An IEC project of:

Member / Affiliate:

NAR - USA
 Basic Appraisal for Real Estate Brokers

COMPREHENSIVE REAL ESTATE SEMINAR & REVIEW

(CRESAR) for PRC Licensure Exam
Phela Grande Hotel, General Santos City
April 5, 2015

PRC Visiting Lecturer:

Realtor ARTURO M. LAWA
Certified Property Valuer
RE Appraiser PRC Reg. No. 0000248
RE Broker PRC Reg. No. 0002007
Mobile Nos.: 0919-6757777; 0932-8222822
Email: alawarealty@yahoo.com

Member / Affiliate:

NAR - USA
An IEC project of:
 INTRODUCTION

Real Estate Brokers are being confronted with the following vital
issues upon acceptance of Listing Agreements that end up to
make or unmake their closing of sale transactions:

1. Determining the exact location of the property listed.

2. Interpretation of technical descriptions.
3. Which property value is the logical offering price to the buyer?
a. Value insisted by landowners- take it or leave it attitude; or
b. Value heard from the neighborhood; or
c. Value referred by salespersons and other brokers.
4. Motivation to earn fat commissions, will he offer his own
self-determined valuation?

An IEC project of:

 INTRODUCTION
Some Facts in the Professional Practice:
- Opinion of Value are determined by professional RE Appraisers. However,
it takes a longer time to fully implement RA 9646.

- RE Brokers and salespersons often compile records from the

marketplace, primarily similar properties that have been sold, known as
competitive market analysis (CMA) . Though not a formal appraisal
but it can be a reasonable value range as basis of price offering.

- RE Brokers who has the knowledge of basic principles of valuation can

derive a better offer price not unless a formal Appraisal Report is
required by the buyer as basis of decision which is to be rendered by
licensed and competent RE appraisers.

- Working knowledge of basic valuation principles will train the RE Broker

to the next ladder in the profession as an associate RE Appraiser.

An IEC project of:

 Definition of Terms (IVS/PVS)

Real Estate is defined as the physical land and improvements

that are permanently attached or affixed to land. A tangible thing that
can be seen and touch, above or below the ground.

Real Property the land and improvements including all the

rights, interests and benefits related to the ownership of real estate,
normally demonstrated by evidence of ownership, e.g., title deed.

Personal Property refers to ownership of interest in items

other than real estate. It can be intangible (patents & debts) & tangible
(chattels) not permanently affixed to real estate and generally
characterized by their movability. Legally recognized as personalty in
distinction to realty.
Real Property has two (2) inseparable components:
1. Physical - the land and its improvements
2. Juridical - the rights of ownership, interests
and benefits in owning it.

An IEC project of:

 Definition of Terms (IVS/PVS)

Appraisal is an estimate or opinion of value based on

supportable evidence and approved methods. (GAVP)

Valuation is a determination of the monetary values at some

specified date of the property rights encompassing its
ownership.

Appraiser also known as Valuer, refers to a person who

conducts valuation/appraisal; specifically, one who
possesses the necessary qualifications, license, ability and
experience to execute or direct the valuation/appraisal of
real property. (IVS/PVS/RA 9646)

An IEC project of:

 Definition of Terms

Internal Appraiser is an appraiser under the employ of the entity

owning the real property or the firm that prepares the
appraisal report.

External Appraiser is an appraiser in the private practice offering

services for a fee to the general public who are owners of
real property.

An IEC project of:

 Comparison of:
Cost Estimation an estimate of the amount of money that
would be required at some specified date, to construct, produce,
replace or reproduce some tangible and/or intangible thing,
without regard to its ownership. (Ex. Quantity surveying)

Earnings Forecast an estimate or forecast of the future net

monetary returns, derivable from something owned or considered as
being owned. (Ex. Investments & Income Appraisal)

Appraisal is an estimate or opinion of value, where an estimate is:

a. Not a Statement of Value
b. Not a Determination of Value
c. Not a Fixing of Value

An IEC project of:

 Types of Appraisal

1. Informal Appraisal - Done by almost everyone. They are usually

based on a combination of knowledge, experience and
intuition, i.e. pricing merchandise for sale, making analysis
as by a real estate broker or a salesperson taking a property
listing.

