that come from, I believe PurView, which is owned by Teranet. Are you coming across those automatic market models? And if so, how do they correlate to an actual appraisal?

Tim:

Yeah, especially on the residential side, you're seeing more and more computer models being used and trying to be relied on by different users. While they're good for the broader picture, on a specific case by case basis, it's really hard to beat the boots on the ground, having someone get in there to a property and really take a look at it. And again, you're being really able to keep up to date with the current trends. It's really hard to beat having an actual person come in and complete an appraisal on the property, seeing the condition of the property, really flagging any potential issues. Are there any potential structural issues or flooding issues? Each property is just so, so unique, it's tough to have a computer system use a shotgun approach to try and blanket value everything.

Adrian:

How did appraisal valuations change during COVID, if at all?

Tim:

Well, I guess, one of the changes with COVID in terms of appraisal valuations is just given different restrictions in place, like most professions, we have been affected. While it is somewhat up to each appraiser, most of the banks have been okay at various times not having appraisers actually visiting the inside of a house. So we would be able to rely on pictures or videos from the homeowner or the clients to try and get a picture of what's going on. So that's obviously been one change of COVID that's been happening, but in terms of actual values, I can speak to the Winnipeg and Manitoba market, things haven't really been negatively affected overall. There was a slow down, obviously, in the very first days of 2020 in terms of the COVID response, overall questions about what was going to happen.

Tim:

But as we've been seeing now, the inventory is so low, especially for single family houses, that values are really starting to go up. You're seeing a lot of bidding wars, some very significant bidding wars, going on out there. So while values are going up in terms of the appraisals, we have to always take a look at what's happening in the market and trying to really being able to justify those sales and those higher values that we're starting to see given the lack of the lack of inventory out there, and obviously the lower interest rates that are fueling this.

Adrian:

Given that there is, in fact, a shortage of inventory that does increase appraised values?

Tim:

Well, again, the appraise value is really trying to come up with a value of what the market is, and our values are trying to reflect the market. We're seeing those bidding wars are seeing values go up. So, again, that's been the short window. The little longer term window, values haven't been as high. So it's always a case by case basis in terms of trying to see, is the value of that property going up as high as the bidding is going, or is it being a little inflated? So that's always the job of the appraiser, to be able to really independently look at the market and see what's going on.

Adrian:

You're drawing on 50 plus years of experience with your family business. In the last 20 years, according to Winnipeg Realtors, single home values have increased an average of 6.5% a year. That's according to the Winnipeg Realtors' data that they have available. I guess, that being said, have you ever seen or perhaps do you know if your father Dennis has ever seen any notable drop in values in Winnipeg in the past 50 years in real estate?

Tim:

For sure. Again, I didn't necessarily live through it, but Dennis has definitely talked about in the '80s when interest rates were just skyrocketing, there was a time where it's basically the no sale market, where especially on the commercial side, there just weren't really sales happening, because interest rates were so high. I know Dennis has textbooks doing calculations for interest rates that start at 12% and go up to 25%. So the interest rates have been low for a long, long time. And, again, I'm no expert in it, but they're obviously not going to get back up into the teens anytime soon. But history is what it is and the marketplace has existed with higher interest rates, and it'll be interesting to see 50 years from now where we are.

Adrian:

What do you think is unique about property values specifically in Winnipeg perhaps compared to Western Canada or Canada as a whole?

Tim:

Yeah. Winnipeg is really, we're a nice, slow and steady market. You mentioned the 6.5% per year for 20 years. I would say that hasn't varied too much higher or lower than that. We don't get the really big swings that a Vancouver would get, or even, Alberta with the oil markets, with the boom and bust. Alberta might have a similar 6% increase over the years, but that might be 20% one year and negative 2% another year. Whereas Winnipeg is, again, really just slow and steady across really all assets. We're just in that nice little sweet spot, we're not too big, not too small, that we just keep chugging along.

Adrian:

And I guess, given that we're in a steady and constant real estate value market, what do you love about Winnipeg real estate given you work in a day over day?

Tim:

Yeah, again, that dependability is nice. You know, Some investors from Toronto may not like the slow and steady of Winnipeg. They're looking to strike while it's hot and try and really cash in, in the short term. But Winnipeg, it's a great place to invest in, just those patient longterm investors, and that's really across all assets, whether it's single family, multi-family or commercial, industrial type properties. Some things get a little hotter than others at times, but, again, just that slow and steady, it's a really good place as we can be place to be.

Adrian:

Well, thanks so much, Tim, for joining us on this episode of the I Love Winnipeg Real Estate Podcast. How do people reach you and your company?

Tim:

They can reach our office at (204) 942-7574. And my email address is Tim@browaty.com. That's B-R-O-W-A-T-Y.com.

Adrian:

Thanks again, Tim.

Tim:

Thanks, Adrian.