RECA Rural Part2
Gross Operating Income
= Effective Rental Income + Other Income The sum of scheduled rental income, less the vacancy and credit losses or addition of any other income. This represents the total cash flow of the property that is available to pay operating expenses and annual debt service.
Cash Flow Before Taxes
= Net Operating Income - Annual Debt Service Obtained by subtracting the annual debt service from the NOI positive cash flow, where the NOI provides for the annual debt service associated with the loan. Negative Cash Flow results when there is a shortfall.
APOD - Effective Rental Income (aka Net Effective Rent)
= Scheduled Rental Income - Vacancy & Credit Loss
Septic/waste Disposal systems - Disposal Fields
A disposal field uses weeping laterals or perforated piping laid on gravel-lined trenches for distributing and treating effluent. A disposal field must have no less than 60 metres of approved weeping laterals.
Nabila (she/her) is a real estate agent who is doing a walkthrough with a prospective seller. Which of the following details about the home that Nabila noticed during her walkthrough may be evidence of moisture issues? Select all that apply. Not enough bedrooms for her client a walk out basement A bedroom door that needs a strong shove to open Musty smells in the basement
A door that is hard to open can be evidence of warping of either the door or the door frame due to moisture. Musty smells may also be evidence of moisture.
Tax roll over example
A farmer decides to transfer farmland to his granddaughter. The land cost $100,000 and is currently worth $400,000. The farmer can choose any amount between $100,000 and $400,000 as the transfer amount. Assuming he chooses $100,000, the capital gain he will report on his tax return is zero (Deemed proceeds of $100,000 minus the original cost of $100,000 equals $0). The granddaughter inherits her grandfather's cost of $100,000, and any gain on the property has now been deferred to her. If she were to sell the farm for $400,000, she would report a capital gain of $300,000.
footing
A footing is a widened section at the base or bottom of a foundation wall, pier, or column. The footings transmit the weight of the structure to the soil to prevent it from sinking. An area's soil quality can impact footing requirements. Although heavier buildings require larger footings, a common 16- or 20-inch-wide footing can handle the relatively light weight of an ordinary building in areas with typical soil. However, these standards may not be sufficient if a building is on soft clay soil, or if part of the foundation is over a soft zone. Buildings can be damaged by excessive settlement if footings do not suit the soil's capacity
The water on a property has a low sodium absorption ratio (SAR). Is this a concern or not a concern?
A low SAR is not a concern—but a high SAR could show a risk for future sewage disposal failure.
AFCI (Arc Fault Circuit Interrupter)
AFCI started to be installed in homes in 2015. Like GFCIs, they are circuit breakers in electrical panels with reset buttons. However, they sense when unintended electrical arcs occur in a circuit; electrical arcs are electrical sparks, and unintended electrical arcs can cause electrical fires.
conservation directive
ALSA allows the government to protect, conserve, or enhance private lands while allowing property owners to maintain ownership of their land. Regional land use plans can create a conservation directive. The conservation directive is implemented under a regional land use plan and explicitly identifies the protected lands.
These are the typical categories of operating expenses that may be found in a real estate investment property producing income:
Accounting and Legal Advertising, Licenses, and Permits Property Insurance Property Management Real Estate Taxes Repairs and Maintenance Services (maintenance) Supplies Utilities Miscellaneous
? can help real estate professionals and their clients determine the costs and returns of various enterprises, machinery, and farm management.
Alberta Agriculture and Food calculators https://www.agric.gov.ab.ca/app21/ldcalc
Ji-Yu brings Mahdi information about recent sales in the area. Although no other property has exactly the same characteristics as Mahdi's property, they all share some similarities. Ji-Yu says they can use these recent sales to get an idea of what Mahdi's property could sell for. Which approach to value is Ji-Yu using?
Direct comparison approach
Septic/waste Disposal systems include: (x5)
Disposal fields, Treatment mounds, Sewage lagoons, Treatment plants, and Open discharge systems.
Local municipalities are responsible for the care and control of the property under their jurisdiction. In each municipality, the body of councillors and office staff control everything listed in the local bylaws. They are directly accountable to the ratepayers of the area and are responsible for anything affecting the citizens of the municipality, including:
Economic conditions and trends in the community. Financing availability, terms, and interest rates. Rural land uses: golf courses, parks, development land, rural business parks, airports, etc. Rent terms: prevailing terms in the community for tenant-operated farms. Zoning for farms and other rural uses: area covered, nature of restrictions, proximity to urban centres. Area demographics: population density, ratio of owners to tenants, etc. Amenities: schools, churches, shopping centres, recreational facilities, etc. Utilities: availability and cost. Services: mail routes, fire protection, school bus, etc. Agricultural market facilities: grain elevator, seed-cleaning plant, feed mill, livestock auction, dairy plant, etc. Labour force available. Opportunities for employment outside of the farm. Efficiency of local government. Taxes and assessments. Transportation: public transportation, railways, airports, buses, etc. Improvement programs: drainage, irrigation, and conservation.
Farm vs hobby farm (Gov of Alberta)
"a business is defined as a commercial venture undertaken with an expectation of profit. Thus if you realistically expect to make a profit from your farming activities you have a farm business and if not you have a hobby farm."
A conservation directive must (x2)
(a) describe the precise nature of the conservation directive, its intended purpose and the protection, conservation, management or enhancement that is the subject of the conservation directive; (b) identify or prescribe a means of identifying the parcels of land that are the subject of the conservation directive.
Structure - Framing/floors
-Balloon or platform construction -Floor provides continuous pad for framing
Structure - Walls
-Carry weight of roof and floor to the foundation -Wall structure varies based on type of framing
Structure - Roof
-Transfers roof loads to rafters, trusses and joists - Ultimately transfers loads to bearing walls and framing -Roof covering protects the roof sheathing
To calculate the residual value of the property:
1. Estimate total expenses, which include things like building costs, resources needed to conduct business on the property, fees paid to professionals, etc. 2. Estimate the net annual income you expect from the property. 3. Divide the net annual income by the cap rate, which provides the estimated market value. 4. Subtract the total expenses from the market value. The amount remaining is the residual value. This information is useful for determining if the property is likely to be a profitable purchase.
The Government of Alberta provides four types of flood maps: https://floods.alberta.ca/
1. Flood Hazard Maps These maps are typically used for long-range planning and to make local land-use decisions and are available to all levels of government and the public to help build resilient communities. 2. Flood Inundation Maps Flood inundation maps show areas at risk for different-sized floods. These maps are typically used for emergency response planning and to inform local infrastructure design. 3. Flood Likelihood Maps Flood likelihood maps illustrate cumulative flood risk over 30 years. Different sized floods can occur any year, but more minor floods tend to occur more often than larger floods over time. 4. Flood Range Maps Flood range maps compare two different-sized floods and help communicate what parts of a community can become at risk as flows change during a flood event
Septic system - under code, no part of a disposal field measured from any part of a trench shall be located within:
1.5 metres of any property line. 15 metres of any water source. 53 metres of a septic tank. 109 metres of any basement or cellar. 53 metres of any (non-basement) building.
For many years, the common electrical service standard was a 60 amp service for a single-family dwelling. As the demand for electrical appliances grew, circuits were being overloaded and the overall service needed to be increased. Newer homes typically have ? or ? amp services to meet the demand for all the circuits and electrical requirements of modern lifestyles.
100 or 150. A property with a 60 amp service may require upgrading for a buyer to secure homeowners insurance on the property. Potential buyers should have an electrician or home inspector verify the service size for them on an older home.
percolation test
A percolation test determines the rate at which water will move through the soil, which will, in turn, dictate the size of a disposal field. Percolation tests can be used to determine the length of the weeping laterals required for a disposal field to handle the expected volume of sewage per day. For example, a test which provides a rate of 5 to 10 minutes per 25 millimetres (or one inch) would indicate a more coarse, textured soil than a rate of 10 to 20 minutes per 25 millimetres. To ensure accurate representation of the property, it is important to take more than one percolation test for each disposal site. In addition, it is important to note that a percolation test will only give an indication of the rate the soil will accept water. It does not reveal whether potential changes to the rate may have been caused by other factors, such as chemicals in the water supply. Under code, a percolation test must be conducted at each disposal field site.
Assessment Multipliers
A rarely used indicator of value in the marketplace is assessment multipliers. These calculators use previous property assessments to determine the property's current value. Caution should be exercised when using this method because the information in the previous assessment may no longer be applicable. Since the last assessment, the land may have been cleared, more improvements may have been added, or sloughs may have been drained. Each municipality has a unique set of criteria upon which assessments are based. An assessment completed for tax purposes may not be applicable to actual market value.
Septic/waste Disposal systems - treatment plant
A sewage treatment plant is fast becoming a primary choice for onsite treatment in rural residential applications. A treatment plant uses five or more chambers with various functions to convert the raw household waste into near potable effluent at the end of the process. Although typically more expensive than other options, these all-in-one treatment plants require a small amount of space and work efficiently in household applications.