2. Formal Appraisal These are usually undertaken by professionals

on this specialized field, who meet the rigorous test of
education, training, competence and demonstrated skills, and
exhibits, maintain and follow the Code of Conduct and
Standards of Professional Practice and Generally
Accepted Valuation Principles (GAVP).

An IEC project of:

 Kinds of Formal Appraisal

1. Appraisal in business and finance -

Sale, lease or purchase of property
Forming new corp., merger & consolidation, exchanges
Mortgages, debenture, stock financing and sale-leaseback

2. Appraisal in litigation -
Condemnation proceedings
Fraud cases
Damage cases
Division of estate cases

3. Appraisal for taxation -

Property tax purposes
Inheritance and gift tax purposes
4. Appraisal for insurance -
Fire insurance coverage
Theft and loss insurance coverage

An IEC project of:

 Accuracy of Appraisal Report

- Appraisal is only one persons opinion of value. Different

Appraisers may arrive at different estimates due to different
assumptions.
- The accuracy and usefulness of the value estimate depends on
appraisers skills, experience and judgment. -(IVS/PVS)

Factors Affecting Accuracy of Appraisal:

1. Competence of the Appraiser.
2. Integrity of the Appraiser.
3. Soundness of the procedure used in
the appraisal work.
4.Access to relevant data and information.

An IEC project of:

 What is VALUE

Value means the worth, usefulness or utility

of an object to someone for some purpose at a future
time.
To have value in the real estate market is to
have monetary worth based on desirability.

Characteristics of a Property to have a Value:

1. Demand the need or desire for possession or ownership
backed by the financial means to satisfy that need;
2. Utility the ability of the property to satisfy human need;
3. Scarcity land is not scarce, its use for which it is intended or
actually established is becoming unique;
4.Transferability the relative ease with which ownership rights
are transferred from one person to another.

An IEC Project of:

 Factors Affecting VALUE

1. Social forces relating to population growth, birth control

measures and migration;
2. Political related to efficiency of govt. in the maintenance of
peace and order providing primary services and legislation;
3. Economic relating to the nature of basic industry and
business activity in the neighborhood, employment, income,
housing, etc.;
4. Physical forces that refer to the location and age of the
neighborhood, size, area, shape, topography, improvements,
trends.

An IEC project of:

 Distinction of VALUE

Value in Use Refers to the value of a thing or property to the

holder which includes the amenities, benefits and income
derived from its ownership, all of which are estimated in
terms of money. This is subjective value.

Value in Exchange indicates the value of the property traded in

the open market for profit. This is synonymous to objective
value or market value.

An IEC project of:

 VALUE, PRICE & COST compared

Value is an economic concept referring to the price most

likely to be concluded by the buyers and sellers of a good or
services that is available for purchase.
Price is a term used for the amount asked, offered, or paid
for a good or service. Because of financial capabilities,
motivations or special interest of a given buyer and/or seller, the
price paid may or may not have any relation to the VALUE.
Cost - is the amount required to create or produce the
good or services. Once that good or service has been
completed, its cost is an historical fact. The PRICE paid for a
good or service becomes its COST to the buyer. Normally,
Cost is less than Price.The difference is Profit.

An IEC project of:

 MARKET VALUE defined

Market Value means 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. (IVS/PVS)
Elements: a) Estimated amount as of date
b) Willingness of both parties
c) Substantive knowledge and sound judgment by both parties
d) Known in the open market
e) Under no pressure

An IEC project of:

 Other Meanings of Value

1. Plottage Value when one or more parcels are consolidated

so that its increment in value as a whole is much more than
the total sum of the value of each parcel of land separately
owned.

2. Rental Value refers to the price fixed for the right to use a
certain property for a specific period of time.

3. Cash Value is the value of the property in all-out sale. It is

synonymous to market value.

