VALUATION

PROCESS
 PRICE, COST, VALUE
 PRICE – the actual amount paid in a particular
transaction (goods or services)

 COST – is the amount required to create or

produce the good or service.

 VALUE - is a relationship between a thing

desired and a potential purchaser. It is an
economic concept
THREE (3) BASIC ELEMENTS
NECESSARY FOR A
PROPERTY TO HAVE A
MARKET VALUE :
UTILITY OF THE PROPERTY

DEMAND IN THE AREA

AVAILABILITY OF FUNDS
 PHIL VALUATION STANDARD

 MARKET VALUE

 NON – MARKET VALUE

 is defined as the estimated
amount for which a property
should exchange on the date of
valuation between a willing buyer
and a willing seller in an arm’s
length transaction after proper
marketing wherein the parties
had each acted knowledgeably,
prudently, and without
compulsion.

(source: Phil Valuation Standard)

 MARKET VALUE DEFINITION

 “The estimated amount...” refers to a price expressed

in terms of money (normally in the local currency),
payable for the property in an arm’s-length market
transaction. It is the best price reasonably obtainable
by the seller and the most advantageous price
reasonably obtainable by the buyer.

 The term property is used because the focus of the

standards is the valuation of property
 MARKET VALUE DEFINITION

 “…a property should exchange…”refers to the fact

that the value of a property is an estimated amount
rather than a predetermined amount or actual sale
price.
 “…on the date of valuation…” requires that the
estimated Market Value is time-specific as of a given
date. Because markets and market conditions may
change, the estimated value may be incorrect or
inappropriate at another time.
 MARKET VALUE DEFINITION

 “…between a willing buyer…” refers to one who is

motivated, but not compelled to buy. This buyer is
neither over-eager nor determined to buy at any price.
The assumed buyer would not pay a higher price than
the market requires.

 “…a willing seller…” 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.
 MARKET VALUE DEFINITION

 “…in an arm’s-length transaction…” is one

between parties who do not have a particular
or special relationship (for example, parent
and subsidiary companies or landlord and
tenant) that may make the price level
uncharacteristic of the market or inflated
because of an element of Special Value.
 MARKET VALUE DEFINITION

 “…after proper marketing…” means that the

property would be exposed to the market in the
most appropriate manner to effect its disposal
at the best price reasonably obtainable in
accordance with the Market Value definition.
The length of exposure time may vary with
market conditions, but must be sufficient to
allow the property to be brought to the
attention of an adequate number of potential
purchasers.
 MARKET VALUE DEFINITION

 “…wherein the parties had each acted

knowledgeably and prudently…” 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.
 MARKET VALUE DEFINITION

 “…and without compulsion…” establishes that

each party is motivated to undertake the
transaction, but neither is forced or unduly
coerced to complete it.
 NON – MARKET VALUE
 Values other than market value
 Liquidation Value
 Insured value
 Special value
 Owners value
 Prompt Sale value
 Tax value, etc
 MARKET VALUE DEFINITION

 To estimate Market Value, a Valuer must first

determine highest and best use, or most probable use.
That use may be for continuation of a property’s
existing use or for some alternative use. These
determinations are made from market evidence.
 Market Value is estimated through application of
valuation methods. The most common methods used
to estimate Market Value include the sales
comparison approach, the income approach,
including discounted cash flow analysis, and the cost
approach
BASIC PRINCIPLE OF PROPERTY
VALUE
1. Principle of Supply and
Demand
If there are over supply of real
estate properties and there are no
demands in the market, the price is
low. On the other hand, if there is
less supply but there is a high
demand of real estate property in
the market, the price is high.
Scarcity influences supply, desire
influences demand, but demand to
be effective, it should be backed by
 BASIC PRINCIPLE OF PROPERTY
VALUE
2. Principle of
Change
Cities, neighborhood and individual
properties undergo the process of change. A less
populated area might be an overpopulated in the
future due to migration and therefore demand
for real estate properties will increase, thus it
will influence value.
A colony of squatters, invaded a property,
thus value will tend to decrease.
Conversion of Fort Bonifacio in Taguig, from
a military confinement to a new Commercial
Business Hub known as “The Fort”
BASIC PRINCIPLE OF PROPERTY
VALUE

3. Principle of
Substitution
The value of a replaceable
property tends to be indicated by
the value of an equally desirable
substitute property. No prudent
buyer will pay more than it will
cost him to acquire an equally
desirable substitute property.
 BASIC PRINCIPLE OF PROPERTY
VALUE
4. Highest and Best Use

It is that use which at the

time of appraisal is likely to
produce the greatest net
return.
BASIC PRINCIPLE OF PROPERTY
VALUE

5. Principle of Conformity
An over-improvement or
under improvement reflects
lack of conformity as between
one property and its
environment. Misplaced
improvement is direct violation
of the principle of conformity.
BASIC PRINCIPLE OF PROPERTY
VALUE

6. Principle of Anticipation

Affirms the definition

that value is the worth of all
present and future benefits
arising from ownership and
use of real property.
 BASIC PRINCIPLE OF PROPERTY
VALUE
7. Surplus Productivity (Balance)

Agents in production are

labor, coordination, capital
and land. Land has the last
claim on the surplus
productivity of the agents in
production
 BASIC PRINCIPLE OF PROPERTY
VALUE

8. Increasing and Decreasing Returns

The application of larger and larger

amounts of the agents in production will
produce greater and greater net income
(increasing returns) up to a point (suplus
productivity).
The point of maximum contribution of
agents in production (point of decreasing
returns) attests to proper proportioning of
agents resulting from highest and best use.
 BASIC PRINCIPLE OF PROPERTY
VALUE

8. Increasing and Decreasing Returns

Law of decreasing
returns arises from law of
supply and demand and
affirms that the greater the
amount of any commodity
offered for sale in the market,
the lower will be the price
paid for it.
 BASIC PRINCIPLE OF PROPERTY
VALUE
9. Contribution

This principle may be said to

be the principle of increasing and
decreasing returns as it applies to
some portion of improvements.
BASIC PRINCIPLE OF PROPERTY
VALUE
10. Competition

Competition is derived
from profits, or profits
create competition.
1) MARKET DATA APPROACH

2) COST APPROACH

3) INCOME APPROACH
 a process of comparison of
the subject property being
appraised to similar comparable
properties recently sold or being
offered for sale.