Septic/waste Disposal systems - Treatment Mounds
A treatment mound can be used as an alternative to a disposal field in situations where the water moves through the soil either too fast or too slow (known as percolation rate). Effluent is pumped from the septic tank to the mound for treatment. There are many guidelines and requirements for the proper construction of a treatment mound, so it will likely be necessary to seek third-party expertise should this be necessary.
? allows for a voluntary agreement—a conservation easement—between a land owner and a qualified organization to protect, conserve, or enhance private lands. Qualified organizations include: The provincial government, Government agencies, Municipalities, and Registered charities
Alberta's Environmental Protection and Enhancement Act (EPEA) allows for a voluntary agreement—a conservation easement—between a land owner and a qualified organization to protect, conserve, or enhance private lands. Qualified organizations include: The provincial government, Government agencies, Municipalities, and Registered charities
If there are signs of environmental issues, real estate professionals can search Alberta's ? for records. The provincial government also offers a search tool, Historical Environmental Enforcement Search, that allows people to search for "historical enforcement records taken against a company or individual
Alberta's Environmental Site Assessment Repository (ESAR) https://www.esar.alberta.ca/esarmain.aspx Historical Environmental Enforcement Search https://www.alberta.ca/lookup/environmental-historical-enforcement-search.aspx
Mortgage Constant Based on Amortized Payment
An investor has secured a new mortgage of $300,000 at 8% calculated semi-annually, amortized over 25 years. The mortgage constant is calculated as: Monthly mortgage payment: $2,289.64 (7.632135 [monthly payment factor per $1000] x 300,000) Annual Debt Service $27,475.69 Mortgage Constant: 0.0916 or 9.16% ($27,475.69 divided by 300,000)
knob and tube wiring
An obsolete wiring system consisting of a single insulated conductors secured to and supported on porcelain knobs and tubes This method poses an increased risk of electrical fire, so homeowners should replace this wiring with modern materials. Most homes no longer have this type of electrical wiring.
Stabilized net operating income
Anticipated income minus expenses that are subject to change and have been adjusted to reflect normally stabilized operations of the commercial property.
What is the difference between an open gable and and a box gable roof
Both look like a standard triangle hat but box extends on the end and sticks out looking like it is boxed.
Warning sign/potential problem - Brick walls that lean or are cracked.
Brick masonry walls are subject to leaning or bowing, due to deterioration of mortar between bricks, cracking, and other problems. Consult an engineer.
GST on farm sales
As a general rule, GST is always levied when rural land is sold. A GST registrant, someone who has a GST number, can avoid the actual cash payment on closing. If the registrant is recognized by the federal government as a farmer (filing farm income tax returns), they will enter the amount due on one side of the GST form, and claim the entire amount back on the other side of the form. When an owner contracts with a brokerage, they should be advised to contact the Excise and GST/HST Rulings and Interpretations Service: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/1-4/excise-gst-hst-rulings-interpretations-service.html Since Canadian homeowners' principal residences are exempt from GST, the portion of the farm used as a residence, (i.e., the farmer's home and garage) are exempt. So, where the sale of real property with both a residential and a non-residential portion occurs, as in the case of a farm, the home and usually two or three acres of land the home sits on will be GST exempt. A separate valuation for the home and its land will be established and removed from the total sale price before calculating GST owing.
When meeting with potential clients, always: (x4)
Ask for all registered owners listed on title to attend the meeting. All owners should be legally identified by viewing a form of photo identification issued by a Canadian federal, provincial, or territorial government with their full name and date of birth. If the seller is married but is the only owner on title, follow through to determine if dower rights apply to the property. All requirements of the Dower Act must be followed if applicable. If a trust or corporation is on title as the owner, you must verify who in their corporate structure has signing authority and be sure they are present. Identify which services you will provide the seller and which require consultation with other professionals. The seller, for example, may want you to conduct an appraisal, which is not within the scope of a real estate licensee. With the complexity of agribusiness transactions, the seller may need accounting consultations before listing the property.
Comparing cap rate in 2 properties
Assume that you are comparing two properties. Property 1 has a projected NOI of $20,000 and an asking price of $500,000. Property 2 has a projected NOI of $10,000 with an asking price of $110,000. You can determine which one is the better investment by comparing their cap rates. Property 1: Cap rate equals 4% ($20,000 ÷ $500,000) Property 2: Cap rate equals 9% ($10,000 ÷ $110,000) Because Property 2 has a higher cap rate, it is considered a better investment.
Biodigesters - Anaerobic Digestion
Bacteria break down organic matters in the absence of oxygen. During this process, bacteria break down waste into its base chemical components and, as a byproduct, produce combustible gases. The waste treatment system can harvest these gases for energy production, and the resulting solid or liquid product can be used as fertilizer for agriculture production.
Design defects don't affect the safety or lifespan of a house; however, they can affect its utility and the overall enjoyment of the property. Contemporary building technology and building codes mean modern homes have fewer design defects than in older construction. Some examples of design defects include:
Bathroom directly off living room. Exceptionally small rooms. Doors that interfere with traffic flow. Doors that knock into each other when both are open. Low headroom in stairwells and basements. Inadequate lighting. Odd window placement. Lack of kitchen cabinet or counter space. Narrow hallways or doorways.
Brick veneer
Brick veneer is a layer of brick applied to a standard frame wall system. The brick is supported either directly on the concrete foundation or on angle iron bolted to the foundation. The brick veneer wall is attached to the wood wall by special ties installed during the bricklaying process.
Warning sign/potential problem - Moisture between panes.
Broken seals in double- or triple-pane windows reduce their insulation factor.
A walkthrough of the property may reveal some items requiring further investigation by a professional: (7 POINTS)
Buried fuel tanks: Buried tanks were common in the past. Oftentimes these tanks leaked, causing environmental issues. Mechanic shops: If a mechanic shop currently is, or previously was, on the property, oil may have been spilled or disposed of improperly. Batteries: Batteries left outside and exposed to the elements can leach chemicals into the soil. Fuel and chemicals: Look for signs of fuel or chemicals, such as odours, abandoned storage tanks, oily residue on the soil, areas where nothing is growing, recently levelled areas, fenced-off areas, etc. Electromagnetic fields (EMFs): Although there is no scientific evidence that proximity to electromagnetic fields (EMFs) can cause any adverse health conditions, many buyers are uncomfortable with it. Radon gas: Radon gas is plentiful in the soil in many areas of Alberta. It is colourless and odourless and can enter a home through cracks in the concrete walls, floor slabs, construction joints, gaps around service pipes, support posts, window casements, floor drains, sumps, or cavities inside walls. Many test kits are available on the market, but these are accurate only when data is gathered over months. Waste: Since waste can be challenging to dispose of on rural properties, improper waste management and onsite garbage burial (landfills) is also a concern on many rural properties.
Warning sign/potential problem - Old furnaces or air conditioning units.
Buyers must rate the costs of a system and its installation versus the cost of operation and fuel.
NPV example2
Cassandra (she/her) is selling her 320 acre dairy farm in southern Alberta to an agribusiness investment consortium. She is selling for $1,335,000. Cassandra has an oil and gas lease that pays $112,000 per annum, escalating by $2,500 a year, and is leasing 40 acres to a milk pasteurization facility at a price of $99 an acre, for an annual total of $3,960. The consortium hopes to realize a 12% rate of return in seven years. The consortium estimates that it will be able to sell the property in seven years time for $1,468,500. Is Cassandra's farm a good investment? Cash flow 0 is the cost of the property entered as a negative, so, in this case -$1,335,000. Cash flows 1 through 6 are the appreciating oil and gas lease plus the pasteurization lease for the ten year period, totalling + $733,260. Cash flow 7 is the oil and gas and pasteurization leases, plus the projected sale price, equalling a total of + $1,599,460. Total income is $2,332,720, which, when added to the negative cost of the property, equals a net cash flow of $997,720. If the expected rate of return is 12%: The net present value is therefore equal to: $451,318 (rounded to the nearest dollar)
Composite siding
Composite siding is a manufactured exterior finish that is designed to look like wood siding. It can be made from treated and compressed wood byproducts. However, the most popular composite siding is made from concrete fibre, which is more durable and provides some protection from fire.
Cost of wells
Contact the local well contractor for the cost of drilling water wells. The Alberta Water Well Information Database shows groundwater availability in the province, and you can search for water wells in the area by various criteria. Local well technicians are also a knowledgeable source of information.
Warning sign/potential problem - Cracked or rusted heat exchangers.
Cracks and rust affect efficiency and allow carbon monoxide to escape into the house.
Warning sign/potential problem - Cracks in interior walls and ceilings.
Cracks in interior walls and ceilings indicate movement.
Warning sign/potential problem - Damage around windows and doors.
Damage around windows and doors can indicate structural movement.
Warning sign/potential problem - Crumbling mortar in masonry posts and rust on steel posts can be from moisture damage.
Deteriorating posts or columns due to moisture.
