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According to the Real Estate Service Act of the Philippines (RA 9646), Real Estate
Appraiser is defined as someone who is duly registered and licensed natural person
who, for a professional fee, compensation or other valuable consideration, performs
or renders, or offers to perform services in estimating and arriving at an opinion of
or acts as an expert on real estate values, such services of which shall be finally
rendered by the preparation of the report in acceptable written form.
What is an Appraisal?
loans purposes
insurance purposes
selling purposes
liquidation purposes
To allocate value between the part taken and damage to the residue
To distribute assets into depreciable items such as building and nondepreciation items such as land and to estimate applicable depreciation rates
What is Value?
In general, value refers to what a willing buyer, not forced to buy, will pay,
and what a willing seller, not forced to sell, will accept, after exposing the
subject property in a fee and an open market within a reasonable period of
time.
Value in use. This refers to the use an object is put to, the service it renders,
and the wants it satisfies.
Market value
Fair value
Investment value
Reversion value
Assessed value
Insurable value
Loan value
Liquidation value
Book value
It is the highest price in terms of money which a property will bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and seller
each acting prudently, knowledgeably and assuming the price is not affected by
undue stimulus.
Going concern value- to serve for corporate mergers the issuance of stock,
revision of book figures and so forth
Assessed value- to establish a uniform schedule and tax roll for ad valorem
taxation
This list does not include all the function of appraisals but does indicate the
broad scope of the professional appraisers activities.
Ancient Romans and Greeks- value of goods absolute, fixed by state and
owner
Adam Smith- natural price, (i.e.) the cost of production is equals the value
of an item consuming land, labor, capital and coordinations
Todays concept- value is not objective and absolute, but is subjective and
relative to the forces that create and forces that affect it.
-location
-shape
-topography
-depreciation
-climate condition
-size
Economic forces
Level of wages
Political force
Principle of substitution. This states that a prudent buyer will pay no more
for a property than the cost of a substitute property that will provide
equivalent usefulness.
Principle of conformity
Principle of change. This states that the real estate market is dynamic
rather than static; socio-economic forces are constantly changing, causing
constant changes in value. Thus, market value today may not be the same as
market value yesterday or tomorrow.
Principle of completion
This principle of highest and best use and consistent use states that
the highest and best use of a property is the use that will bring the owner
the highest economic benefit over the long run. Determining highest and best
use is central to estimating market value because the use of a property for
other than the current (or proposed) use may yield higher benefits to both
the investor and the lender regarding greater investment returns and/or less
risk than originally anticipated.
It is the cost of replacing the property being appraised with that of another having
equivalent utility and amenities.
What is Depreciation?
Incurable- if the cost of treating the defect will be more than the expected
increase in the property value
Cost approach
The current cost of reproducing a property less depreciation from all source
that is, deterioration, and functional and economic obsolescence
Income approach
The value which the propertys net earning power will support based upon a
capitalization of net income
*The appraiser utilizes all three approaches in most of his appraisal work. He may
believe that the value indicated by one approach will be more significant than that
of the other two, yet he will use all three as a check against each other and to test
his own judgment. However, there are appraisal problems in which they cannot be
applied such as in vacant land, the use of the cost approach, or in the case of an
owner-occupied home, the use of income approach. All three approaches are
needed in the solution of most appraisal problems.
In income approach, the appraiser is concerned with the present worth of the
future net income of a property which will be produced in its remaining economic
life. This future net income is then capitalized by computing its present worth.
Choosing what capitalization rate to apply is one of the most critical steps in the
income approach. A variation of only one half of one percent can make a difference
of many thousands of pesos in the capitalized value of the income.
Obtaining the rent schedule and the percentage of occupancy for the
subject property and for comparable properties for the current year and for
several years in the past. This information provides gross rental and the
trends in rental and occupancy. This data is then related and adjusted by the
comparative method to ascertain the estimate of gross income which the
subject property should produce to attract investors in the market.
Obtaining expense data such as taxes, insurance, and operating cost being
paid by the subject property and by comparable properties. The trend in
these expenses is also necessary.
This definition assumes that both buyer and seller are fully informed as to
the property and state of the market for that type of property, and that the
property has been exposed in the open market for a reasonable time.
What is Correlation?
The last stage in the appraisal process is the correlation of the three values
derived by the cost, income and market data approaches. In correlating these
approached into his final estimate of value, the appraiser should take into account
the purpose of the appraisal, the type of property, and the adequacy of the data
available and used in each of the three approaches. These will determine the weight
to be given to each approach. The appraiser should not average the three value
arrived at by means of the cost, market date and income approaches. The appraiser
instead should take the three value estimate and examines the spread between the
minimum and maximum figures. He should then consider the approach which
appears to be the most reliable. Then he should make adjustments in accordance
with his judgment and experience.
A word portrayal of the property, the facts concerning that property, and the
reasoning by which the appraiser has developed his estimate of value. The best
report is the one which, in the fewest number of words, permit the reader to follow
intelligently the appraisers reasoning and to concur in the conclusions reached
thereby. As every report is an answer to a question by a client, it should show the
facts considered and clearly outline the reasoning employed by the appraiser in
arriving at his valuation.
Compute the lot area based on the measurement on your plotting against
the area stated in the title.
-Watch for possible annotations that might affect the value of the land.
Use the compass to check the direction of the property pointed by the
owner against technical plotting.
Check the actual shape and measurements of frontage and depth of the
property against the technical plotting.
Observe the development in the area and the effect of the four forces which
create value: social forces, economic forces, political forces and physical
forces.
cost approach
income approach
ad valorem taxation
insurance
eminent
litigation
type of value
type of value
narrative report
forum report
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BONUS
Did you know that there is anomaly when the broker and the appraiser is one and
the same person in a transaction? Read more ...