This is based on the Principle of

Substitution
 How to Make Comparison
 By employing weighted adjustments to
compensate the difference.
 Basis of comparison are as follows:
 Location
 Time Element

 Physical Characteristics (size, shape)

 Condition of sale, if any

 How to Make Comparison
 If the comparable is superior, you deduct (-)
 If the comparable is inferior, you add (+)

Source of data:
a) At site
b) Classified ads, magazines, newspaper
c) Internet
d) brokers, fellow appraisers
e) Government agencies
f) Banks and other financial institutions
g) Others
1. For vacant lot
2. Lot with
improvement(s)
3. Townhouse
4.Condominium
Units
1.Description and classification of the
subject property (residential,
commercial, industrial, agricultural,
etc.)

2.Establish the time period. Sales

made close to the appraisal given the
most consideration. Also time
element for properties offered for
sale must be given consideration
(how long the property was or being
offered in the market, what is the
counter offer of the buyers?)
3.Determine the market area. Get
comparables within the immediate
vicinity.

4.Gathering of sales data.

5.Classification, analysis and

modification of sales data gathered.
The first step is to eliminate
unrepresentative sales (invalid sales,
such as sale between relatives, sale
between affiliate or subsidiary
company, government expropriation,
foreclosure sales, sale made not
under ordinary terms, sales
influenced by special business or
1. All properties offered for sale or
listings which are published in the
newspapers or other magazines
should be properly verified as to its
exact location, size, and terms of sale.

2. All inquiries made with brokers or

appraisers should indicate the name
of the broker or appraisers and the
company he represents. All inquiries
should indicate the exact location of
the property. If the values given are
estimates only by the broker or
appraiser, this should be properly
indicated in the market survey/listings
section of the appraisal report.
3. All inquiries or survey conducted
with fellow appraisers and brokers
should be analyzed prior to
conclusion of the final estimate of
value.

4. If there were reported sale

transaction in the area, get details
of the sale from the assessors office
(Deed of absolute Sale), on a best
effort basis. This will serve as our
best evidence for a transacted sale.
 Advantages of
Market Data
1) It is easily understood and has a great
Approach
deal of appeal. It is commonly used by
appraisers and public alike.

2) It is a widely accepted approach by

weight of authority in Economics, Law
and Business.

3) It is essential in almost every

appraisal.

4) Market Prices are good evidence of

value because they truly represent
the reaction of typical users and
investors to a particular type of
 Disadvantages of
Market Data
Approach
1) The method has no provision for alternate
techniques if valid sales are insufficient or
when there are no recorded sales or listings
in the area.

2) Adjustment ratings are based on subjective

evaluation of the differences in terms of the
physical attributes and location.

3) The motives of buyers and seller are

difficult to verify or determine.

4) Any deviation from the norm of financing or

equity position can create distorted market
prices.
 In the application of
market data approach,
comparison should be
made between
properties of the same
classification.
Example: A residential
property should be
compared to a residential
property offered for sale
or recently sold.
 SAMPLE PROBLEM
A vacant lot with an area of 2,300 along EDSA in between Timog Ave and
Sct Boromeo, Quezon City, is subject for appraisal. The lot is
rectangular with elevation below the fronting road. After thorough
research, you were able to gather the following data:
a) a vacant rectangular corner lot with an area of 780 sqm located within
EDSA near Guadalupe, Makati is recently being offered for sale at
P65,000 per sqm
b) a vacant lot, below street level, with an area of 1,300 sqm located along
EDSA, corner Aurora Blvd, Cubao, QC is being offered for sale at
50,000 per sqm
c) a rectangular lot along EDSA near Annapolis,,QC with an area of 870
sqm is being offered at an asking price at P60,000 per sqm
d) A property along EDSA, Pasay with an area of 22,000 sq m more or less
with irregular shape is being offered for sale at an asking price of
P25,000 per sqm.
 GRID ANALYSIS
1. Comparables 1 2 3 4
Base Price (PER SQM) 65,000 50,000 60,000 25,000

II. Physical Adjustment

Bargaining Allowance -5% -5% -5% -5%

Location / Corner Influence -10% -5% 0% +20%

Size -5% -3% -5% +60%

Shape / Terrain -5% -0% -5% 0%

III. TOTAL ADJUSTMENT -25% -13% -15% +75%

1V. ADJUSTED VALUE 48,750 43,500 51,000 43,750

V. AVE. VALUE 46,750

 SAMPLE PROBLEM
 A vacant lot, located along Spruce Street,
Richgate Subdivision, Phase 1 Bgy. Camp 7,
Baguio City is subject for appraisal. The
following Specs were gathered:
Lot identity: Lot 5 Blk 7
Lot Area : 200 sqm
Terrain : flat; slightly above street level
 Market Data Gathered
 A vacant lot with an area of 220 sqm located along
Ebony Street, Richgate Subdivision, Phase 1, is being
offered for sale at P6,000 per sqm. The terrain is
slightly rolling downwards on the rear portion of the
lot.
 A perimeter lot with an area of 192 sqm located along
White Oak St., Richgate Subd., was recently sold at
P5,000 per sqm
 A vacant corner lot located at the corner of Africa
Tulip Street and Hickory Street with an area of 233
sqm is being offered for sale at an asking price of
P7,000 per sqm
 GRID ANALYSIS
1. Comparables 1 2 3
Base Price (PER SQM) 6,000 5,000 7,500

