Property Inspection using the Automated Costing System
It starts as most mornings do: with coffee. And there is a good reason, the Automated Costing System (ACS) approach requires patience, attention to detail, and a level of alertness best achieved with sufficient levels of caffeine in your system.
As we fuel-up, Chris Ratnasingham, Senior Consultant at Altus Group, offers a quick run-down of what to expect during a property inspection using the ACS method.
First, a little background:
The ACS method is used by the Municipal Property Assessment Corporation (MPAC)—Ontario’s assessment authority—to assess many industrial and some commercial properties. MPAC developed the ACS for construction cost estimating and mass valuation of properties valued on the cost approach – it is but one approach and always must be measured in the marketplace for accuracy. This is a highly-specialized area of property assessment because it requires experience and familiarity with the property type and materials used, and can involve a wide variety of Obsolescences. This method also requires the assessor to be meticulous and sometimes involves going through thousands of pages of itemized documents that need to be evaluated line-by-line. As Chris describes it, “It’s like checking under every rock.” And no stone is left unturned.
Despite this, Chris is a fan of the method; he was first introduced to it years ago by a mentor and since joining a group of specialized industrial/complex property valuators at Altus Group, he has not only become an expert in the matter, but the student has become the teacher—literally. Chris now teaches the ACS method at Seneca College to future assessors, some of whom have come to work at Altus Group.
Typically there are 5 steps to a review of an ACS based assessment:
- Determine if it is appropriate to assess the property based on the cost approach.
- Connect with the Client (the Client representative will introduce his or herself, describe the appeal process and schedule an initial site inspection).
- Obtain the Guidelines for the Release ofAssessment Data (GRAD) from MPAC.
- Site Inspection (by an Altus representative).
- Check the assessed value calculated using ACS against the value arrived at through a private costing service such as Marshall Swift
The Game Plan
Prior to the physical inspection, we assess the property on paper, this includes: land value, building costs (cost of material and labour, cost of construction materials), yardwork costs, physical depreciation, functional obsolescence, and economic obsolescence.
Chris has already physically assessed the property and obtained the data necessary, so the purpose of today’s site inspection is to join MPAC for a secondary inspection and to confirm his findings.
The two industrial properties subject of this inspection have two factors that could potentially impact their value. One: the material used for the roof. Two: the type of siding used in the exterior of the building.
Start from the outside and work your way in:
When we arrive at the site, Chris walks around the property to assess the exterior of the building. There is a methodical order to this assessment, starting from the outside, where he considers the landscaping, parking lot, and shell of the building, and then working his way in. As a general rule, any items that are permanently affixed to the building are valued, while property, such as machinery and equipment are not valued in Ontario (however, they are in Alberta and most U.S. States).
Shortly after, the MPAC mobile pulls up and a representative of the municipality steps out to greet us. We are then joined by a representative of the property owner, exchange quick introductions, and enter the office. Before we are granted access to the warehouse, we must dress for the occasion—steel toe boots, eye protection and neon orange and yellow vests (helmets are also required for some inspections). Once the property manager greets us, we embark on our guided grand tour.
The itemizing begins as soon as we enter the warehouse. Chris starts counting the heating units affixed to the ceiling, he also notes the type of lighting that is used, the type of pulleys for the doors & dock levelers (automatic versus manual), and the finish on the floor—all while dodging the constant flow of forklift traffic. For our indoor inspection, we are looking at everything from doors and windows to electrical and plumbing.
All-in-all the inspections of the two buildings take a couple of hours.
Back to the Tax Cave!
With the information and photos in hand, Chris returns to the office to compile all the information that has been confirmed with the visual inspection. Any adjustments to the value will be made in accordance with the materials used.
For these particular properties, there is a dispute about the materials used for the roof. If the materials are worth less with the 2016 CVA rates, the assessed value of the area could be reduced by half. Fingers crossed!
Properties that can be assessed using the Cost Approach:
- Purpose built industrial properties (airports, chemical plants, mines, dams, manufacturing plants, auto plants, etc.)
- Owner-occupied single user industrial properties
- Some large warehouses
- Owner occupied industrial properties
- Unique properties that do not have many sales comparables
ACS components are divided into four main categories:
- Shell (The Building Envelope)—Foundations, Foundation wall on Strip Footing—Concrete—Wall 4 feet depth
- Interiors (all finished within the shell)
- Services (mechanical services)
- Site and Ancillary (exterior items)
- The unit cost (for foundation assembly for example) is inclusive of labour, material and equipment costs including subcontractors’ overheads and profits for all required excavation, formwork, concrete, reinforcing, and backfill.
- Indirect Costs are then applied as a variable percentage of the Direct Costs as the final consideration in the construction cost estimate.
- Indirect Costs Charges “ICC” (or soft costs) include allowances for the cost of permits, temporary facilities, insurance costs, performance bonds, General Contractor’s overheads and profit, construction financing (or opportunity) costs, Architect or design costs and contingencies.
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Last updated on August 21st, 2019 at 02:14 pm