Alberta Farm Fuel Benefit (AFFB)
Eligible farmers in Alberta are able to receive a $0.09/litre provincial fuel tax exemption on the purchase of dyed (purple) gasoline and diesel. These farmers are also fully exempt from provincial tax on propane and aviation fuel used for farming purposes. To qualify for this benefit, the farmer must: Be actively and directly farming, including specified types of custom farming; Be responsible for management decisions and operating costs; Have control of the farming assets, either by holding title to the assets or having a rental agreement with the person holding the title; and Have gross annual farm revenue of at least $10,000. If the only other significant sources of income are Canada Pension Plan (CPP) and Old Age Security (OAS) benefits, the farmer may be eligible with a gross annual farm income of $5,000-$9,999.
Every individual can claim a $? capital gains exemption on the sale of qualifying farm property
Every individual can claim a $1,000,000 capital gains exemption on the sale of qualifying farm property (Canada Revenue Agency, 2022)
Capital Gains Exemption
Every individual is entitled to a lifetime $1,000,000 capital gains exemption on qualified farm property, such as farmland and buildings, shares of farm companies, and interests in farming partnerships. Certain tests must be met, and equipment, inventory and many other assets do not qualify. An important date for Canadian farm property is June 18, 1987. Properties acquired before and after this date are treated differently with regard to capital gains exemptions: If a property was acquired before June 18, 1987, and was used in the business of farming in either the year it was sold or in any five previous years, it qualifies. If a property was acquired after June 18, 1987, the owner must have owned it for a minimum of three years, used it for farming on a continuous basis, and earned more gross income from farming than other sources in order to qualify. Use of the exemption can serve to reduce up to $1,000,000 in capital gains for an individual. Therefore when disposing of or transferring farm property, determining whether the exemption applies can significantly reduce tax on the capital gains. Every individual has access to the exemption, and farm property can qualify even when other family members farm it. For that reason, an accountant can work with the farmer to determine whether more than one exemption can be used in the same family.
The following is an information-gathering checklist for rural properties. This is a good foundation that you may adapt and add to as you gain experience with rural properties: (X7), Reports such as: (X4), Contracts such as (x2)
Existence of unregistered encroachments, easements, or right-of-ways on the property or neighbouring property. Present or future issues with current easements, such as oil and gas wells, utility rights of way, telephone and communications satellite towers, setback agreements, etc. Agreements made under provincial or federal programs that may restrict land use. Past rezoning or subdivision applications and decisions. Environmental concerns on or affecting the property. Land use, buildings and improvements, rented fixtures or equipment, water licences, and other utility issues. For cropping operations, obtain past field history and pesticide use (some products can limit cropping and forage options for a period after the last application). Reports such as: Home and building inspection reports. Well reports (including chemical analysis and potability). Septic information. Real Property Report (if available). Contracts such as: Lease and rental agreements. Revenue agreements.
True or False - For properties with common walls, such as duplexes, townhouses, and apartments measurements under the RMS should be taken from the exterior
False - For properties with common walls, such as duplexes, townhouses, and apartments, measure the interior perimeter walls (paint-to-paint) at floor level. An additional area representation may be made assuming exterior measurements.
True or False - All buildings should be measured using the RMS guidelines (Residential Measurement Standard)
False - Only the residential properties on a farm, ranch, or agribusiness property are measured using the RMS guidelines. Some unique rural buildings pair commercial and residential uses; for example, a two-storey building with a residence on the upper floor and a machine shop on the lower floor is a machine shop. As these can be complicated scenarios, speak with your broker regarding how to properly conduct and list the RMS measurements.
NPV Example
Farmer Giles (he/him) is selling his 160-acre family farm to a rural real estate investment firm representing the Ontario Pension Plan (OPP). Giles has a cellular tower lease that pays $15,000 per year, escalating by $1,000 a year. He has also been leasing 140 acres of the land to a neighbour for cropping at $80 per acre for a total of $11,200 per year. Giles is selling the property for $1,000,000, and the investment firm is looking to achieve an 8% rate of return for the OPP. They estimate that they will be able to resell the property in 5 years time for $1,150,000. Would this investment be able to deliver their desired rate of return? This is how the values would be entered into the calculator: Cash Flow 0 is: The input cost of the property, represented as a negative: - $1,000,000 Cash Flow 1 is: The cellular lease year 1 + the crop lease = $26,200 Cash Flow 2 is: The cellular lease year 2 + the crop lease = $27,200 Cash Flow 3 is: The cellular lease year 3 + the crop lease = $28,200 Cash Flow 4 is: The cellular lease year 4 + the crop lease = $29,200 Cash Flow 5 is: The cellular lease year 5 + the crop lease + the projected sale price = $30,200 + $1,150,000 = $1,180,200 The expected rate of return is 8%, therefore the net present value is equal to $11,981.43. Because the NPV is positive, this means the investment based on the above inputs will produce a return greater than the expected 8%, therefore this would be a good investment for the buyer. If the NPV were negative, it would signal that the investment would not be able to achieve the desired rate of return in the indicated timeframe.
Why is the municipality's assessed value is far below the actual sale price in many areas?
Farmland assessment is based on its productive value; this value is based on the land's soil class, with adjustments for the presence of sloughs, stones, and adverse topography.
DIfference between GFCI and AFCIs?
Faults in an electrical system can trip an AFCI, but faults in things plugged into an electrical system are the most common cause of a tripped GFCI (e.g., damaged or low-quality electrical appliances, tools, extension cords, and electronics).
Windows - Fixed windows
Fixed windows are sealed units, consisting or two or more panes of glass separated by an air vacuum. Examples are picture windows, bay and bow windows
There are two methods for measuring residential properties:
For detached properties, exterior measurements are taken at the outside wall of the foundation, and at foundation level. For properties with common walls between units that touch the measurable space—such as apartments, duplexes, and townhouses, whether condominiums or owned in fee simple—interior measurements (commonly referred to as paint-to-paint).
RMS - Principle 6 states that any additions or conversions on the property may only be included in the RMS size if they meet specific criteria. For an addition or conversion to be considered part of the RMS size it must: (x3)
Have permanent structural components such as foundation or footings. Have electrical service connected permanently to the main electrical service of the dwelling. Be able to be heated and maintained at a temperature of 22 degrees Celsius throughout winter months using a permanent heating source.
Vacancy and Credit Loss
Income that may be lost due to uncollected rents or vacancy. It is not necessarily the current vacancy or even the average vacancy for the last year. The allowance for vacancy should be selected as the market estimation of vacancy rate over a number of years. Both credit losses and vacancy rates vary with quality of management, type of tenant, length of lease, turnover in tenants, and market conditions.
GFCI (Ground Fault Circuit Interrupter)
GFCI started to be installed in homes in the 1970s. They measure milliamps of electrical power going into and out of an electrical circuit. When there is more than a 5-milliamp difference between incoming and outgoing amperage in a GFCI-protected electrical circuit, the GFCI turns the power off to prevent electrical shock and possible death of occupants. In new construction, GFCIs are required for most circuits in bathrooms, kitchens, and home exteriors. Power to GFCI circuits is easily turned back on by pushing a reset button or turning a GFCI breaker back on in an electrical panel.
Agribusiness and farm business operations, and the sale of such in Alberta, are subject to three primary forms of taxation:
GST Income tax, and Real property taxes.
There are three levels of property evaluation expertise:
General public: An average home buyer compares properties and completes basic calculations to estimate their respective values. Real estate professionals: Real estate professionals can provide more accurate property evaluations. Their evaluations account for the general public's needs, desires, and financial capabilities; they can also compare a property to others that have sold, are currently for sale, or did not sell. Professional real estate appraisers: These specialists perform more specific calculations, including, but not limited to: Breakdowns of cost minus depreciation, Factual equations of cost minus depreciation, The estimated lifetime of the buildings and improvements, Income and cost analysis, and Regional servicing costs.
Modern windows include features that improve performance, including:
Glass type, including glass that is: Strengthened by tempering. Tinted to reduce glare or absorb heat. Coated to reflect heat. Installed with wire for fire resistance. Laminated to improve strength, safety, or sound insulation. Efficiency rating: This is a measurement of thermal performance. Low emissivity (low-e): Low-e glass contains a metallic layer that allows sunlight in and reduces the outward flow of heat during winter months. In summer, the glazing allows sunlight in but reduces unwanted heat. High efficiency: This includes double and triple glazing. Skylight: Skylights are typically made of tempered glass or either flat or bubble-shaped plastic.
Alberta's environment can be both a benefit and a hindrance to rural landowners. These maps provide information about hail, temperature, precipitation, soil, drought, and fire across the province.
Hail Insurance Rate Map: https://afsc.ca/wp-content/uploads/2021/04/Straight-Hail-Rate-Map-South-2021.pdf Climate and Atlas Maps https://agriculture.alberta.ca/acis/climate-maps.jsp
Warning sign/potential problem - Painted wood siding that shows blistering or staining of the paint.
Indicates moisture in the wood.
Heat pumps
Heat pumps transfer heat from one place to another by compressing and expanding a refrigerant. The fridges we use in kitchens move heat from inside the fridge to outside the fridge, and air conditioners move heat from inside a home to the exterior of a home. So, fridges and air conditioners are heat pumps.