II. Physical Adjustment

Bargaining Allowance -5% 0% -5%

Location / Corner Influence 0% +10% -10%

Size 0% 0% 0%

Shape 0% 0%

III. TOTAL ADJUSTMENT -5% +10% -15%

1V. ADJUSTED VALUE 5,700 5,500 6,375

V. AVE. VALUE 5,858

 SAMPLE PROBLEM
You are appraising a 1,200 sqm lot improved with a single
storey residential building located along Cypress St.,
Dasmarinas Village, Makati City. The shape of the lot is
rectangular, its elevation at par with the fronting road. The
house has already outlived its economic life and can be
excluded in the valuation. After thorough research, you were
able to gather the following data:

a) a vacant corner lot with an area of 2,500 sqm located within

Dasmarinas Village is being offered for sale one month ago
at P120,000 per sqm
b) a vacant lot with an area of 1,500 sqm within Dasmarinas
Village is being offered for sale 2 years ago at an asking
price of P80,000 per sqm
 Con’t

c) A house with a newly built residential house with a

lot area of 1,300 sqm located within Dasmarinas
Village is recently being offered for sale at being
offered for sale for P156M (P120,000/sqm)
d) A vacant lot with an area of 800 sqm located within
Dasmarinas Village is being offered recently at
P130,000 per sqm.
What is the estimated Appraised Value of the property?
 2

4
1
 GRID ANALYSIS
1. Comparables 1 2 3 4
Base Price (PER SQM) 120,000 80,000 130,000

II. Physical Adjustment

Bargaining Allowance -5% -5% -5%

Location / Corner Influence -5% 0% 0%

Size +5% 0% +5%

Shape/terrain/time adjustment 0% +20% 0%

III. TOTAL ADJUSTMENT -5% +15% -0%

1V. ADJUSTED VALUE 114,000 92,000 130,000

V. AVE. VALUE 112,000

 SAMPLE PROBLEM
A vacant lot with an area of 400 sq.ms. located
along Paco Roman St., Bgy. Dimasalang,
Cabanatuan City is subject for appraisal. It has a 10
m frontage and 40 m depth. It lies approx 70 m SE
from the Cabanatuan Public Market. After thorough
investigation, the ff data are gathered:

1) A vacant regular lot with an area of 350 sq.ms.

located along Paco Roman St. just across the BPI
Family Savings Bank is recently offered for sale at
P30,000/sq.m.

2) A corner lot along Melencio St and Paco Roman

St with an area of 500 sq.ms. is being offered for
sale at P35,000/sq.m.

3) A corner lot along Gen. Tinio and Paco Roman St

with an area of 1,500 sq.ms. is being offered for
sale at P22,000/sq.m.
 GRID ANALYSIS
Listings 1 2 3
Per sq.ms. P30,000 P35,000 P22,000
Barg. Allow -5% -5% -5%
Location 0% -10% -5%
Size 0% 0% +7%
Shape -5% -5% 0%
Time Adj 0% 0% 0%
Total Adj -10% -20% -3%
Adjustment P27,000 P28,000 P21,340
Average Price = P27,000 + 28,000 +
21,340
3
= P25,446 say
P25,000/sqm

App Value = 400 sqm @ P25,000/sqm

= P10,000,000
 CASE ANALYSIS (1)
 Determine the indicative value of a vacant lot
located along Sen Gil Puyat Avenue, Makati
City. The lot has an area of 1,600 and is the
former site of Toyota Bel Air. The lot has a
regular shape, and is at par with the street.
Upon investigation, you were able to gather
that the lot has height restriction of 15meters
only.(FAR 5). Market data gathered are as
follows:
 Market data
1. A property with an area of 1,200 sqm improved with
a 5 storey old building (fully depreciated) located
along Sen. Gil Puyat Avenue (north side) near Paseo
de Roxas is recently offered for sale at an asking
price of P130,000/sqm..
2. A property with an area of 1,600 sqm located in front
of Metrobank Plaza, Sen Gil Puyat Ave was
reportedly sold 2 years ago at P100,000 per sqm
3. A vacant lot, through lot between Sen Gil Puyat Ave
and HV de la Costa, with an area of 1,350 sqm is
being offered for sale recently at an asking price of
P2200,000 per sqm. (FAR 14)
Assumptions:
Bargaining Allowance @ 5%
For Listing #1: Location : 5% inferior than the subject;
No adjustment in size; shape and time element
For Listing #2: Location: 5% superior than the subject;
No adjustment in size and shape; 20% inferior than
the subject due to time element
For Listing #3. Location: 40% superior than the subject;
No adjustment in other physical factors.
 Case Analysis (2)

A regular vacant lot with an area of 753 sqm

located along Timog Ave, (near EDSA) Bgy
South Triangle, QC is subject of appraisal. It
has a regular shape and at par with the street.
The ff data were gathered:
 A vacant lot along Timog Ave, beside Mc Donalds

with an area of 1,500 sqm is currently for sale at

P90,000/sqm. The lot has an irregula shape but at par
with the road
 Another vacant lot along Timog Ave with an area of

2,764 sqm is currently being offered for sale at an

asking price of P65,000/sqm
 A property along T. Morato St very near Timog Ave

with an area of 850 sqm was recently sold for

P80,000/sqm
 Adjustments
Bargaining allowance @ 5%

As compared to the subject,

 Listing #1: Superior in location by 5%, inferior

in size by 5%, inferior in shape by 3%.

 Listing #2: Inferior in location by 3%, inferior

in size by 10%
 Listing #3: Superior in location by 5%
 is an estimate of the
investment required to
duplicate the property in its
present condition. It is reached
by estimating the values of
land and adding the
depreciated cost of the
improvement.
Fundamental to the
Cost Approach is the
estimate of
Reproduction Cost
New or Replacement
Cost New of the
improvements.
 Three Steps in The
Estimate Of Value Using
1) the Costthe
Estimate Approach
Land Value (as
though vacant by Market Data
Approach)

2) Estimate the Depreciated Cost

of the improvement

3) Add the Land Value and the

Depreciated Cost of the
Improvement(s) to determine
the value of the property.
 Cost Approach
 Tends to set the upper limit of value.

Rarely taken as final value.