4. Investment Value is the present worth of future benefit, or

income of the property that the owner or investor has
acquired. Economists consider this as the Economic Concept
of value.

An IEC project of:

 Other Meanings of Value

5. Book Value is the original cost of an asset or property less

accrued depreciation.
6. Going Concern Value is the value of the business in operation,
or property that will continue to be utilized. It includes tangible
property such as real estate, equipments and machineries,
fixtures and inventories plus intangible assets such as franchises,
patents and goodwill.
7. Liquidation Value when corporation under receivership may sell
its assets lower than its market value because the owners are
forced to sell, or due to their ignorance of the real value of their
assets
8.Taxable Value or Assessed Value is the value of land or
improvements for advalorem tax purposes. The assessed value is
multiplied by the tax rate to produce the amount of tax due for
payment.
An IEC project of:
 Other Meanings of Value

9. Salvage Value is the amount that may be recovered minus cost

of disposal when the assets will be retired or disposed of at a
future time.
10. Loan Value is the maximum level of value, or appraisal,
against which a property may be mortgaged to secure payment
of the loan. A loan-to-value rate is usually fixed by the bank.
11. Insurance Value is the cost of the insurance coverage of a
building or improvements to cover its loss due to earthquake,
fire or other calamity. This is done by estimating the cost of
replacing the entire building or the portion thereof that has been
damaged. The value of the land is included in the estimate.

An IEC project of:

 Other Meanings of Value

12. Scrap Value is the value of a depreciated building or the

materials recovered from it.
13. Condemnation Value is the estimated value of a property
that is the object of expropriation for public use. Just
compensation is the fair and full equivalent in money, for the loss
sustained.
14. Zonal Value is the mass appraisal value of land in a specific
zone or area established by govt. (BIR).
15. Sentimental Value is value in owning a cherished property
where one is emotionally attached with and most of the times
unquantifiable.

An IEC project of:

 Economic Principles affecting Value

Whether or not an Appraiser observes them, there is always a

number of Economic Principles or Concepts at work that
affect the Value of Real Estate, such as:
1. Anticipation 8. Highest and Best Use
2. Balance 9. Increasing/Diminishing Returns
3. Change 10. Plottage (Assemblage)
4. Competition 11. Regression/Progression
5. Conformity 12. Supply and Demand
6. Contribution 13. Substitution
7. Consistent Use 14. Surplus Productivity

(Key word ABCCCCC HIPRSSS)

An IEC project of:

 Economic Principles affecting Value
Economic Principles or Concepts affecting the value of real
estate.

1. Anticipation value can increase or decrease in anticipation

of some future benefit or detriment affecting the property.
2. Balance All the agents of production must be equal money,
management, materials and methods.
3. Change No physical or economic condition remains constant.
Real estate is subject to natural phenomena such as fires,
earthquakes and routine wear and tear
4. Competition is the interaction of supply and demand. Excess
profits tend to attract competition. Excess competition
ruins profits.

An IEC project of:

 Economic Principles affecting Value

5. Conformity value is created when a property is in harmony

with its surroundings.
6. Contribution the value of any part of a property is measured
by its effect on the value of the whole.
7. Highest and Best Use means 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. (IVS/PVS)
8. Increasing and Diminishing returns the addition of more
improvements to land and structures increases value only to
the assets maximum value. Beyond that point, additional
improvements no longer affect a propertys value.
9. Plottage the principle of merging and consolidating adjacent
lots into a single larger lot under a single land use tend to
produces a greater total land value than the sum of two sites
valued separately.. Process is called Assemblage.

An IEC project of:

 Economic Principles affecting Value

10. Regression and Progression the worth of a better-quality

property is adversely affected by the presence of a lesser-
quality property and vice-versa.
11. Substitution the maximum value of a property tends to be
set by how much it would cost to purchase an equally
desirable and valuable substitute property.
12. Supply and Demand the value of the property depends on
the number of properties available in the marketplace the
supply of the product. Other factors include the prices of
other properties; the number of prospective purchasers; and
the buying price that buyers will pay.

