Compiled by Miguelle L.

Dela Fuente

BASIC REAL PROPERTY

APPRAISAL PRINCIPLES
 Compiled by Miguelle L. Dela Fuente

APPRAISAL VS. ASSESSMENT

APPRAISAL – is the act or process of

determining the value of a property as of a specific
date for a specific purpose. (Sec 199(e), LGC)

It may also defined as the act of estimating the

value of a property. It is an estimate or opinion of
value , usually market value or value as defined by
the appraiser. It is made as of a specific date and is
conclusion which results from a logical and orderly
analysis of facts.
 Compiled by Miguelle L. Dela Fuente

APPRAISAL / VALUATION

 The act or process of determining the value of a

property as of a specific date for a specific purpose
(Sec. 199(e), RA 7160)
 The process of estimating value (PVS)
 It is an estimate or opinion of value, usually market
value or value as defined by the appraiser. (MAG)
 Compiled by Miguelle L. Dela Fuente

 it is a supportable or defensible estimate of value

as of a particular point in time.

 An estimate expressed as a single peso amount,of

the scarcity and utility, i.e, economic nature, ofa
specific property at a specified time and place,
assuming a specific use.
 Compiled by Miguelle L. Dela Fuente

Who is an Appraiser

 Real Estate Appraiser – a 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.
 Compiled by Miguelle L. Dela Fuente

APPRAISER / ASSESSOR
- one who conducts appraisals; specifically,one who
possesses the necessary qualifications, ability
and experience to execute or direct the
appraisal of real orpersonal property;
 Compiled by Miguelle L. Dela Fuente

Type of Appraisal / Valuation Report

 1. Oral Report

 2. Letter Report

 3 Narrative Report

 4.Form Report
 Compiled by Miguelle L. Dela Fuente

Purpose of Appraisal
 1. Sale or Purchase
 2. Mortgage Loans / Lending
 3. Insurance
 4. Tax Assessment
 5. Eminent Domain (Condemnation)
 6. Property Disputes
 7. Inheritance/ Partitioning of Estate
 8. Options- right to renew/ to buy
 9. Corporate Realty- mergers, etc.
 10. Urban Renewal
 11. Foreclosure
 12, Other uses
 Compiled by Miguelle L. Dela Fuente

ASSESSMENT
 – is the act or process of determining thevalue of a
property or proportion thereof subject to tax,
including the discovery, listing, classification and
appraisal of
properties.
 Compiled by Miguelle L. Dela Fuente

APPRAISAL FOR TAXATION PURPOSES

 The appraisal of real property

shall be based on the latest
schedule of Fair Market Value
(SFMV) prepared by the
provincial, city, or municipal
assessors with MMA, as
embodied in an ordinance
passed by the Sanggunian
concerned. (Sec. 212, LGC)
 Compiled by Miguelle L. Dela Fuente

BASIC FORMULA
TO DETERMINE VALUE

 MV = UBMV X AREA

 AMV = MV ± AF
 Where:
 MV = Market Value
 UBMV = Unit Base Market Value
 AMV = Adjusted Market Value
 AF = Adjustment Factor
 Compiled by Miguelle L. Dela Fuente

ASSESSMENT

 Narrow Definition:

– The act or process of determining the value of

property, or proportion thereof subject to tax.

 Broad Definition:

– It includes the discovery, listing, classification,

and appraisal of properties. (sec. 199 (f) LGC)
 Compiled by Miguelle L. Dela Fuente

Actual Use
 Refers to the purpose for which the property is
principally or predominantly utilized by the person
in possession thereof. (Sec. 199 (b), LGC)

 “For Real Property Tax (RPT) purposes, Actual use

should not be construed as a limiting factor in the
basis for the classification and valuation of the
property, but as a determining factor in establishing
the assessment level in order to set the taxable
value”
 Compiled by Miguelle L. Dela Fuente

BASIC FORMULA TO DETERMINE

THE ASSESSED VALUE
 AV or TV = AMV X AL

 Where:

 AV or TV = Assessed Value or Taxable Value

 AMV = Adjusted (Fair) Market Value
 AL = Assessment Level (to be applied
based on actual use)
 Compiled by Miguelle L. Dela Fuente

GENERAL RULE IN ASSESSMENT OF

REAL PROPERTY FOR LOCAL TAXATION

 As a general rule, the classification, appraisal,

and assessment of real property for taxation
purposes, shall be governed by the provisions of
R.A. 7160 and its implementing rules and
regulations and other existing laws and rules issued
by the Department of Finance thru the Bureau of
Local Government Finance (DOF-BLGF) and the
Sangguniang concerned.
 Compiled by Miguelle L. Dela Fuente

APRAISAL FOR INTERNAL REVENUE

PURPOSES

 For purposes of computing the internal revenue

tax, the value of the property shall be either the
zonal value, the value shown in the SFMV, or the
amount of consideration appearing in the Deed of
Absolute Sale, whichever is higher. (Sec 6E,NIRC
of 1997)
 Compiled by Miguelle L. Dela Fuente

◦ The general standards for valuation of real

property for tax purposes is the market value.
Zonal Value is avalue set by the government
for internal revenue tax purposes derived
from a diversified valuation procedures
adopted by the committees or
recommending body.
 Compiled by Miguelle L. Dela Fuente

◦ The zonal values takes effect after

approval by the Secretary of Finance. These
zonal values remain in force until the
subsequent revision/ amendment.
 Compiled by Miguelle L. Dela Fuente

◦ There are four (4) types of taxes that can be

collected from the transfer, exchange or
disposition of real properties.