 Demands the verification and adjustment

through the comparative results from the other
two approaches to value.
 Cost Approach
 Fundamental to the Cost Approach is a reliable
estimate of Reproduction Cost / Replacement
Cost

 Reproduction Cost – is the present cost of

reproducing the improvement with one
of an exact replica in today’s market,
the same or closely related materials
 Cost Approach
 Replacement Cost New – is the present cost of
replacing the improvement with one
having the same utility. (Not necessarily
exact replica)
 Building Cost Estimate
 Quantity Survey Method

This is a detailed inventory of all the materials

and labor that go into the finished building.
This is sometimes called material take off or
construction breakdown.
 Building Cost Estimate
 Unit Cost-In-Place Method

This method is a mathematical compressing of the

Quantity Survey Method. This is based on the use
of installed price of various building materials
employing UNITS convenient to use such as the
square meter. This method requires specialized
knowledge to compute basic cost of equipment,
materials and labor and their combination into the
final unit-cost-in place.
 Building Cost Estimate
 Cost Per Square Meter Method

This is a product of the Quantity Survey

and Unit-Cost-In Pace Methods which
establish a cost per square meter for the
subject building and multiplies that cost by
the floor area (square meter) of the subject
building to arrive at the Reproduction Cost.
THEORY OF DEPRECIATION

DEPRECIATION
– is loss in value from any cause.
CAUSES OF DEPRECIATION
1. Physical Deterioration – reflects loss in
value due to wear and tear, use in service
and other action of the elements.
Example:
Foundation or exterior wall may crack
due to inadequate footings, use of unsuitable
materials, roofing, floors, walls and other parts of
the building are subject to wear and tear
2. Functional Obsolescence – loss in value
due to functional inadequacy or over-
adequacy due to size, style or age brought
about by poor planning as compared to
modern designs and style.
Example:
Poor architectural design, bad room
arrangement, high ceiling, excess construction,
antiquated and unattractive design.
CAUSES OF DEPRECIATION
3. Economic Obsolescence – loss in value
brought about by external economic forces.
Such as change in the use of land,
legislative enactments, restrictions,
infiltration of inharmonious people, etc.
Example:
Alteration of zoning ordinances,
construction of more modern competitive
buildings, shifting of business center or when
good business companies moved to other
locations, etc

Physical Deterioration and Functional

Obsolescence are due to internal causes,
while Economic Obsolescence is due to
external forces.
METHODS OF
DETERMINING
DEPRECIATION
1.Straight Line Age Method – the property
loses in value in accordance with its
age.

Example:
Date Constructed
1990
Date of Inspection
2013
Estimated Economic Life 40 yrs.

Depreciation Rate: 2013 – 1990

40 yrs.

= 57.5%
METHODS OF DETERMINING
DEPRECIATION
2. Effective Age Method - in using this
method, the appraiser should be guided by
effective age rather than the actual
chronological age. “Effective Age” is the
age that appears to be as compared a new
item or structure regardless of its actual
age.

Example:
Est RCN P1,000,000
Effective Age (Estd.) 5 yrs.
Estd. Eco. Life 30 yrs.

Depreciation P1,000,000 X 5/30 = P167,000

METHODS OF DETERMINING
DEPRECIATION
3. Observed Condition Method – a
method of determining depreciation by
actual inspection rather by any
theoretical provisions. The inspection, in
addition to making detailed estimates of
deterioration and also computing annual
reserves for periodic replacements
should include study of functional
deficiencies.
In the computation of Accrued
Depreciation, appraiser should not only
compute for the physical deterioration but,
also look in to the functional and economic
obsolescence.
 SAMPLE PROBLEM
You are asked to appraise a property within Ayala-Alabang
Village. The property is located along Tanguile St, with Lot
area of 500 sqm. It is improved with a two storey
residential building with a floor area of 600 sqm. After
thorough inspection, you found out that the building was
constructed in yr 2000. Based on your estimate, the
Reproduction Cost New (RCN) of the building is at
P30,000 per sqm with an estimated economic life of 40 yrs.
As noted also, the building is not suffering from any
economic and functional obsolescence. Determine the
Indicated Value of the property assuming the MV of land at
P35,000 per sqm.
 Computation
LAND:
FMV = 500 sqm @ P35,000/sqm P17,500,000.00

BUILDING:
RCN = 600 sqm @ P30,000/sqm P18,000,000
Less: Depreciation (By Straight Line Age Method)
Date Constructed 2000
Date of Inspection 2013
Est. Eco Life 40 yrs

Depreciation = P18M X 13/40 = (P5,850,,000)

Building Value P12,150,000

TOTAL VALUE OF THE PROPERTY P29,650,000

 Sample Problem
You are appraising a property consisting of land and building
located along Paco Roman St., Bo Dimasalang, Cabanatuan
City. The land has an area of 400 sqm and improved with a 2
storey commercial building with mezzanine. After through
inspection and investigation, you were able to gather the
following information:

a) Floor Area of the bldg. 960 sqm

b) Estd. RCN of the bldg. 18,000/sqm
c) Estd. Eco. Life of the bldg. 35 yrs.
d) Year Built 1992
e) Value of Land (by market data) P30,000/sqm

The building is being utilized in its highest and best use and
is not suffering from any functional or economic
obsolescence.

Compute for the indicated value of the property.