An IEC project of:

 Highest And Best Use analogy
Highest And Best Use (HABU)- is 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. (IVS/PVS)

Practical Rule of Thumb to established HABU

1. Consider the land as if vacant even if improved. To see if the vacant land can be
profitably used for a different use other than its present use;
2. Consider only those uses allowed under current zoning laws, regulatory
restrictions and other constraint such as private restrictions;
3. Consider only uses that are physically practical;
4. Consider only uses that are likely to be in demand and profitable in that location
to justify the capital investment.

An IEC project of:

 Bundle of Rights*
Bundle of Legal Rights is the juridical component of rights of
ownership to real property, such as:
1. Right to possess and enjoy its use.
2. Right to destroy and improve
3. Right to profit from
4. Right to remove objects
5. Right to recover
6. Right to transfer rights during owners lifetime by sale or gift.
7. Right to exclude others from enjoyment/disposal of its fruits.
8. Right to convey ownership by inheritance.
* An old English law during the middle ages, where a seller transfers ownership to
the buyer by giving a bundle of bound sticks or handful of stones symbolic of
these rights which can be separated and individually transferred.

An IEC project of:

 Specific Property Rights

Property Rights:
1. Surface Rights
2. Subsurface Rights
3. Air Rights
4. Subject to rights reserved by the State

Fee Simple - is defined as the absolute estate without limitation to

any particular class of heirs or restrictions. It is the greatest
interest one can have in real property. An estate that is unqualified
of indefinite duration, freely transferable and inheritable.
Owner of a Fee Simple Title may do anything he wishes with the land,
provided that he does not use the land as a nuisance

An IEC project of:

 Restrictions on Property Rights
a. Rights retained by the State:
1. Police Power
2. Eminent Domain
3. Taxation
4. Escheat
b. Restrictions imposed by Contracts:
1. Deed Restrictions in Contract to Sell
2. Lease
3. Easement
c. Restrictions imposed by Grantor:
1. By Will or Testament
2. Deed of Donation
d. Enroachment

An IEC project of:

How to conduct Appraisal or Valuation

(REVIEW - SUMMARY)

We are already familiar with the following terms:

-Appraisal and Valuation theory
-Value - principles
- Its other meanings
-Highest and Best Use (HABU) Analysis
-Property Rights - bundle of rights
- restrictions

Q. How then is Appraisal being done?

An IEC project of:

 Three Approaches to determine VALUE

To arrive at an accurate estimate of value, Appraisers

traditionally use Three (3) Basic Valuation Approaches:

1. Market Data Approach

2. Cost Approach
3. Income Approach

An IEC project of:

 MARKET DATA Approach

1. MARKET DATA APPROACH - an estimate of value is

obtained by comparing the property being appraised (the subject
property) with that of recently sold comparable properties
(properties similar to the subject).

Since no two parcels are exactly alike, each comparable

property must be analyzed for differences and similarities
between it and subject property.

An IEC project of:

 Adjustment Factors in Comparing
The Market Data Approach has Principal Factor for which
adjustment must be made includes the following:
1. Property Rights An adjustment must be made when less than
Fee Simple and the full bundle of rights are involved. This includes
land lease, ground rents, life estates, easements, deed restrictions
and encroachments.
2. Financing concessions mortgages loan terms.
3. Conditions of Sale motivational factors that would affect the
sale, such as foreclosures, a sale among family members or some
non-monetary incentives.
4. Date of Sale adjustments if an economic change occur
between date of sale of comparable property and date of
appraisal.
5. Location similar properties might differ in price from
neighborhood to neighborhood or even locations within the
same neighborhood.
6. Physical features and amenities age, size and condition of
structures may require adjustments.
An IEC project of:
MARKET DATA APPROACH ILLUSTRATION
Subject Property Property Property Property
FACTORS Property A B C _D_____
Sales Price ( ? ) P500,000 P550,000 P450,000 P600,000
Location good same poorer same same
+20,000
Age of Bldg. 10 yrs. same same same same
Size of Lot 12 x 10 same larger same larger
-10,000 -10,000
Landscaping good same same same same
Construction CHB same same same same
No. of Bedrooms 3 same same same same
No. of T/Baths 2 better same same same
-5,000
Floor Area 150 same same same same
Condition-Interior very good poorer same same better
+10,000 -10,000
Condition-Exterior good same same same same
Financing available same same same same
Date of Sale current 2 yrs. Ago same same
_____________________________________+30,000____________________________
Net Adjustment +5,000 +40,000 0 -20,000
Adjusted Value P505,000 P590,000 P450,000 * P580,000
______________________________________________________________________________
*Conclusion: Therefore, subject property is comparable
to Property C.