Septic tank testing - Sodium Absorption Ratio (SAR)
High SAR is not good. Soil structure is destroyed by excess sodium, which occurs in relation to high concentrations of calcium and magnesium. When soil structure breaks down, its permeability to water and air is reduced, creating problems with sub-soil effluent disposal systems. The sodium absorption ratio (SAR) of the potable water can indicate potential problems. Generally, the higher the SAR of the potable water, and the higher the saturation percentage of the soil, the greater the probability of a future sewage disposal failure.
Advantages to investing in property
High degree of personal control and opportunity for capital growth. Availability of additional cash through reduction in mortgage debt. Higher than average rate of return, and tax sheltering possibilities. Limited equity investment to gain leverage through financing. Physical product with less risk of value depreciation. Potential for recovering capital through refinancing. Flexibility through division of real estate interests (estates).
Warning sign/potential problem - Chimney bricks and mortar in poor condition.
High replacement or repair costs.
Warning sign/potential problem - Hollow exterior doors.
Hollow exterior doors lack insulating properties, durability, and security.
Warning sign/potential problem - Water damage on interior ceilings.
Ice damming occurs when snow and ice collect or dam in a certain area of the roof, causing melting snow to drain improperly.
What happens if a farm owner sells or gifts property to family members other than a spouse?
If a farm owner sells or gifts property to family members other than a spouse, the owner is considered to have deemed or sold the property at fair market value. As a result, they must report a capital gain on the difference between the original cost and the property's current value. Currently, 50% of the capital gain is taxable at the individual's applicable tax rate (Canada Revenue Agency, 2022).
compensation from the government for a conservation directive placed on their land
If a property owner has a conservation directive placed on their land, they can apply for compensation from the government and can continue to use the land within the parameters allowed by the directive (ALSA, s.39). Application for compensation must be made within 12 months of receiving the notice of the conservation directive. If the government and the property owner cannot agree on compensation, the Compensation Board handles the dispute and determines the compensation payable.
How to use a cap rate to value a property.
If the property generates $30,000 in annual net operating income and the capitalization rate in your area is approximately 10%, the approximate fair market value of the property is $300,000 ($30,000 ÷ 0.10).
Warning sign/potential problem - Standing water on flat roofs.
Improper drainage.
Warning sign/potential problem - Stiff or sticking windows.
Improper installation can result in leaks or difficulty in operation.
In Alberta, the ? registration system is the foundation of all dealings in land ownership, leasing, and related records, and operates under the legislative authority of the Land Titles Act.
In Alberta, the Torrens land registration system is the foundation of all dealings in land ownership, leasing, and related records, and operates under the legislative authority of the Land Titles Act.
In Alberta, the foundation usually is made of ? (x2)
In Alberta, the foundation usually is made of poured concrete or preserved wood. The wall framing and the joists are placed on top of the foundation. Posts or columns are used to carry the load of a beam vertically, down to the footing, which is typically concrete. Posts and columns may be made of brick, concrete block, poured concrete, wood, or steel.
balloon framing
In balloon framing, the wall studs are built before the floors and are continuous from the foundation to the roofline.
For the RMS, how is an open area and how are stairs measured?
In most cases, the best way to approach calculating the size of such areas is to measure the area of the entire floor according to the other RMS principles and then subtract the part which is missing from the level open to the floor below. The only exception to this principle is when stairs are involved. Obviously, there needs to be a hole in the floor above to allow stairs to access the higher level. In such cases the area that would be directly above the stair treads can be included in the area of the floor level above. For the purpose of RMS measurements, stairs are considered connected to the floor to which they lead. For example, the opening allowing stairs to come up from a basement level would be incorporated in the RMS size of the main floor. Similarly, a second floor opening allowing stairway access from the main floor would be included in the second floor measurements.
Platform framing
In platform framing, the wall framing is erected on top of the floor-joist and subfloor system. In two-storey buildings, a second-floor platform is assembled on top of the studs and then a second set of studs is built on top of this platform.
three approaches to value - direct comparison
In the direct comparison approach, the appraiser compares the property in question with market data from similar agribusiness properties that are for sale, have recently sold, or were recently for sale but did not sell. They make adjustments for the quality of the property and the desirability of its buildings, land, services, and chattel.
Warning sign/potential problem - Drafts.
Inadequate or deteriorated weather stripping.
Operating expenses:
Include all annual expenses necessary to maintain income flow, Assume competent management, Are most often recorded on a cash basis (i.e., recorded when paid. This process is often referred to as annualizing), and Typically must be included even if not itemized in the owner's operating statement. Certain expenses that appear in the owners' operating statement must be excluded. Such expenses include: business tax, depreciation or capital cost allowance (CCA), interest on a mortgage or loan, and capital improvements. Expenses such as the landlord's personal taxes, memberships, travel and vehicle expenses, are also excluded from the APOD unless they are specifically related to the business.
Warning sign/potential problem - Dampness or mould on walls.
Insulation may be damaged from a poor vapour barrier.
Ling (she/her) has a new listing in a community with large duplex bungalows that have single-car garages. Each of the bungalows, although attached, are large enough to feel like detached homes. Even the yards—separated by high fences—feel private. Which measurement method should Ling use when applying the RMS to the home.
Interior (paint-to-paint) measurements. Ling can help her seller understand the differences in the previous and new measurements by explaining that real estate professionals must use the RMS, while builders measure space differently, and making the listing as transparent as possible about the derivation of the different dimensions included.
Warning sign/potential problem - Patching materials used inside or outside the basement wall. Cracks.
Inward movement caused by inadequate support, faulty backfilling, or thin foundation walls.
Scheduled Rental Income
Is based on the market rent rather than the actual rent, Requires competent management, and Represents an income based on the property's highest and best use
Warning sign/potential problem - Discolouration of, or damage to, vinyl siding.
It will be almost impossible to match the colour when replacing the siding, due to changes in colour lots and effects of weather on the existing siding.
Disadvantages to investing in property
Lack of liquidity or marketability. Large capital investment restricts the potential pool of investors.
Warning sign/potential problem - Patching materials used inside or outside the basement wall. Water stains or mold on an interior wall. Musty smells.White mineral deposit(efflorescence) on interior basement walls. When water passes through from the outside and dissolves salts in the concrete, masonry or mortar and then evaporates from the inner wall, a crystalline salt deposit is left behind.
Leakage from improper landscaping, inadequate downspouts, or faulty or non-existent weeping tile.
Warning sign/potential problem - Asphalt shingles with curling or cracking.
Leakage; expensive to replace.
Warning sign/potential problem - Cracked tile roofs.
Leakage; expensive to replace.
Warning sign/potential problem - Wood shingles that are missing, cracked, or showing signs of rot.
Leakage; expensive to replace.
Ethanol and Biodiesel
Many Canadian dairy and cattle farmers have begun producing ethanol as a byproduct of their crops. Ethanol is extracted from grains, such as corn, that dairy farmers are already growing for their feed. Because cows eat the whole plant of corn (as well as the leftovers from the ethanol-making process), this fits naturally and sustainably into the plans of many farmers in Canada. Demand for ethanol is high since it is included in all of the gasoline sold in Canada.
The purpose of a development permit is to confirm that the use of a property complies with the municipality's land use plan and the associated land use bylaws, including:
Maximum building heights, Permitted location of buildings and other construction on the property, and Usage of the property. If a property has an approved development permit, a new development permit is not needed for improvements, renovations, or change of use unless the new construction or activity does not comply with the existing permit.
Measurements must be calculated to within ?% of the RMS size.
Measurements must be calculated to within 2% of the RMS size.
Warning sign/potential problem - Cracked or flaking parging, which could indicate unwanted moisture.
Moisture problems.Expensive to replace.
Warning sign/potential problem - Damage to stucco.
Moisture problems.Expensive to replace.
For RMS, when possible, the measurement process should round units to the nearest ? square metre
Most MLS® systems will require only one type of measurement—either imperial or metric—and, when possible, the measurement process should round units to the nearest 0.1 square metre or whole square foot. The final RMS measurement calculation should not deviate more than 2% from a theoretically "perfect" RMS measurement.
How long do Septic systems last?
Most septic systems are designed to have 20-30 years of life under the best conditions. Many factors can cause the system to fail well before the end of its designated lifetime. Pipes blocked by plant roots, soils saturated by stormwater, crushed tile, improper location, poor original design, or poor installation can all lead to major problems.
local improvement taxes
Municipalities can also levy local improvement taxes to fund a service that will benefit a defined area within the municipality. The municipality needs to pass a bylaw to do so; once the bylaw is enacted, the property owner is required to pay this additional tax. These taxes are charged annually and may be applicable for a set number of years since the cost of the improvement or service is amortized over several years. The following services may be funded with local improvement taxes: Ambulance services, Boulevards, Dust treatment, Drainage ditches, Fire protection, Recreational services, Sewer lines, and Waterworks
To estimate Value (V):
Net Operating Income / Cap Rate = Value.
To estimate Capitalization Rate (R):
Net Operating Income / Value = Rate.