Sample Problem
 Computation
Land Value:
400 sqm X 30,000/sq.m. = P 12,000,000

Bldg Value:
RCN = 960 sqm X P18,000/sqm = P17,280,000
Less:
Depreciation:
a) Physical Deterioration: P17,280,000 X 21/35 =
P10,368,000

Depreciated Value of the Bldg. = P17,280,000 – P10,368,000 =

P6,912,000

INDICATED VALUE OF THE PROPERTY = P 12,000,000 +

6,912,000
= P18,912,000
 Sample Problem
You are appraising a property consisting of land and building. The land
has an area of 5,000 sqm and improved with a 10 yr old warehouse
building. After through inspection and investigation, you were able to
gather the following information:

a) Floor Area of the bldg. 4,000 sqm

b) Estd. RCN of the bldg. 8,000/sqm
c) Estd. Eco. Life of the bldg. 30 yrs.
d) Value of Land (by market data) P30,000/sqm

The building is suffering from economic obsolescence since the local

government declared the area as commercial and implemented a new
restriction for the building to have a Floor area ratio (FAR) of 12.
Economic obsolescence is estimated at 30%.
Compute for the indicated value of the property.
 Solution
Land Value:
5,000 sqm X 30,000/sqm
P150,000,000

Bldg Value:
RCN =4,000 sqm X P8,000/sqm P32,000,000
Less:
Depreciation:
a) Physical Deterioration: P32,000,000 X 10/30 (10,667,000)
P21,333,000

b) Economic Obsolescence: P21,333,000 X 30% = (P6,400,000)

Depreciated Value of the Bldg. P14,933,000

INDICTED VALUE OF THE PROPERTY = P150,000,000 + 14,933,000

= P164,933,000
 Case Analysis (3)
A property consisting of land and a commercial
building located along Mc Arthur Hi Way, De La Paz
Sur, San Fernando City, Pampanga is under appraisal.
The following data were gathered:
Lot Area: 500 sqm
Building Floor Area: 270 sqm built in 2007
Land Value : P14T/sqm (by Market Data)
Bldg RCN (Estd): P15T/sqm
No functional and economic obsolescence were noted
and Bldg Eco Life is estimated at 35 yrs
Compute for the indicated value of the property.
 Case Analysis (4)
You are appraising a property consisting of land and building in a low
class residential subdivision The land has an area of 120 sqm and
improved with a newly built residential house. After through inspection
and investigation, you were able to gather the following information:

a) Floor Area of the bldg. 450 sqm

b) Estd. RCN of the bldg. P30,000/sqm
c) Estd. Eco. Life of the bldg. 40 yrs.
d) Value of Land (by market data) P1,500/sqm

You noticed during your inspection that most of the houses in the
subdivision are bungalow type with rare two storey houses with an
estimated construction cost of P1M. Compute for the indicated value of
the property if functional obsolescence is estimated at 70% due to
overbuilding.
INCOME APPROACH
 The value of real estate represents the
present worth of all rights to future benefits
which arise as a result of ownership. The
“INCOME APPROACH” to value is a method of
estimating the present value of anticipated
net income benefits that the property will
produce during its remaining economic life.
The method of estimating the present value of
income expectancies through discounting
process is called “CAPITALIZATION”.
The present worth estimate, is the amount
that a prudent investor would be willing to pay
for the right to receive the income stream.
STEPS TO BE
FOLLOWED
1. Obtain the rent schedule (income) and percentage
occupancy of the subject property and for comparable
properties as of date of inspection. If possible, get the
data for the past 3 yrs to know the trend in rentals
and occupancy. If not available, get the income
statement from the client
2. Provide for allowance for vacancy and bad debts.
These are usually expressed in terms of
percentage. This will be deducted form the gross
income (step 1). The result is the effective gross
income.

3. Obtain the operating expenses, broken down as

follows:
Fixed expenses – current real estate taxes for
land and building
Building insurance, maintenance and repairs,
management fees and administrative expenses
basically payrolls and consultancy fees.

4. Deduct the operating expenses from the effective

STEPS TO BE FOLLOWED
2. Provide for allowance for vacancy and bad
debts. These are usually expressed in terms of
percentage. This will be deducted form the
gross income (step 1). The result is the
effective gross income.

3. Obtain the operating expenses, broken down

as follows:
a. Fixed expenses – current real estate taxes for
land and building
b. Building insurance
c. Maintenance and repairs
d. Management fees and administrative expenses
basically payrolls and consultancy fees.

4. Deduct the operating expenses from the

effective gross income (step2) and the result is
net operating income.
STEPS TO BE FOLLOWED
5. Divide the net operating income (step4) by
capitalization rate (expressed in terms of %)
and the result is the Indicated Value of the
property.

BY FORMULA: V=I/R

Where: V - Value
I – Net Operating Income
R – Capitalization Rate
 BASIC CAPITALIZATION
TERMINOLOGY
 VALUE (V) – in real estate appraisal, the amount of
money or worth of the property; the present worth of
future benefits arising out of ownership to typical
investors
 RATE (R) – a fixed relationship between two
quantities, a ratio to one another, usually expressed in
percentage (%). In appraisal this is Capitalization
rate, Overall Rate, Interest Rate.
 INCOME (I) – money or other benefits generally
assumed to be received periodically. The monetary
return, or earnings.
OVERALL RATE
- is the percentage which combines
within itself the interest rate for land and
the capitalization rate for building. In this
case, we do not separate the
capitalization rate for land and building,
but we take them as a whole ‘PROPERTY
RESIDUAL TECHNIQUE”
It is the ratio between the net operating
income (net income before provision for
depreciation) and the value of the
property (Land and Building).

Example:
Value of the property (Land & Bldg)
P40M
Net Income P4Mp.a.
Overall Rate = I / V = 4M / 40M 10%
 RATE SELECTION
 Also, for determining overall capitalization
rate, wherein mortgage requirement of an
investor are taken into account. Rate adapted is
a synthesis of long term mortgage and equity
rates as weighted average.
Illustration:
% of Value Rate Composite Rate
Mortgage

Mortgage 70% 8% 5.6%

Owners Equity 30% 3% 0.9%
Risk Rate 2.0%
OVERALL RATE 8.5%
 INTEREST RATE
 The rate not including depreciation (recapture) which
expresses the relationship between the land or the
building, and to the respective share of the net income
imputable to the land or to the building.
 Sometimes referred to as the pure rate or return on
capital.
 In the valuation of vacant land, since there is no
capital recovery, the application of interest rate is
synonymous to capitalization in perpetuity.
RECAPTURE
RATE
The depreciation rate which is applied
to the improvement(s) to recover the
investment.

Recapture Rate = 100% / Rem. Eco.