An IEC project of:

 COST Approach

2. COST APPROACH is an estimate of value

based on the Principle of Substitution which states that the
maximum value of a property tends to be set by the cost of
acquiring an equally desirable and valuable substitute
property assuming that no costly delay is encountered in
making the substitution.

An IEC project of:

Two Ways to look at the Construction Cost of a Building for
Appraisal purposes.

a. Reproduction Cost - is the construction cost at current

prices of an exact duplicate of the subject improvement,
including its benefits and drawbacks.

b. Replacement Cost New (RCN) - is the cost to construct an

improvement similar to the subject property using
current construction methods and materials, but not
necessarily an exact duplicate.
Replacement Cost New is more frequently used in
appraising older structures because it eliminates
obsolete features and takes advantage of current
construction materials costs and techniques.

An IEC project of:

 DEPRECIATION defined
Depreciation - in a real estate appraisal, it is a loss in value due to
physical deterioration (wear and tear) or obsolescence (functional or
economic). It refers to a condition that adversely affects that value of an
improvement to real property.
Depreciation is considered to be curable and incurable, depending on
the contribution of the expenditures to the value of the property.

Depreciation is divided into three classes, according to its cause:

1. Physical deterioration -
Curable - an item in need of repair, such as painting (deferred
maintenance), that is economically feasible and would result in an increase
in value equal to or exceeding the cost.
Incurable - a defect cause by physical wear and tear if its correction
would not be economically feasible or contribute a comparable value to
the building. The cost of a major repair may not warrant the financial
investment.

An IEC project of:

 DEPRECIATION defined
2. Functional obsolescence -
Curable - outmoded or unacceptable physical or design features
that are no longer considered desirable by purchasers. Example, an
outmoded plumbing is usually replaced; bedroom adjacent to a kitchen
and converted to a family room.
Incurable - currently undesirable physical or design features that
could not be easily remedied because the cost of cure would be
greater than its resulting increase in value. Example, an office building
that cannot be economically air-conditioned.
3. External obsolescence -
Incurable - caused by negative factors not on the subject
property, such as environmental, social or economic forces. The loss
in value cannot be reversed by spending money on the property.
Example, a proximity to a nuisance such as a polluting factory or a
deteriorating neighborhood, is one factor that could not be cured by the
property owner.
An IEC project of:
 DEPRECIATION computed

Straight-Line Method Depreciation -

In real estate appraisal, depreciation can only be easily but least
precisely determined by a Straight-line method, also called the
economic age-life method.
Depreciation is assumed to occur at an even rate over a
structures Estimated Economic Life (EEL), the period within
which it is expected to remain useful for its original intended
purpose.
The propertys Cost is divided by Number of Years of its
expected economic life to derive the amount of Annual
depreciation.

An IEC project of:

 COST APPROACH computed

Cost Approach consists of five steps:

1. Estimate the value of the Land as if it is vacant and available
to be put to its highest and best use;
2. Estimate the current construction cost of Buildings and
Improvements;
3. Estimate amount of accumulated depreciation resulting from
the propertys physical deterioration, functional (internal)
obsolescence and economic (external) obsolescence;
(curable/incurable)
4. Deduct the accumulated depreciation (Step 3) from the
construction costs (Step 2);
5. Add the estimated Land Value (Step 1) to the depreciated
cost of Building and Improvements (Step 4) to arrive at
the Total Property Value.

