REAL ESTATE

ECONOMICS AND
FINANCING
Prepared by:
RAMON R. ALBEUS,
IE,MM,ICCV,ALAF,REA

General Valuation Concepts:

VALUE
The relationship between a thing desired and
a potential purchaser.
It also refers to the present worth of future
benefits arising out of ownership of property;
A value exists when an item of property has
UTILITY, is relatively SCARCE, arouses the
DESIRE of potential buyer to buy and is
backed by the purchasing power.

Land
Land can include:
the space beneath the surface which extends to
the center of the earth
The space above which extends to the sky
Whether vacant or improved, it is also referred
to as REAL ESTATE
Land value is created by real estates utility or
capacity to satisfy the needs and wants of
human societies.

Contributing to land value are:

General Uniqueness
Durability
Fixity of location
Relatively limited supply
Specific usefulness of a given site

Property
The legal concept encompassing all the interests,
rights and benefits related to ownership
It consists of the rights of ownership, which entitle the
owner to a specific interest or interests in what is owned
The rights associated with private ownership of
property referred to as the BUNDLE OF RIGHTS
Right of possession
Right to control
Right of enjoyment
Right of disposition or use
Right not to exercise any of the above rights
It refers to REAL PROPERTY, PERSONAL PROPERTY,
or OTHER TYPES OF PROPERTY eg. Business and
Financial Interests, etc.

Property
The rights associated with private ownership of
property referred to as the BUNDLE OF RIGHTS
Right of possession
Right to control
Right of enjoyment
Right of disposition or use
Right not to exercise any of the above rights

It refers to REAL PROPERTY, PERSONAL PROPERTY,

or OTHER TYPES OF PROPERTY eg. Business and
Financial Interests, etc.

Real Estate
The physical land and those human-made items attached
to the land.
It is the physical, tangible thing which can be seen and
touched together with all additions ON, ABOVE, or
BELOW the ground.

PROPERTY
REAL PROPERTY all the rights, interests, and benefits
related to the ownership of real estate (rights in realty).
PERSONAL PROPERTY interests in tangible and
intangible items which are not real estate.

Assets
Resources controlled by an entity as a result of past
events and from which some future economic benefits
are expected to flow to the entity
Current Assets assets not intended for use on a
continuing basis on the activities of an entity
Non-current Assets tangible and intangible assets
which fall into the following categories:
Property, plant, machinery and equipment
Other non-current assets

PRICE, COST, MARKET & VALUE

PRICE:
A term used for the amount asked, offered, or paid
for a good or service
An indication of relative value placed upon the
goods or services by the particular buyer and/or
seller under particular circumstances.

COST:
A term used for the amount asked, offered, or paid
for a good or service

PRICE, COST, MARKET&

VALUE
PVS:GAVP 4.0

MARKET:
The environment in which goods and services trade
between buyers and sellers thru a price mechanism.

VALUE:
An economic concept referring to the price most
likely to be concluded by the buyers and sellers of a
good or service that is available for purchase.

CONCEPT OF MARKET
VALUE
PVS; GAVP 5.0
The estimated amount for which a
property should exchange on the date
of valuation between a willing buyer
and a willing seller in an arms-length
transaction after proper marketing
wherein the parties had each acted
knowledgeably, prudently and without
compulsion.

FORCES INFLUENCING
VALUES
A. SOCIAL FORCES
B. ECONOMIC FORCES
C. GOVERNMENT, POLITICAL, LEGAL FORCES
D. PHYSICAL/ ENVIRONMENTAL FORCES

SOCIAL FORCES:
A. Population Growth and Decline
B. Shift in population density
C. Changes in Family Size
D. Attitudes toward education and
social activities;
E. Attitudes toward architectural
design and utility;
F. Other factors emerging from
human social instincts, ideas, amd
yearning.

ECONOMIC FORCES
A. Natural resources- quantity,
quality, location, rate of depletion;
B. Commercial and industrial trends;
C. Employment trends and wage
levels;
D. Availability of moneys and credit;
E. Price level interest rates, tax
burdens;
F. Other factors affecting purchasing
power.

GOVERNMENT OR
POLITICAL

FORCES

A. Zoning Laws;
B. Building Codes;
C. Police and Fire Regulations;
D. Rent Controls ,special use permits,
credit control;
E. Government sponsored housing and
guaranteed mortgage loans;
F. Monetary policies affecting free use of
real estate including taxation.

PHYSICAL OR
ENVIRONMENTAL

FORCES

A. Climate;
B. Soil Fertility;
C. Mineral Resources;
D. Community Factors- transportations,
proximity to schools, churches, parks and
recreation areas;
E. Flood control and soil conservation;
F. Soil characteristics.

ECONOMIC
PRINCIPLES
RELATING
TO
VALUES
1. Principle of Supply and Demand
2.
3.
4.
5.
11.
12.
13.
14.
15.
16.

Principle of Highest and Best Use

Principle of Substitution
Principle of Contribution
Principle of Competition
PrincipleofIncreasing /Decreasing
Returns
Principle of Balance
Principle of Change
Principle of Anticipation
Principle of Conformity
Principle of Utility

PRINCIPLE OF SUPPLY AND

DEMAND

Value is determined by the interaction of the

forces of supply and demand in the appropriate
market at the date of appraisal.

The principle of supply and

demand holds that :

the value of a site will increase if

the demand increases and the
supply remains the same

the value of the site would

decrease if the demand decreased
land is unique, since the supply is
fixed; its value varies directly with
demand.

PRINCIPLE OF HIGHEST
AND
BEST USE
The most probable use of a property
which is physically possible,
appropriately justified, legally
permissible, financially feasible, and
which results in the highest value of
the property being valued.

PRINCIPLE OF
SUBSTITUTION
This principle holds that a
prudent person would not pay
more for a good or service than
the cost of acquiring an equally
satisfactory substitute good or
service.
The lowest cost of the best
alternative, whether a substitute
or the original, tends to
establish Market Value.

PRINCIPLE OF CONTRIBUTION
The value of an element in production or a
component of a property depends on how
much it contributes to the whole, or how
much its absence detracts from the value of
the whole.

PRINCIPLE OF
COMPETITION

profit tends to breed competition and

excess profit leads to ruinous competition.

PRINCIPLE OF CHANGE
Change is inevitable and constantly
occurring.

The principle of change serves as a reminder that real

property uses are always in a state of change.
Although it may be imperceptible on a day to day
basis, housing supply and demand change can easily
be seen when longer periods of time are considered.
Because the present value of property is related to its
future uses, the more potential changes that can be
identified, the more accurate the estimates of its
present worth. TJ Nelson (The Principle of Supply
and Demand on Property Values,

PRINCIPLE OF ANTICIPATION
Value is created by the expected benefits.
Value is dependent on the future, not the
past. Past experience is useful for
indications of future trends and conditions
that it may provide.

PRINCIPLE OF
UTILITY

Value is
determined by the usefulness of the
property.

PRINCIPLE OF CONFORMITY
Maximum value is realized when a
reasonable degree of homogeneity and
compatibility is present. Over
improvement, under improvement or
misplaced improvement may bring
about non-conformity within a property
or its environment.

Progression between dissimilar properties of

the same type, the value of the lesser property
is enhanced by the presence of the superior.
Regression between dissimilar properties of
the same type, value of superior property is
affected adversely by the presence of the
inferior.

FINANCING

the act or process or an

instance of raising or
providing funds.