Life of Building

Example:
Remaining Eco. Life of Building is
25yr
Recapture Rate = 100% / 25 =
4%
 CAPITALIZATION RATE – is the sum
of interest rate and recapture rate
(for building).
In the valuation of
vacant land, since there is no
capital recovery, the interest rate
is equal to the capitalization rate.

CAPITALIZATION RATE ANALYSIS

The process of discounting income
expectancies (net operating income) to
a present worth is called
“CAPITALIZATION”. The rate of which
income expectancies are discounted are
called ‘CAPITALIZATION RATE”.
CAPITALIZATION RATE
ANALYSIS
Discounting is a method of allowing for
loss of compound interest which money
would normally earn where it not
invested in real estate. Future money is
worth less today than the sum to be
received at once.
In using a proper capitalization rate,
appraisers must be aware of evaluation
factors that investors in the market place
take into account. These are alternative
investments to make capital earn, such
as stock and bond markets and their
yields, also condition in the mortgage
market.
CAPITALIZATION RATE
ANALYSIS
In real estate, this is the percentage
which is the sum of the interest rate and
the recapture rate. It is the return on
capital investment on building apart from
the land.
Example:
Interest Rate 8%
Recapture rate 2.5%
(based on 40 yrs
rem eco life)
Capitalization Rate
10.5%
METHODS OF CAPITALIZATION

 Direct

 Straight Line

 Annuity

 Mortgage Equity Method

 DIRECT CAPITALIZATION
 A rate or multiplier is directly assigned to
income to arrive at an estimate of value.
 The forms of direct capitalization are :
a) Gross Income Multiplier (GIM)
b) Property Residual Using An Overall Rate

Ex.
Selling Price – P30M
Annual Gross Income – P1.5MM
GIM = P30M /P1.5M = 20
 SAMPLE
 How much is the estimated value of a property
with a gross annual income of P10M assuming
a GIM of 30.

Estimated Value = P10M X 30 = P300M.

 STRAIGHT LINE METHOD
 Is also known as straight capitalization with
straight line provision for depreciation.
Under this method, three (3) techniques
maybe utilized such as:
a) property residual
b) building residual
c) land residual
Property Residual Technique – is direct
capitalization.
Building Residual Technique – is used when the
value of the land can be estimated with
reasonable accuracy using the market
comparables
Land Residual Technique – is employed when
the value of the building is known
Every capitalization process, except the direct
capitalization, requires one component of the
property to be valued independently. The
remaining component is the residual, the
income which must be capitalized to arrive at
an estimate of value.
 Sample Problem – Property
Residual
How Much is the indicative value
of the property if its net annual
income is P2,500,000 with an
overall capitalization rate of 10%.
Solution:
Value = Net Annual Income/
Capitalization Rate
Value = P2,500,000 / 10%
Property Indicative Value = P25,000,000
Sample Problems:
1.How much is the indicative value of a
vacant lot with an area of 500 sq.m.
which is under lease and used as
jeepney terminal. After thorough
investigation, you were able to gather
the following information:

a) Monthly rental (gross)

P15,000
b) Bad Debts 5%
c) Real Estate Taxes P4,000 p.a
d) Administrative Expenses P24,000 p.a
e) Interest rate 6%
Computation:

Gross Income Per Year:

15,000 X 12 =
P180,000
Less:
Bad debts 5% P180,000 X .05 = (9,000)

Effective Gross Income

P171,000
Less:
Real Estate Taxes 4,000 }
Administrative Expense 24,000 } (P
28,000)

Net Income P
143,000
VALUE OF THE PROPERTY:

Net Income / Interest Rate

Value = P143,000 / 6% = P2,383,000

VALUE OF THE LAND PER SQM:

= P2,383,000 / 500 sqm = P 4,768/sqm.

Sample Problem – Bldg Residual
 Determine the Indicated Value of a property
consisting of land and building with a net
annual income of P4M . The land has an area
of 2,000 sqm with an estimated value of
P40M. Based on your inspection, the estimated
remaining economic life of the building is 20
yrs. The prevailing interest rate in the market
is at 7%.
 Sample – Building Residual
Assumptions:
Land Value (from market) – P40M
Net Operating Income - P4M
Remaining Eco Life of Bldg – 20 yrs
Interest Rate (from market) – 7%

Determine the indicated value of the property

Solution:

Net Operating Income - P4M

Less: Return on Land – (P2.8M)
(P40M X 7%)
Net Income Attributable to Bldg = P1.2M

Capitalization Rate
Interest Rate - 7%
Recapture Rate (100/20) – 5%
Capitalization Rate = 12%

Building Value = P1.2M / 12% = P10M

Indicated Value of the Property = Land Value + building Value

= P40M + 10M = P50M

 Case Analysis (5)
 Determine the Indicated Value of a property
consisting of land and building with a net
annual income of P5M . The Building has a
depreciated value of P30M with a remaining
economic life of 25 yrs. Capitalization rate is
at 12%.
 Case Analysis
Assumptions:
Building Value – P30M
Net Operating Income - P5M
Remaining Eco Life of Bldg – 25 yrs
Capitalization Rate – 12%

Determine the indicated value of the property

 Case Analysis (6)
A new building with a floor area of 5,000 sqm has just
been constructed at a location where no recent vacant
land sales have occurred. Leasable area is 80%.
Competitive investment earn 10% interest. The
construction cost is P100M. Assuming an eco life of
40 yrs, an economic rent of P600/sqm per mo, and an
annual expense of P5M including provision for
vacancy, what is the indicated value of the property?
a) P223M c) P263M
b) P213M d) P260M
 Case Analysis (7)
 You are appraising a property consisting of land and building. The
land has an area of 1,000 sqm and improved with a 10 yr old, two-
storey commercial building and being rented by a tenant for his
restaurant business. After thorough inspection and investigation,
you were able to gather the following information:

 a) Floor area of building 1,200 sqm

 b) Rentable area of building 950 sqm
 c) Actual area being rented 874 sqm
 d) Prevailing rental P125T/mo.
 e) Real Estate taxes (L&B) P65,000
 f) Repairs and Maintenance P24,000 pa.
 g) Building Insurance P115,000
 h) Administrative Expenses P36,000
 i) Overall Rate 11 %

 Compute for the indicated value of the property.