An IEC project of:

 COST APPROACH Illustration
Sample Problem:
A Land with frontage of 12 meters and a depth of 20 meters is valued
at P2,000 per sq. meter and site improvements such as driveway, walks,
landscaping and others were constructed at P20,000. A Building with 150 sq.
meter floor area was found on the lot with replacement cost of P5,000 per
sq. meter. Upon inspection, the following were estimated:
Physical Depreciation
-curable (items of deferred
maintenance) exterior painting P 5,000
-incurable (structural wear & tear) 10,000
Functional Obsolescence(incurable-design)50,000
Locational Obsolescence (environs) 35,000
Total Depreciation - - - - - - - - P 100,000
Required: Compute the indicative Property Value by Cost Approach.

An IEC project of:

Answer:

Land Valuation (12m x 20m = 240 sq. m. x P2,000) - P 480,000

Plus: Site Improvements: driveway, walks, landscaping, etc. - 20,000
P 500,000
Building Value: Replacement Cost New
150 sq. m. at P5,000 - - - - - - P 750,000
Less: Depreciation -
Physical Depreciation
-curable (items of deferred
maintenance) exterior painting P 5,000
-incurable (structural wear & tear) 10,000
Functional Obsolescence(incurable-design)50,000
Locational Obsolescence (environs) 35,000
Total Depreciation - - - - - - - - - - - - - 100,000
Depreciated Value of Building - - - - - - - - - - - - - - - - - - - 650,000
Indicative Property Value by Cost Approach . . . . . . . . P 1,150,000
==========

An IEC project of:

 INCOME Approach

3. INCOME APPROACH - is based on the Present Value of the

rights to Future Income. It assumes that the income generated by a
property will determine the propertys value.

The Income Approach is used for valuation of income-

producing properties such as apartment buildings, rental
condominiums, office buildings and shopping centers.

An IEC project of:

 5 Steps of Estimating Value in
Income Approach

1. Estimate annual Potential Gross Income. An estimate of

economic rental income must be made on market studies. Include
other source such as vending machine, parking fees and laundry
machines;

2. Deduct an appropriate Allowance for Vacancy and Rent Loss,

based on the appraisers experience, and arrive at Effective
Gross Income;

3. Deduct the annual Operating Expenses from the effective gross

income to arrive at the annual Net Operating Income (NOI).
Management costs are always included, even if the current owner
manages the property. Mortgage payments (principal plus interest)
are Debt Service and not considered operating expenses.

An IEC project of:

 5 Steps of Estimating Value in
Income Approach

4. Estimate the price a typical investor would pay for the income
produced by this particular type or class of property. This is done
by estimating the Rate of Return (or yield) that an investor will
demand for the investment of capital in this type of building. This
rate of return is called Capitalization Rate or Cap Rate and is
determined by comparing the relationship of net operating income
to the sales prices of similar properties that have sold in the
current market.

5. Apply the capitalization rate to the propertys annual net operating

income to arrive at the estimate of the propertys value. (See
Example next slide)

An IEC project of:

Example of Capitalization Rate:

Example.
A comparable property that is producing an Annual
Net Income of P15,000 is sold for P187,500. The
capitalization rate is P15,000 divided by P187,500, or
8%.
If other comparable properties sold at prices that
yielded substantially the same rate, it may be concluded
that 8% is the rate that the Appraiser should apply to
the subject property.