Net present value (NPV)
Net present value (NPV) is a method of calculating the present values of future cash flows. In a rural environment, there are several scenarios where a buyer is looking at a property for the investment value of its diverse lease agreements. One property may have several long term leases, including grazing, cropping, oil and gas, cellular towers, and so on, and some, or all of these leases may scale over a period of years. The problem becomes how to make a current valuation of such investments, since the sale or purchase of the property is under consideration in the present.
Annabelle (she/her) is a rural property owner. She received her property assessment in the mail. Ninety days after she received the assessment, she noticed an error in the document. Can she contest the assessment?
No, Annabelle cannot contest the assessment since 90 days have passed since she received the notice. An assessment can only be contested within 60 days of receiving it in the mail.
One of the features of the home of which the sellers are most proud is a nearly eight-foot-high bow window looking out onto the lake that takes up almost a whole wall in the primary bedroom. The sellers built the window with bench seating, and it also doubles as a storage space for the room. Can Navleen include the feature in the RMS measurement of the home?
No, Navleen can certainly highlight this wonderful selling feature in her marketing, but she cannot include it in the RMS measured size since, despite its size, it does not begin at floor level.
Is a disconnected pool house counted in the RMS calculations for the house?
No. A property may have, for example, a garden suite over the garage, a guest house, or pool house; however, because they are not connected to the main residence, they cannot be included in the RMS measurement. These additions can be measured and mentioned in the listing, but must not be included as part of the property's RMS size. Occasionally, there is additional space on a property—such as, for example, a heated storage room attached to the main residence but only accessible from the outside—which is not considered connected to the main residence. Such spaces would not be permitted in the RMS measured size.
Septic/waste Disposal systems - Open discharge systems
Open discharge systems are the least desirable type of disposal method, and are only intended for use in areas at a great distance from any neighbours, property lines, or clean water supplies. They are not recommended for use in residential subdivisions. In an open discharge system, the effluent from the septic tank is released directly onto the ground; this can create major health, environmental, and nuisance issues. Open discharge should only be considered when no other form of treatment and disposal is feasible. Under code, open discharge systems must be 90 meters from a property line AND 45 meters to a building.
OSB
Oriented Strand Board (OSB), also known as wafer board panels OSB board is engineered for increased strength with decreased weight compared to wood plank or plywood.
Posts or columns
Posts or columns are used to transfer a beam's load vertically, down to the footing. Posts and columns may be made of brick, concrete block, poured concrete, wood or steel.
The following forms are designed to be attached to the Agricultural Property Purchase Contract (X8)
Property Schedule: Provides information about utilities, water rights, surface rights, available reports, rental agreements, and manufactured homes important to the trade in agricultural property. Land Description Schedule: Provides space to record details of deeded lands and lease assignments where the total package of land offered contains more parcels than the purchase contract can hold. Surface Leases and Income Schedule: Provides details of current leases on the land, the applicable parcels, size, agreement dates, tenants' info, and income. Examples are oil and gas surface leases, cellular tower leases, etc. Grazing Leases and Permits Schedule: Provides information about any granted grazing leases, including income, potential registrations, and the number of animals the land can support. Property Leases Schedule: Provides details of leases on the property. Water Irrigation and Rights Schedule: Provides details of the seller's water rights and irrigation rights. They can be for animal use, crop irrigation, or other uses of non-household water rights secured from the government of Alberta. Financing Schedule: Provides the details of any agreed assumption of mortgage, seller financing, or other value attributed to the transaction. Condominium Property Schedule: Used in situations where the agricultural property sold is a condominium corporation unit. This is usually a bare land condominium for agricultural purposes and would be detailed on the land title.
Rollover Rules
Provisions exist for situations where a property used as a farming business is transferred to a: Child, Child's spouse, Stepchild, Grandchild, or Great-grandchild. These provisions do not follow the usual rules and are referred to as the rollover rules. The rollover rules allow the individual to defer any gains and taxes that would otherwise be payable on the transfer of the property. Under the rollover rules, the owner can sell or transfer farm property to their descendants for any amount of money between the cost of the property and the current market value. This amount is accepted as the proceeds of disposition for tax purposes. If the owner chooses to transfer the property at cost, no gain will result. When the rollover applies, the recipient is deemed to have acquired the farm property for the amount at which the owner was deemed to have sold it. Again, this amount could range from the original cost to the current value of the property. If the recipient sells the property in the future, the gain is eventually taxed. Certain conditions apply: The child must reside in Canada immediately prior to the transfer. The primary use of the property prior to transfer must be the business of farming. The owner, owner's spouse, and/or any of their children must have actively and continuously been engaged in farming the property. Note that property used in a farming business includes land, buildings, equipment, shares of a family farm corporation, or an interest in a family farm partnership.
If a REP hires a professional third party to take property measurements will RECA hold the third party liable or will the REP be held responsible for the represented measurements?
RECA will hold the real estate professional responsible for all represented measurements regardless of whether a third party was engaged to produce them
The 9 principles of the RMS
RMS Principle 1: Real estate professionals must use the RMS. RMS Principle 2: Identify if the measurement system is metric or imperial, and apply it consistently. Measurements must be calculated to within 2% of the RMS size. RMS Principle 3: For detached properties, measure the property using the exterior wall at the foundation. RMS Principle 4:For properties with common walls, such as half-duplexes, townhouses, and apartments, measure the interior perimeter walls (paint-to-paint) at floor level. An additional area representation may be made assuming exterior measurements. RMS Principle 5: Include floor levels that are entirely above grade and exclude floor levels if any portion is below grade. Below-grade levels may be measured, but the area must not be included in the RMS area. RMS Principle 6: Include all additions to the main structure and conversions of above-grade areas within the structure if they are weatherproof and suitable for year-round use. RMS Principle 7: The property must have a minimum floor-to-ceiling height of 2.13 metres (7 feet). If the ceiling is sloped, the area with a floor-to-ceiling height of at least 1.52 metres (5 feet) is included in the RMS area, provided there is a ceiling height of 2.13 metres (7 feet) somewhere in the room. RMS Principle 8: Include extensions from the main structure that have a minimum floor-to-ceiling height of 1.5 metres (5 feet), such as cantilevers, bay and bow windows, and dormers. RMS Principle 9: Exclude open areas that have no floor, such as vaulted areas.
Warning sign/potential problem - Sagging or buckling roof
Rafters can sag or buckle when the lumber used is too thin or when they have inadequate collar ties and braces. Use of sheathing that is too thin can cause sagging.
There are a number of different APOD templates accessible by a quick internet search. See, for example:
Rental Property Owner's Association (RPOA) APOD https://rpoaonline.org/annual-property-operating-data-apod/#:~:text=It%20typically%20consists%20of%20a,easy%2Dto%2Dread%20report PDFRun APOD https://www.pdfrun.com/document/editor/2292/?editor=14&ctaclk=thumb
Warning sign/potential problem - Service box indicates a different capacity than the rating of service wires.
Risks to safety. Consult an expert.
Biodigesters
Rural property owners can recover energy from waste. This is a groundbreaking development and a huge opportunity for agribusiness operators, especially dairy farmers, to handle waste, reduce their carbon footprint, and produce energy to sell back into the grid.
Warning sign/potential problem - Sagging or altered joists.
Sagging caused by floor joists that are undersized or altered.
4 Different Types of Septic System Failure
Sewage Backflow - Sewage backflow occurs when the septic system rejects sewage until it backs up into a home. Sewage in the Yard - Poorly treated sewage surfaces in the yard or elsewhere in the immediate environment. Decline in Water Quality - While a septic system drainfield may appear to be working properly, water supply sampling may indicate significant problems with groundwater quality. Gradual Environmental Degradation - Computer and long-term modeling indicate that septic system use in certain areas will result in gradual environmental degradation.
Regarding a Septic system, the following symptoms may indicate a serious problem: (x7)
Sewage backup in drains or toilets: This can appear as a black liquid with a disagreeable odour. Slow flushing of toilets: Several drains in a house will drain more slowly than usual, despite the use of plungers or drain cleaning products. Surface flow of wastewater: Liquid may seep along the ground's surface near the septic system. It may or may not have an odour associated with it. Lush green grass over the septic field, even during dry weather: Often, this indicates that an excessive amount of liquid from a system is moving up through the soil instead of downwards as it should. The presence of nitrates or bacteria in drinking water: A test indicating that nitrates or bacteria are present in drinking water suggests that liquid from the system may be flowing into the well, through the ground or over the surface. Build-up of aquatic weeds or algae in adjacent lakes or ponds: This may indicate nutrient-rich septic system waste leaching into the surface water. Unpleasant odours around the house: Often, an improperly vented plumbing system or a failing septic system causes disagreeable odours around the house.
Difference between wood shingles and wood shakes
Shingles are also made of machine-cut wood. wood shakes are split mechanically or by hand.
loan-to-value ratio
Simply the loan amount divided by the value/price. For example if the loan is $300,000 and the price was $400,000, then $300,000 / $400,000 = 0.75 or 75% Loan to Value Ratio
Warning sign/potential problem - Signs of leakage around skylights, particularly when the skylights were installed after the roof was constructed.