 Case Analysis (8)
 A property improved with a one yr old 8-storey Hotel
Building is subject of appraisal. Upon inspection and
investigation the ff data were gathered:
 Lot area :550 sqm
 Bldg Floor Area :4,200 sqm
 Gross Annual Income @ 100% occupancy: P35M
 Ave occupancy of hotels in the area: 60%
 Value of Lot: P15T per/sqm (by market data)
 Overall Capitalization rate: 10%
 RCN of the building @ P22,000/sqm
 Estimated Economic Life @ 40 yrs.
 Operating Expenses @ 40% of the Effective Gross Income
 Based on your analysis, the present utilization
represents the highest and best use of the land and no
functional and economic obsolescence were noted.

 Compute for the indicated value of the property

using:
 Cost Approach
 Income Approach
 Final Conclusion of Value by correlating both approaches
giving 60% weight on the Income Approach,
APPLICATION OF INCOME
APPROACH TO VALUE
1.Properties which are income
generating.

2.Properties which has the potential

for income generation.

3.When the values obtained from the

other two approaches to value
(Market Data and Cost Approach)
are not conclusive or insufficient.
DISCOUNTED CASH
FLOW METHOD
INCOME APPROACH
 In a long term lease, the value of a
property can be estimated by getting
the present value of the unexpired
contract rent and adding the
residual value of the property
(reversion) at the end of the lease
term
 LEASE INTERESTS
 One of the divided interests resulting from
separation of the bundle of rights by a lease.

 Leased Fee Estate – the owner or lessor’s rights

and interest (a. the right to collect contract rent b.
the right to reversion at the end of the lease)

 Leasehold Estate – The tenant or lessee’s interests

(a. the right to use and occupy the property b. the
right to develop, alter, sublease, etc
 0WNER / LESSOR

LEASES

GIVING UP (RIGHT TO
USE/RIGHT TO OCCUPY)

TENANT / LESSEE
 PRESENT VALUE COMPUTATION

Compound Interest
n
FV = PV (1+i) where: FV - Future Value (amt/value)
PV – Present Value (amt/value)
i – interest rate (%)
n – time or period (days, mo, yrs)
n
PV = FV / (1+i)
 Annuity

If equal payment are received periodically, we can use

the annuity method

PVF = (1+i)n – 1
(1+i)n I
____________
n
Example (1):
A firm borrows P100,000 for 5 yrs. How much
must it repay in a lump sum at the end of the
5th year if interest rate is pegged @ 10% pa.
Solution:
n 5
FV = PV (1+i) = P100,000 (1+ 10%)
= P161,051
Example (2):
Mr. Juan de la Cruz desires to have P1,000,000
three (3) yrs from now. What amount should
be deposited today to provide for it assuming a
7% interest rate per yr is assured.
Solution:
n 3
PV = FV/ (1+i) = P1,000,000 / (1+ 7%)
= P816,326
 Sample Problem

How much will I invest today to receive an

annual amount of P100,000 for a period of 5
yrs assuming a guaranteed interest rate of 7%.

PV = P100,000 X (1+7%)5-1
(1+7%)5 x 7%
= P410,053
 Sample Problem

You are appraising a gasoline station which has

a 5 years remaining on a 15 year lease term.
Rent is P15,000 per month (net) with an
escalation rate of 5% per year. The lease has
an option to purchase at P1,000,000.00 and
you are reasonably certain that the option will
be taken at the end of the lease. What is the
indicated value of the property assuming an
interest rate of 12%.
 Computation
Indicative Value = PV of Unexpired Lease + Reversion
Value
Annual Cash Flow (yr 1): P15,000 X 12 = P180,000
By Tabulation:
Year Cash Flow PVF Present Value
1 180,000 0.8928 160,704
2 189,000 0.7972 150,671
3 198,450 0.7118 141,257
4 208,372 0.6355 132,420
5 218,790 0.5675 124,163
TOTAL 709,215
Reversion Value of the Property:

Value of the Property at the end of the lease X PV Factor

(at the end of the lease)

Reversion Value = 1,000,000 X 0.5675

Reversion Value = 567,500

INDICATED VALUE OF THE PROPERTY

= PV OF UNEXPIRED LEASE + REVERSION VALUE

INDICATIVE VALUE = 709,215 + 567,500

INDICATIVE VALUE = 1,276,715

 Case Analysis (9)
A commercial building with a leasable area of 7,500sqm was
leased to ABC Corp. for a period of 5 yrs commencing on
May 25, 2013 at a rate of P500/sqm per month with an
escalation rate of 5% pa. The corporation sub-leased the
building to a convenient store at a rate of P600/sqm per mo
with an annual escalation rate of 10%. Its term is co-terminous
to the lease period of the Corp to the original lessor. Assuming
a reversion value of P50M, determine the Leased Fee and
Leasehold Value if interest rate is pegged at 10% per annum.
 DEVELOPMENT
ANALYSIS METHOD
INCOME APPROACH
DEVELOPMENT ANALYSIS
METHOD OF PROPERTY
VALUE

