Appraisal company denies claims in Epic real estate probe – Saskatoon Star-Phoenix

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The owner of an appraisal company that worked with a capsized Saskatoon real estate firm insists claims made in a court-ordered investigation are flawed.

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According to an Ernst and Young report into Epic Alliance Inc. released earlier this month, the company bumped up prices on its housing while doing minimal renovations. The company raised more than $200 million from investors, as appraisals typically assigned a value “well in excess of its original purchase price,” the report stated.

David Lazeski of Associated Appraisal — the appraisal company named in the report — disputes the claims.

Epic imploded earlier this year, when company founders Rochelle Laflamme and Alisa Thompson told worried investors that there was nothing left from the seemingly thriving company. That caused around 120 investors to turn to the legal system to find out what happened to millions of dollars.

Saskatchewan’s Court of Queen’s Bench ordered Ernst and Young to delve into the company’s practices and to prepare a report. The probe found spotty record-keeping and “that accurate electronic accounting records of Epic Alliance were not maintained prior to 2019.”

As well, the report stated, “(from) the Inspector’s review of appraisal documents, it appears that, despite their appraised values significantly exceeding their purchase price, many of the homes had not received significant renovations.”

According to the report, appraisals for Epic “were performed almost exclusively by Associated Appraisal Co.”

Lazeski, in an interview with the Saskatoon StarPhoenix, said his company only started doing appraisals for Epic in December of 2019. Epic opened for business in 2013. He said others were doing appraisals for Epic as well.

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The investigator never reached him for comment about the claims in the report, Lazeski said.

Lazeski, who said he did not personally work with Epic, said in an interview that the appraisals were typically conducted one year after Epic purchased the homes. The time elapsed between purchase and appraisal may contribute to the price difference, he said. Another factor may be Epic finding deals on the market, he added.

“Buying that number of houses, during the pandemic, I’m assuming (Epic) probably got some good deals,” he said.

“When we’re doing an appraisal and establishing market value, it’s based on current sales. That’s really the biggest factor.”

Epic bought at least 700 properties, mostly through its “fund a flip” program under which homes were acquired in low-income neighbourhoods in Saskatoon and North Battleford and were then supposed to be renovated for sale.

Once renovations were complete, Epic would bring on an appraiser. Those properties were then sold as part of the “hassle-free landlord” program and Epic leased back the properties to be rented or used for short-term accommodation, such as Airbnb.

The Ernst and Young report compared the total mortgage on each property with the appraisal commissioned by Epic. It found that the average property’s appraised value was $11,325 over the total mortgage.

The report cited one case in which Epic hired an appraiser one year after it bought a property. Photos of the interior “showed outdated appliances, countertops, and cupboards which were not indicative of a renovation occurring. Pictures of two bedrooms had carpet that was visibly stained,” according to the report.

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The home’s appraised value was $260,000 — which is $62,000 over its original price, according to the report.

Kari Calder, a Saskatoon realtor, says the price bump on Epic homes affected her business by undermining trust with clients.

She warned clients that the company offered low prices to find “desperate sellers,” then added new paint or flooring before listing the home at higher than market value. One seller lost her faith in Calder when her home sold low only for it to sell again at a higher inflated price, Calder said.

Calder won back the client’s trust by explaining the pattern she saw, but it’s a slice of a broader issue.

“I learned through a lot of trial and error that almost every Epic listing that came up as a comparable threw my evaluation off,” she said.

Calder used the example of four recent sales valued at roughly $250,000 to $265,000. If one sold for $315,000, she would include it in talks with clients to explain the overpricing of some homes on the market.

Former Epic homes may be entering the market if their owners see they’ve lost money on their investors. That could create a challenge for second-time buyers looking to sell their home for something bigger, Calder said.

“I suspect that the current owners of many of these flipped homes will be the ones taking the financial hit as they are the ones who unwittingly overpaid for the houses,” she said.

The Financial and Consumer Affairs Authority of Saskatchewan and Saskatoon police are conducting separate investigations into Epic.