Skylights may leak due to poor installation or defective flashing.
As you learned in depth in the Fundamentals of Real Estate program, there are three common types of land ownership under the Torrens system.
Sole ownership: A person or a registered company is the sole owner of the land. Tenancy-in-common: Two or more owners are called tenants-in-common. If a tenant-in-common dies, their share in the land goes to their estate rather than the other co-owner or co-owners. Joint tenancy: There are two or more owners, each with the right of survivorship. If an owner dies, their share in the land goes to the other owner or owners.
foundations - preserved wood
Some foundations are made of preserved wood, and although less common, they will be important to point out to buyers. According to home inspectors, these foundations may have issues such as exterior wood decay, interior wood decay, leakage at joints, buckling from pressure, a missing moisture barrier, or bowing foundation walls (FXC Inspections, 2022). You can check the foundation type by finding some exposed wall in the basement, usually under a staircase or in a utility room. If you cannot find an exposed foundation wall, confirm the foundation type with the seller.
back-flow preventer
Some homes have a back-flow preventer installed on the sewer service to the home. Back-flow preventers allow wastewater to flow only one way, so they protect homes from sewer back-ups. Some insurance companies will want to know if a home has a back-flow preventer; a home inspector may be able to provide that information.
Warning sign/potential problem - Springy floors.
Springy floors caused by joists that are not bridged or blocked, or by subflooring that is too thin. Floors that are too thin may not hold the weight of concentrated loads, such as a piano.
Warning sign/potential problem - Squeaky floors.
Squeaky floors may be caused by inadequately secured subflooring. The squeaking is the sound of the movement of the wood against the nail.
Warning sign/potential problem - Stiff locks or sticking doors.
Stiff locks or sticking doors may indicate a poor fit or warping of the door or the frame.
Making the Most of the capital gains Exemption
Tax planning allows families to take advantage of multiple capital gains exemptions by combining the rollover rules with the capital gains exemption rules. The rollover rules allow an owner to choose an amount in proceeds between the original cost and the current fair market value. If a transfer is structured as a sale rather than a gift, a capital gain would result for the original owner. If that owner has a capital gains exemption remaining, the proceeds can be set at a value that allows them to take advantage of their capital gains exemption and eliminate the gain. The child receiving the property inherits the transfer amount rather than the original cost of the property. If the property continues to qualify for the exemption, and that child has an exemption remaining, the child can also reduce existing or future gains on the property. Example: Filip (he/him) owns farmland with a fair market value of $1,500,000. He originally paid $200,000 for the property. He has actively farmed the land. He has not used his capital gains exemption. His son and daughter are involved in the farming operation. He transfers the land to them as part of his succession planning under the rollover provisions of the Act. Three years after the transfer, the brother and sister decide to sell the property for $1,500,000. The results of the sale are very different, depending on whether or not the family planned for the sale: With No Planning: Proceeds:$1,500,000 Cost:$200,000 Capital gain:$1,300,000 Capital gains exemption:$1,000,000 Adjusted capital gain:$300,000 Tax on gain (50%)$150,000 So, the tax on the gain ($150,000) would be added to the owners' taxable income in that year. In this case, the two owners split this gain, with each owner declaring 50% of the gain. With Prior Planning: In order to take advantage of tax exemptions, Filip sells his children the land in exchange for a promissory note rather than gifting it to them. Using the rollover provisions of the Income Tax Act, he can choose an amount for the proceeds between the original cost of $200,000 and the current value of $1,500,000 Filip selects $1,200,000 for his proceeds on the transfer. His original cost was $200,000. Proceeds:$1,200,000 Cost:$200,000 Capital gain:$1,000,000 Capital gains exemption:$1,000,000 Adjusted capital gain:$0 Tax on gain (50%)$0
Agricultural Real Estate Listing Contract
The Agricultural Real Estate Listing Contract appendix provides a checklist for mortgage details, agricultural information, country residential acreage information, residential rental agreements, and manufactured home details.
The ? was designed to assist in developing regional land use plans that consider the effects of development on nature, ensure environmental stewardship, and promote conservation of the natural habitat.
The Alberta Land Stewardship Act (ALSA) Through this legislation, the provincial government and the local municipalities coordinate their planning and arrive at decisions for land use that balance development with environmental stewardship.
REALTORS® Land Institute (RLI)
The REALTORS® Land Institute (RLI), an affiliate of the National Association of REALTORS® (NAR), represents urban and rural real estate professionals focused on land brokerage transactions. These transactions are of five specialized types: farms and ranches; undeveloped tracts of land; transitional and development land; subdivision and wholesaling of lots; and site selection and assemblage of land parcels. Individual members frequently engage in other land specialties such as agri-business, appraisal, consulting and management. RLI also offers the Accredited Land Consultant (ALC) designation.
Cash Flow Analysis Using APOD
The annual property operating data form (APOD) is a tool used to describe property income and financing data, develop an operating statement, and determine cash flow before taxes. As a marketing tool, an APOD serves the following purposes: It provides a standardized form and checklist for accumulation of data. It provides a standardized form for evaluation of data. It can be used as a communication tool to support a valuation. It records the owner's version of the past year's performance of the property (owner's statement). In addition, the APOD form serves the following general functions: It presents an owner's cash flow before taxes, with existing financing. It presents an owner's cash flow before taxes, with alternative financing. The following formulae important to cash flow analysis are reflected in the APOD:
three approaches to value - cost - The market value of an agribusiness operation can be determined using the cost approach. The property's value is the result of the following process:
The appraiser estimates the reproduction or replacement costs of the improvements to the operation. Then, they subtract the dollar value of depreciation on the improvements, leaving them with the value of the improvements today. The value of the improvements today is added to the value of the land, resulting in the market value of the agribusiness operation.
Principle of Conformity
The basis of this principle is that reasonable conformity with existing standards protects value. Maximum value occurs when properties reasonably conform to existing standards in the area. In rural real estate, reasonable conformity is less relevant than in residential real estate because the rural market varies widely in its diversity, even within the same county. In rural real estate, the key consideration is typically the land and its ability to satisfy the buyer's need for production and income. The variability between houses or styles of barn etc. on different properties is often a lower priority for rural buyers.
the spread
The difference between the cost of the borrowed funds and the overall return on invested capital is known as the spread. The greater the positive spread, the larger the yield.
soffit and fascia board.
The eave overhang protects the side wall and connects the roof to the wall. Two major components of the overhang are the soffit and fascia board. The fascia board is nailed to the end of the joists or trusses, running the full length of the roof. This may also be referred to as the subfascia. Typically, the fascia trim is made of wood. The soffit is the area on the underside of the roof overhang that extends from the gutter to the wall surface. Soffits are usually made of wood, metal, vinyl, or stucco and have drilled holes or vents to allow air circulation in the attic. The soffit pieces are attached to the subfascia. To finish the eave overhang, fascia covers the outside edge of the soffit and protects the wood subfascia. Eavestroughs and downspouts protect the building walls from water and direct the water away from the foundation. They are usually are made from aluminum, galvanized steel, or plastic. Eavestroughs collect water runoff from the roof. Downspouts should discharge the water into proper drains or onto the ground at a safe distance away from foundation walls.
Windows - casing
The exterior or interior trim is called casing
These external factors can impact the value of land used for agricultural or other rural purposes. (x3)
The federal government competes on a global scale in agribusiness. It dictates what products may be exported or imported, in turn creating a market for local goods. The federal and provincial governments control local marketing boards and quota systems for some agricultural products, including wheat, milk, eggs, and hogs. A major expense for farms is transporting products to and from marketplaces. The government determines this cost, to some degree, by setting freight rates.
sills
The floor system starts with sills providing a level, continuous pad between the top of the foundation and the bottom of the framing system.
Biodigesters - Incineration with Energy recovery
The heat from incinerating waste can be used to heat water, producing steam. The resulting steam turns turbines, producing energy. As it cools, the steam can also be recaptured, and heated again with little water product loss.
Effective Rental Income (also known as Net Effective Rent)
The income remaining after the vacancy and credit loss is subtracted from the scheduled rental income.
mortgage constant
The mortgage constant is the percentage of a loan that must be paid periodically to settle the debt. It is typically expressed as a yearly percentage. The constant for fully amortized loans is calculated by dividing yearly principal and interest payments by the amount of the mortgage. The resulting ratio represents a fair indication of true financing costs from a pure cash flow perspective.
What is the most common reason for septic system failure?
The most common reason for early failure is improper maintenance. When a system is poorly maintained and not pumped out regularly, sludge builds up inside the septic tank and then flows into the absorption field, clogging it beyond repair.
The non-resident seller of taxable Canadian property must ...