 1. CGT- Capital Gains Tax

 2. ET - Estate Tax
 3. DT - Donor’s Tax
 4. DST- Documentary Stamp Tax
 Compiled by Miguelle L. Dela Fuente

 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.
 Compiled by Miguelle L. Dela Fuente

• Refers to a price expressed in

terms of money (normally in local
currency), payable for the property
in an arm’s length markettransaction.
• It is the best price reasonably
obtainable by the seller and the
most advantageous price reasonably
obtainable by the buyer.
 Compiled by Miguelle L. Dela Fuente

• Refers to the fact that the value of a

property is an estimated amount
rather than a predetermined amount
or actual sale price.
• It is the price at which the market
expects a transaction that needs all
other elements of the Market Value
definition to be completed on thedate
of valuation.
 Compiled by Miguelle L. Dela Fuente

• Requires that the estimated

Market Value is time-specific as
of a given date.
• Markets and market conditions
may change, the estimated value
may be incorrect or inappropriate
at another time.
 Compiled by Miguelle L. Dela Fuente

• Refers to one who is motivated,

but not compelled to buy.
• This buyer is neither over-eager
nor determined to buy at any
price.
 Compiled by Miguelle L. Dela Fuente

Is neither an over-eager nor a

forced seller, prepared to sell at
any price, nor one prepared to
hold out for a price not
considered reasonable in the
current market.
Compiled by Miguelle L. Dela Fuente
 Compiled by Miguelle L. Dela Fuente

 Means that the property would be

exposed to the market in the
most appropriate manner to
effect its disposal at the bestprice
reasonably obtainable.
 Compiled by Miguelle L. Dela Fuente

 Presumes that both the willing buyer

and the willing seller are reasonably
informed about the nature and
characteristics of the property, its
actual and potential uses, and the
state of the market as of the date of
valuation.
 Compiled by Miguelle L. Dela Fuente

 establishes that each party is motivated to

undertake the transaction, but neither is forced or
unduly coerced to complete it.
 Compiled by Miguelle L. Dela Fuente

1. Market value is not determined, it is estimated.

2. Market value is affected by the actions of the
buyers and sellers involved in the transactions.
3. Valuers and appraisers do not create value, they
effectively uncover the value that is already in
the property.
4. Value is estimated thru the application of valuation
methods and procedures.
 Compiled by Miguelle L. Dela Fuente

VALUATION APPROACHES
TECHNIQUES AND
METHODS
 Compiled by Miguelle L. Dela Fuente

THREE VALUATION APPROACHES:

1. Sales Comparison / Market Data

2 Cost Approach
3. Income Capitalization Approach
 Compiled by Miguelle L. Dela Fuente

In ALL valuation cases, the

ultimate values established relyon:
 Proper collection of Data
 Sound Analysis
 Intelligent application of the
resulting analyzed information
 Compiled by Miguelle L. Dela Fuente

Considers the sales of similar or substitute properties

and related market data, and establishes a value
estimate by processes involving comparison.
Listings and offerings may also be considered as data.

Assumes that an informed buyer would pay no more

for a property than the cost of acquiring an existing
property of similar nature. (Principle of Substitution)
 Recognizes that property prices are determined by
the market
 Compiled by Miguelle L. Dela Fuente

 Market Value can be calculated from studying

market prices for properties that compete with one
another for market share
 Method is applicable when there is an active
market with sufficient number of verifiable
transactions
 Compiled by Miguelle L. Dela Fuente

• Considers the possibility that, as an alternative to

the purchase of a particular property, one could
acquire a modern equivalent asset that would
provide equal utility.
• Estimates the cost of acquiring an equivalent
land and the cost of constructing an equivalent
new structure while adjusting for depreciation to
reflect obsolescence.
 Compiled by Miguelle L. Dela Fuente

• Assumes that an informed purchaser would pay

no more for a property than the cost of land and
improvements required in reproducing a
substitute property with the same utility as the
subject property.
 Compiled by Miguelle L. Dela Fuente

 Establishes the upper limit of what the market

wouldnormally pay for a given property when it
is new.
 For an older property, some allowance for various
forms of accrued depreciation is deducted to
estimate
a price that approximates market value such as:
➢ Physical Deterioration

➢ Functional or Technical Obsolescence

➢ Economic or External Obsolescence
 Compiled by Miguelle L. Dela Fuente

REPRODUCTION COST NEW:

Cost to create a virtual replica of the existing
structure, employing the same design and similar
building materials.
REPLACEMENT COST NEW:
Current cost of constructing a similar property
using modern materials, standards, design, etc.
REPLACEMENT COST NEW LESS
DEPRECIATION:
Equivalent to the term “Depreciated Replacement
Cost”. This is the effect of the depreciation of a
building or other improvement, from all sources.
 Compiled by Miguelle L. Dela Fuente

• Considers income and expense datarelating to

the property being valued and then estimates
value throughcapitalization process.

• Applicable to income-producing properties.

 Compiled by Miguelle L. Dela Fuente

Assumes that an informed purchaser would pay no

morefor a property than the cost of obtaining an Income
Stream of the same size embodying the same risk as
that of the subject property.
Determines an income stream (annual net rent) on
potential income stream or cash flow.
The approach expresses a fixed relationship between
two factors of net income and capital value.
The approach is most applicable in the case of
investment or commercial properties
 Compiled by Miguelle L. Dela Fuente

I. Sales Comparison Approach

a. Sales Comparison Method

b. Extraction/Residual Method
c. Stripping Method
 Compiled by Miguelle L. Dela Fuente

II. Cost Approach:

a. Civil Engineering or Quantitative Method

b. Unit-In-Place Method
c. Indexing Method
d. Comparative/Repricing Method
 Compiled by Miguelle L. Dela Fuente

III. Income Capitalization Approach:

a. Net Rent/Rental Method

b. Hypothetical Development Method
c. Discounted Cash Flow Method
 Compiled by Miguelle L. Dela Fuente

 END