Chapter 1: Appraisal Methods

Appraisal Methods: Understanding Value, Price, and Cost in Quebec Real Estate

Cost

Cost represents the total amount spent to construct or acquire a property. It includes land, materials, labour, permits, and other development expenses. Critically, cost has no direct, reliable relationship to current market value. A property may cost \$500,000 to build but be worth only \$400,000 on the open market (due to depreciation, location, or oversupply), or it might be worth \$600,000 (due to appreciation and scarcity).

For an existing property, historical cost (the price originally paid) is also not equivalent to current value. A house bought ten years ago for \$200,000 may now have a market value of \$350,000, or it may have declined to \$180,000. Cost is a historical fact; value is a current, market-based estimate.

Broker’s Opinion of Value vs. Formal Appraisal

A real estate broker is authorized to provide a broker’s opinion of value (often called a comparative market analysis or CMA) to a client within the context of a brokerage contract. This opinion is a non‑formal estimate based on the broker’s knowledge of the local market, recent comparable sales, and the property’s features.

However, a formal appraisal—a rigorously documented estimate of market value conducted in accordance with OEAQ standards—is reserved for accredited members of the OEAQ (chartered appraisers). The law is explicit on this point: brokers may not perform official appraisals. The broker’s opinion of value is an advisory tool, not a substitute for a certified appraisal.

Important Regulations, Procedures, and Code of Ethics Provisions

The definitions and distinctions above are grounded in Quebec’s legal and professional framework:

• OEAQ Standards: The Ordre des évaluateurs agréés du Québec sets the binding standard for market value. All real estate professionals in Quebec must be familiar with this definition, even though they are not performing formal appraisals.
• International Valuation Standards (IVS): The OEAQ definition aligns with IVS, ensuring consistency in valuation across jurisdictions and for institutions (e.g., banks, insurers) that rely on appraisals.
• Real Estate Brokerage Act (RLRQ, c. C‑73.2) and Regulation respecting the conditions for carrying out a brokerage transaction: These laws grant brokers the specific right to provide an opinion of market value using a CMA, but they explicitly prohibit brokers from performing official appraisals. Violating this boundary can lead to disciplinary action by the Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ).
• Code of Ethics: Brokers must be clear with clients about the nature of their estimate—an opinion, not a certified appraisal. Misrepresenting a CMA as an appraisal is unethical and could expose the broker to liability.

Common Relationships Between Concepts

Understanding how value, price, and cost interact is critical for advising clients:

Typical patterns:

• Price usually gravitates toward market value over a reasonable exposure period, but individual transactions can deviate.
• Cost often exceeds market value for newly built properties due to depreciation or land cost miscalculations.
• Market value can change over time even if cost remains fixed, due to market forces (supply, demand, interest rates, neighbourhood trends).

For the real estate broker, the key takeaway is: when advising a seller on a listing price, you are estimating a likely market value. When a buyer asks about a property’s “worth,” you are interpreting market value. The final agreed price will be a negotiation outcome that may differ from your estimate. Always communicate these distinctions clearly to clients to manage expectations and maintain professional credibility.