The non-resident seller of taxable Canadian property must apply for a Certificate of Compliance by filing a T2062 return with the CRA. https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2062.html The T2062 is used to report the gain or loss on the land and building. Tax is determined at 25% of the total capital gain on the land and buildings. Example: Assume the seller sold a Canadian real property for $400,000 and originally paid $75,000 15 years ago. Step 1 - Purchaser will withhold $100,000 [$400,000 x 25%]. Typically, this is held in trust by the seller's lawyer. Step 2 - Seller files for Certificate of Compliance. Step 3 - The CRA will request payment or acceptable security of $81,250 [($400,000 - $75,000) x 25%]. Seller's lawyer remits the $81,250 out of the $100,000 originally withheld to the CRA. CRA issues Certificate of Compliance. Step 4 - Upon receipt of a copy of the Certificate of Compliance, the seller's lawyer can release the remaining funds held in trust of $18,750 [$100,000 - 81,250]. Step 5 - After the end of the calendar year, upon the filing of the non-resident tax return, the actual tax liability is approximately $55,000. The non-resident receives a refund of $26,250 [$81,250 - 55,000]. (Richards, 2022)
To establish the effect of leverage, three calculations are required:
The overall return on investment, or, in other words, the net operating income divided by capital invested, The cost of borrowed funds, and Equity return on investment, or, in other words, cash flow before taxes (including principal reduction on mortgage) in relation to capital invested.
contest the assessment
The owner has the right to contest the assessment if they feel it is inaccurate or if they find errors. The owner can only contest the year the assessment is based on, and must do so within 60 days of receiving it in the mail. Every municipality must complete their budget each year and determine the monies needed to operate the municipality. This amount, minus the known revenues they will receive from permits, licences, and grants, determines the revenue requirement needed from property tax. From this, the mill rate can be set.
Windows - Sash
The panes are held in a sash
Windows - Panes / Lites
The pieces of glass are called panes or lites
RMS - The property must have a minimum floor-to-ceiling height of ? metres (? feet). If the ceiling is sloped, the area with a floor-to-ceiling height of at least ? metres (? feet) is included in the RMS, provided there is a ceiling height of ? metres (? feet) somewhere in the room.
The property must have a minimum floor-to-ceiling height of 2.13 metres (7 feet). If the ceiling is sloped, the area with a floor-to-ceiling height of at least 1.52 metres (5 feet) is included in the RMS, provided there is a ceiling height of 2.13 metres (7 feet) somewhere in the room.
What is the purpose of a septic tank?
The purpose of the septic tank is to allow the solids in the sewage to settle out (sludge) and the greases, oils or films to float (scum), allowing the liquid portion (effluent) to leave the tank relatively free of any solids.
reconstructed operating statement
The reconstructed operating statement typically represents a one-year projection of income and expenses for an investment property under normal market conditions. It is derived from an assessment of the owner's statements over several months. Adjustments are made to reflect typical revenue and expenditures properly, based on research into these numbers for comparable properties. One-year reconstructed statements lead to estimates of value based on direct capitalization, as in the example below. The reconstructed operating statement consists of two sections: income and expenses. An appraiser reconstructs actual operating statements by first adjusting income to reflect market rental rates (subject to vacancy and collection losses), and then reconstructing expenses using reasonable ranges found in the marketplace. This activity will include stabilizing certain fluctuating expense items, properly amortizing selected costs, and making adjustments for other items based on their typical range in costs for comparable properties.
What is a septic tank made of? How long is raw sewage retained inside the tank?
The septic tank is a large sewage holding tank and should be made from durable materials, such as concrete, fibreglass, polyethylene, or steel. It is a watertight storage container into which the raw sewage runs and is retained for 24 hours or more.
What does a septic tank use to digest the sewage?
The septic tank uses anaerobic bacteria—which are present in body wastes and thrive in an environment that is warm, wet, dark, and free of oxygen or fresh air—to digest the sewage. By allowing the sewage to rest for 24 hours under these conditions, the anaerobic bacteria multiply rapidly, allowing them to do their job better. For the bacteria to function properly, materials such as lye, strong caustics, acids, disinfectants, etc., should be kept out of the septic tank. Also, rainwater and seepage water should not be admitted into the system.
Windows - Stiles and Rails
The sides of the sash are called stiles; the top and bottom pieces are rails.
Windows - Jambs, sill and head
The sides of the window frame are the jambs; the bottom is the sill and the top is the head
The slab
The slab is the reinforced concrete floor between beams, columns, or walls. Slabs are most common in residential basements, machine shops, workshops, dairy barns, hog barns, and poultry barns. The building's type and the amount of weight it must handle for its intended use determine the slab thickness and requirements for reinforcements (rebar) within the slab.
How is roof pitch measured?
The slope of a roof, or roof pitch, is measured and described based on how many inches it rises over a span of 12 inches, using the format: X vertical inches over 12 inches, or x:12. For example, a roof slope that rises 6 inches every 12 horizontal inches has a 6:12 pitch. Roofs with slopes less than 4:12 are low slope roofs. Low slope roofs require different roof materials and installation methods than steeper pitched roofs in order to properly protect the building from water penetration. Roofs with steep slopes, over 8:12 pitch, are more efficient at shedding water; however, they are more difficult for roofers to install.
On Page 11 of the guide under Principle 1, an exception is detailed about what to do when it is not possible to measure the property, such as homes that have not yet been built, or access is not possible in the case of a foreclosure situation. For these properties, exceptions may be granted if: (x4)
There is a clear reason why the property could not be measured using RMS. It is made clear that the measurements provided do not comply with RMS and it is explained how the measurements were calculated. RMS is applied to the blueprints. The measurement methodology used is disclosed (i.e., area size calculated by applying the RMS to the blueprints provided by the builder).
Use of Cap Rate
There is great diversity in the function, structure, and appearance of commercial properties. Cap rates should only be used to identify a range rather than a specific value, unless extensive data can support the cap rate used. The cap rate provides only one indication of value. In order to achieve the necessary perspective on an estimated range of value, the cost and direct comparison approaches must also be considered.
wood-burning fireplaces
These are metal fireplaces with properly manufactured sealed doors. They are designed to control the rate of burning by controlling airflow, and they retain more heat than a metal or masonry fireplace. They have dampers to control airflow and are manufactured to safely withstand higher temperatures. It is important to clean the chimneys for wood-burning fireplaces to reduce the risk of a chimney fire. It is also important to have the fireplace and chimney inspected regularly by a technician certified to do Wood Engineering Technology Transfer (WETT) inspections. These inspections help to ensure the fireplace and chimney are safe to operate.
Warning sign/potential problem - Broken or missing vent screens on soffits.
This can allow birds or small animals entry to the attic.
Warning sign/potential problem - Cracked or warped fascia boards.
This can direct water into the soffit area and cause damage.
Septic systems - The neighbouring property has an open discharge system 50m from the property line. Is this a concern or not?
This is a concern. Open discharge systems must be at least 90m from the property line.
Sewage lagoons
This is a large basin, similar to a pond, in which wastewater flows into. It is both stored and treated naturally by environmental factors such as the sun and wind which encourage bacterial growth to break down the materials. These are most common in Northern Alberta.
A property has a residential wastewater treatment system instead of a disposal field or lagoon. Is this a concern or not?
This is not a concern necessarily; a residential wastewater treatment system may be used as long as it meets certain standards.
Septic mound
This is similar to a septic tank and field, except the wastewater is deposited in a large mound of dirt, rather than a field, to complete the decomposition process.
Septic system tests - Percolation Test
This test determines the rate at which water will move through the soil, which in turn determines the size of the disposal field. It is used for determining the length of weeping laterals required for a disposal field to handle the expected volume of sewage per day.
Septic system tests - Sodium absorption ratio (SAR)
This test measures sodium content in relation to calcium and magnesium. A high sodium absorption ratio (SAR) adversely affects soil structure and reduces the permeability of the soil to water, air, and roots, which reduces the ability of the soil to allow liquids or gases to pass through it. High sodium content also creates hardpan and crusting problems. The probability of sewage disposal failure is greater when these conditions are present.
Septic system tests - Saturation percentage test
This test measures the pore and particle sizes within the soil, in relation to the combination of sand, silt, and clay, as an indicator of the long-term operation of a disposal system. The higher the saturation percentage, the higher the percentage of smaller soil particles (silts and clays) and the greater the risk of disposal system failure.
SPIN2 is a publicly available online application for viewing or purchasing government land-related data and information. This includes: (x6)
Titles data, Registered survey plans, Survey control marker data, Original township plans, Soil capability information, and Other land information services.
Biodigesters - Gasification
Traditionally, this process was used to convert fossil fuels, such as coal, into gases for alternate uses. Today, the gasification process can be used for converting biomass (such as livestock waste in a dairy barn) into a combustible gas product, often called syngas (short for synthetic gas) which combusts cleanly.
Structure - Footings/foundation
Transmits the weight of the structure to the soil The foundation is the base upon which a structure is built. A foundation has three basic functions: 1-Transmit the weight of the structure to the footings. 2-Resist the pressure of the soil on the outside of the basement and act as a retaining wall. 3-Carry the weight of the structure below the frost line to prevent frost heaving.
True or false - for septic/waste water treatment, disposal fields are the most common type of effluent treatment and disposal system
True
True or false - missing permits are considered a material latent defect.