An IEC project of:

INCOME APPROACH illustration 1:
Gross Annual Income estimate (potential rent income) - - P 120,000
Less:Vacancy and Loss of Rent (6% estimate) - - - - - - - - - 7,200
Effective Gross Income - - - - - - - - - - - - - - - - - - - - - - - P 112,800
Less: Operating Expenses
Real estate taxes - P 2,000
Insurance - 1,500
Repairs - 6,000
Maintenance - 4,000
Management - 5,500
Net Annual Operating Expenses - - - - - - - - - - - - - - - - - - 19,000
Annual Net Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . P 93,800
Capitalization Rate (Banks Interest rate): 8%
Capitalization of Annual Net Income = P93,800/.08
Indicated Property Value by Income Approach . . . . . . P 1,172,500
==========
With the appropriate capitalization rate and the projected annual net operating income, the
Appraiser can obtain the indicative of value by the Income Approach.

An IEC project of:

INCOME APPROACH illustration 2:
With the appropriate Capitalization Rate and the Projected
Annual Net Operating Income (NOI), the Appraiser can obtain the
indication of value by the Income Approach.

These formula graphically illustrated and its variations are

important in dealing with Income property:
Income / Rate = Value I [

Income / Value = Rate

R V
Value x Rate = Income

Net Operating Income / Capitalization rate = Value

Example : P18,000 income / 9% cap rate = P200,000 value
or P18,000 income / 8% cap rate = P225,000
NOTE: The relationship between the rate and value. As the rate goes
down, the value increases.
An IEC project of:
 RECONCILIATION
RECONCILIATION is the art of analyzing and effectively weighing
the findings from the Three Approaches. The process of reconciliation
is more complicated than simply taking the average of the three
estimates of value. This is not mere setting the average of the three,
but to ascertain which is more reliable and applicable to the particular
problem.
Example:
1. In appraising a home, the income approach is rarely valid, and the
cost approach is of limited value unless the home is relatively new.
Therefore, the sales comparison approach is usually given greatest
weight in valuing single-family residences.
2. In the appraisal of income or investment property, the income
approach normally is given the greatest weight.
3. In the appraisal of churches, libraries, museums, schools and other
special-use properties where little or no income or sales revenue is
generated, the cost approach usually is assigned the greatest
weight.
 Types of Appraisal Report

Oral made verbally, includes statement of facts, assumptions,

conditions and reasoning. All notes, supporting data and
analysis preserved on files.
Certificate or Letter a letter only with Appraisers opinion of
value, without supporting data, analysis and interpretation
preserved on files.
Form Report a pre-designed report form that suits certain
requirement of the user.
Narrative Report - a comprehensive report providing Appraisers
the opportunity to support and explain opinions and
conclusions and to convince readers to the soundness of
the estimates.

An IEC project of:

 THE APPRAISAL PROCESS
1. State the Problem
Identify the Property Property Rights (Fee Simple)
Purpose of Appraisal Function of Appraisal
Effective Date Type of Value (P/$)

2. List the Data needed and the Source

Data Needed Time Flow Schedule Chart
Data Source Service Contract/Scope of Work
Personnel Needed Professional Fee

3. Gather, Record and Verify the necessary Data

General Data Specific Data Data for Each Approach
-National -Subject site -Market (Sales) Data
-Regional/City -Improvements -Cost Data
-Neighborhood -Comparables -Income/Expense Data

4. Determine the Highest and Best Use

Land as if Vacant Land as Improved

IEC project of:

 THE APPRAISAL PROCESS
5. Estimate the Land Value
Comparables Capitalization
Abstraction Residual Technique
Allocation Development
6. Estimate the Value applying the Three (3) Approaches
Cost Approach Market Approach Income Approach
Replacement Cost New Comparison Unit Process Income
Depreciation Comparables Multipliers
Land Value Adjustments Direct Capitalization
Reconciliation Yield Capitalization

7. Reconcile the Estimated Values for the Final Value Estimate

8. Report the Final Value Estimate

Submission of either Oral, Certificate or Letter-type, Form or Narrative Report.

An IEC project of:

References: - Modern Real Estate Practice, 14th Edition, Galaty, Allaway & Kyle
- PARA CREASAT and Review Materials, 2013
- ALAWA Realty IEC Project, CRESAR 2013

THANK YOU