True
True or False - RECA does not require a real estate professional to represent the size of a property in Alberta
True - Although RECA does not require a real estate professional to represent the size of a property in Alberta, those professionals under MLS® system regulations would require a size to be included in the listing. If the size is represented, then those measurements must comply with RMS guidelines. Real estate professionals are required to keep a diagram in their brokerage files of the property showing the RMS calculations and how the size was measured including the sizes and calculations. The same protocol for the diagrams to be kept on file for the rural property outbuildings are not required by RECA, but are very good practice and valuable in the event an investigation arises. All information gathered in regard to the sizes should be documented and retained in the client file.
True or False - Deadly gases are present in a septic or sewage holding tank
True - Never enter septic or sewage holding tanks unless procedures and methods approved by Occupational Health and Safety have been carefully met.
True or False - it is a well-established fact in real estate that price and size are not good measures of value in a transaction.
True. In the rural and agribusiness setting this is even more relevant. The home (residential component) of the property is only one factor, and the size of the home is relevant for a buyer with children, but not really a factor that is considered in the price the buyer will validate. The number of acres of land, barns, machine sheds, cattle shelters, corrals, fencing, soil type, distance to markets for goods produced: all are most times more relevant than the size of the home.
floor joists
Typically, the floor joists rest on the sills and provide a structure for the subflooring. The joists and beams must supply enough support to the subfloor to prevent sagging. Bridging or blocking of joists offers extra structural support.
Warning sign/potential problem - Unevenness.
Uneven floors, from uneven joist installation, debris on the joists when the subfloor is laid, or other mistakes.
Warning sign/potential problem - Improperly installed trim over joints in wood siding.
Untrimmed siding is more apt to be damaged by moisture.
To estimate Net Operating Income (I):
Value x Cap Rate = Net Operating Income.
Ventilation
Ventilation is simply an exchange of air. A ventilation system makes a building more comfortable for occupants by moving air. It can also distribute heat, filter particles from the air, and exchange contaminated indoor air with fresh exterior air. The main components of mechanical ventilation systems are electrical fans. Mechanical ventilation systems include bathroom exhaust fans, kitchen exhaust fans, furnace fans, heat recovery ventilators (HRVs), and the ducting used to move air from one place to another. In order to operate properly, ventilation systems require regular cleaning, including cleaning or replacing furnace and HRV filters.
Warning sign/potential problem - In unfinished basements, water stains may be visible from the underside of the subfloor.
Water damage. Wafer board subflooring can swell when wet and cause unevenness. Swelling may pull the nail through the damaged board or out of the joist.
Septic tanks - A Note on Water Softeners
Water softeners are not recommended for use in conjunction with a sub-soil effluent disposal system because they increase the SAR of the waste water entering the septic tank. In cases where a water softener must be used, it is better to select a "sensing" or "metering" type, which only backwashes or regenerates if hard water is detected, or a preset volume of water has been used. The total volume of salts discharged into the disposal system is therefore greatly reduced. Avoid the installation of water softeners that automatically backwash at preset intervals. Keep in mind, too, that a water softener should never be used for iron removal; use a proper iron filter if required.
Warning sign/potential problem - Deteriorated wood veneer or peeling paint on exterior doors.
Weather damage.
Warning sign/potential problem - Wood siding that has moved and changed shape.
Weather damage.
Weeping tile
Weeping tile is a drainage system located at the footings. Provincial building codes establish drainage requirements and include tile pipe standards and size.
Windows - Muntins
When a window within a sash is divided into pieces, the dividing pieces are muntins.
Septic system
When considering a property with a septic system, it is important to gather as much history and information as possible about the type of septic system, how it was constructed, and the locations of septic components, such as the tank and the field. Often the field is completely covered in lawn and difficult to spot. Sizing the system may also be important; for example, if the previous use was lower than the projected future use, there may be a problem. If two retired people have lived on the property for several years and the new owners have a large family, the new owners may find it insufficient for their needs. A septic system includes a septic tank—which receives all of the normal household wastes from the bathroom, kitchen, laundry drains, etc.—and a disposal system, such as a disposal field, treatment mound, lagoon, or open discharge. Once the waste leaves the house, it is piped directly to a septic tank. The septic tank is a large sewage holding tank and should be made from durable materials, such as concrete, fibreglass, polyethylene, or steel. It is a watertight storage container into which the raw sewage runs and is retained for 24 hours or more. The purpose of the septic tank is to allow the solids in the sewage to settle out (sludge) and the greases, oils or films to float (scum), allowing the liquid portion (effluent) to leave the tank relatively free of any solids. The septic tank uses anaerobic bacteria—which are present in body wastes and thrive in an environment that is warm, wet, dark, and free of oxygen or fresh air—to digest the sewage. By allowing the sewage to rest for 24 hours under these conditions, the anaerobic bacteria multiply rapidly, allowing them to do their job better. For the bacteria to function properly, materials such as lye, strong caustics, acids, disinfectants, etc., should be kept out of the septic tank. Also, rainwater and seepage water should not be admitted into the system.
Biodigesters - Compost
When waste is composted, chemical reactions produce heat, an end-use fertilizer, and gas that can potentially be harvested for energy production. This process requires time to work effectively.
The difference between silver to black wood shingles and wood shingles that are greenish in colour
Wood shingles that are silver to black are untreated and more subject to decay than those that are greenish in colour, indicative of pressure treating.
Sid (he/him) has signed an exclusive seller representation agreement to list a small vacant bungalow in an older neighbourhood which he will be loading on the local board MLS® system. He is heading over this afternoon to take pictures and hang a lockbox on the property and take a look around at the condition of the home. The foreclosure documents make clear that the courts do not represent any material facts about the property, including its size. Does Sid need to measure the property for its RMS size before listing the property?
Yes, Sid must measure the property in accordance with RMS measurements! Even though it is a foreclosure and the courts are not making representation about the size, Sid has an obligation to measure the property for RMS because the property is accessible, and he is loading the property on the local MLS® system with a represented size. Despite the courts taking no responsibility for size, Sid cannot negate his obligations to measure it when he is representing that size.
Yield
Yield is a measurement of the investment's performance. It represents the return on an investment expressed as a percentage per year of the amount invested. For example, if an investment of $20,000 returns $3,000 in a year, the yield on the cash investment is 3,000/ 20,000 or 15%.
Quonset
a building made of corrugated metal and having a semicircular shape
bungalow
a low house, with a broad front porch, having either no upper floor or upper rooms set in the roof, typically with dormer windows.
anyone who suffers a loss due to error or fraud of title may take steps to obtain compensation from the government through the operation of the Land Titles ? program.
anyone who suffers a loss due to error or fraud of title may take steps to obtain compensation from the government through the operation of the Land Titles Assurance Fee program.
Windows - awning windows
awning windows have a hinge at the top and open out. Providing good ventilation, these windows typically require more hardware than other styles.
Two bungalows are only connected at their attached garages. Following the RMS, how should they be measured?
because the only space to be measured is in the dwellings, and they do not have a common wall, this property type would be measured using exterior measurements at the foundation.
when was aluminum used for electrical lines?
between 1968 and 1975, but it is no longer permitted because connections tend to become loose over time and increase the risk of sparking and electrical fires. Aluminum circuits do not have to be removed from existing homes. Qualified electricians can maintain aluminum connections to reduce the risk of sparking.
Windows - casement windows
casement windows provide good airflow when open and are quite airtight when closed. They open and close with an operating crank. Good hardware is necessary for these windows.
The three approaches to value most often used for rural properties are
direct comparison, cost, and income
There are four important service systems for country residential properties:
electrical, heating and ventilation, plumbing, and safety and security.
Poly-B water lines (issues)
grey Poly-B water lines tend to degrade and can develop water leaks. Some insurance companies do not provide insurance coverage for Poly-B water lines.
Windows - horizontal sliding windows
horizontal sliding windows vary greatly in their cost and effectiveness. If poorly made, gaps may allow excessive water and air to enter.
Fee Simple Owners and their heirs can (x5)(bundle of rights)
possess, control, enjoy, exclude, and dispose of the property
Windows - single and double windows
single-and double hung windows are traditional in design, can be operated easily, and do not project out from or into the house
To perform a title search, you must know the Land ID, which may be (x3)
the Title Number, the Land Identification Number Code (LINC Number), or the short legal description. The legal description of a property can be found on tax assessments or purchase documents. Generally, you cannot search for a title by a municipal address. It will bring you to a general area only. To further locate the property, use the map navigation tools. The SPIN2 maps show property lines and any utility lines that cross the property registered on title. This is always useful to visually demonstrate their location on the property to clients. You can also view property lines of adjacent properties.
The cap rate is calculated by dividing
the property's NOI by its FMV
Supplies Includes light bulbs, hoses, janitorial supplies, and any miscellaneous needs. For most buildings, this is approximately ?% of the Scheduled Rental Income.
this is approximately one quarter of 1% of the Scheduled Rental Income.
Wind-energy projects provide significant economic benefits to the hundreds of communities across Canada that host them, through (x3)
through tax payments to municipalities, lease payments to landowners and direct financial contributions.