The Development Analysis

Method is used when valuing
rawland for subdivision
purposes.
 If comparable sales and listings under the
Market Data Approach are not available,
scarce or inconclusive, other techniques or
approaches to value may be used, depending
on the type and character of the land being
appraised. In cases where the land under
appraisal has potential for subdivision, its
economic or warranted value may be estimated
by the Hypothetical Development Approach.
 This technique is a reliable guide in estimating
the economic or warranted value of the “raw”
tract if an accurate market determination of the
proposed subdivision is made. In effect, this
approach is a measure of what a prospective
developer would pay for a land suitable for
subdivision development purposes.
 The valuation process briefly stated consists of
the following:
 a) Preparation of a hypothetical subdivision
scheme in accordance with the highest and best use
concept of the land
 b) Establishment of total revenue or proceeds of
sales of the subdivision lots on the basis of what
ready-to-build sites of similar subdivisions are
selling in the vicinity
 c) Determination of the development cost such
as land survey, construction of roadways,
curbs and gutters, sewerage and drainage
system, water and electrical system,
engineering and supervision, and other
contingency items. These are all in
consideration to current prices for construction
materials, labor, contractor’s profit and
overhead expenses.
 d) Estimate the administration and selling
expenses
 e) Estimate the reasonable developer’s profit.
 f) Discounting process over a period of time
based on sound development and sales
program.
 g) Appropriate interest rate in order to arrive at
an indicated “rawland” value.
 THE CONCEPT OF HIGHEST
AND BEST USE
The determination of the HIGHEST AND BEST
USE of a given parcel or site requires careful
study and analysis. HIGHEST AND BEST
USE is defined as “that use which will
ultimately represent the most profitable
utilization of the site. It is the legal continous
use to which the property is adapted and
needed or likely to be needed in the reasonably
near future.
 FACTORS TO BE CONSIDERED WHEN
ANALYZING THE HIGHEST AND BEST USE
OF THE LAND

1. Use must be legal

2. Use must be likely, not speculative
3. Use must be probable
4. Use must be such as to return to the land the
highest net return
 SAMPLE PROBLEM

How much should a prudent residential

subdivision developer would pay for a 5
hectare rawland if development would cost
P800/sqm, selling expenses at 12% of the
gross sales, developers profit at 25% of the
gross sales, miscellaneous expenses at 2%.
 Con’t.

Assume:
1. The property is ripe for a residential subdivision
development.
2. Typical subdivision in the area is selling at P5,000
per sqm. Typical land area at 200 sqm.
3. Subdivision scheme: 70% saleable area
30% roads, open space.
4. Prevailing interest rate at 10% pa. The subdivision
can be developed and sold for 1 year.
 Computation

Gross land area 50,000 sqm

Less: 30% roads, open space ( 15,000 sqm)
Salable Land area 35,000 sqm
Total no of lots for sale: 35,000 sqm
200 sqm per lot
175 lots
 Con’t
Gross Sales: P35,000 sqm @ P5,000/sqm = P175MM
Less:
Development Cost: P50,000 X 800 = P40MM
Admin/Selling Exp: 12% X P175MM = P21MM
Developer’s profit : 25% X P175MM = P44MM
Misc Expenses : 2% X P175MM = P 3.5MM (P108.5MM)
NET SALES P66.5MM
Present Value (Discounting 1 yr @ 10%): P66.5MM X .9090
= P60.45MM
RAW LAND VALUE = P60.45MM / 50,000 sqm =
= P1,209/sqm
PROPERTY VALUE = 50,000 sqm X 1,209/sqm =
= P60,450,000.00
 Sample Problem

A rawland with an area of 108 has located in

Gen Trias, Cavite is subject of appraisal.
Based on your analysis the property is ripe for
a residential subdivision and can be developed
for a period of 5 yrs. How much is the
indicated value of the property assuming the ff
data:
Roads and Open Spaces = 35% of the gross land area
FMV of Saleable Lots = P4,000/sqm
Devt. Cost = P1,000/sqm
Developers Profit = 25% of Gross Sales
Admin and Selling Expenses = 12% of Gross Sales
Misc Expenses = 2% of gross Sales
Interest Rate @ 8%
 Computation
Gross land area = 1,080,000 sqm
Less: Roads /open space (378,000) sqm
Net land area = 702,000 sqm

Gross Income = 702,000 X P4,000/sqm = P2.8B

Less: Devt Cost: P1,000/sqm X 1,080,000sqm: 1.08B
Dev Profit, Admin, Selling, Misc.:
39% X P2.8B 1.09B
2.17B
Net Sales = P2.8B – 2.17B = P0.63B
 Present Value = PVF X P0.63B
PVF = (1+8%)5-1
(1+8%)5 X 8%
_____________
5
= 0.7988

Present Value = Indicated Value of the property = 0.7988 X P0.63B = P503M

Indicated Value of the Property/sqm = P503M/1,080,000sqm = P465/sqm

 Sample Problem - Low Rise Bldg

How much would a prudent investor pay for a

1,500 sqm parcel of commercial lot with a
FAR of 4. He plans to put up a building and
convert into a condominium project. His
assumptions are the ff:
1. Buildable area: 80% of the gross land area

2. Saleable Floor Area = 70% of the building

gross floor area.

 Con’t

3. Selling Price = P100,000/sqm

4. Devt Cost (Land + Bldg) : P20,000/sqm based
on Gross Floor Area of the Bldg.
5. Developers Profit @ 30% of the Gross Sales
6. Marketing and Misc Expenses @ 14% og
Gross Sales
7. Selling period and development = 1 yr
8. Interest Rate = 10% pa
 COMPUTATION
Buildable Land Area = 80% X 1,500 sqm
= 1,200 sqm
Building Gross Floor Area = 1,500 sqm X 4 = 6,000 sqm
Net Saleable Area = 70% X 6,000 sqm = 4,200 sqm
Gross Sales: 4,200 sqm X P100,000/sqm = P420M
Less:
Devt Cost: P20,000/sqm X 6,000 sqm = P120M
Dev Profit: 30% X P420M = P126M
Marketing + Misc Exp: 14% X 420M = P 58.8M (P304.8M

P115.2M
Present Value: 1 yr @ 10 % PVF = 0.909
Present Value = P115,2M x 0.909 = P105M

Indicated Value of the Property = P105M

Land Indicated Value / sqm = P105M / 1,500 sqm = P70,000/sqm

 Sample Problem – High Rise Bldg

How much would a prudent investor pay for a

1,500 sqm parcel of commercial lot with a
FAR of 16. He plans to put up a building and
convert into a condominium project. His
assumptions are the ff:
1. Buildable area: 80% of the gross land area

2. Saleable Floor Area = 70% of the building

gross floor area.

 Con’t

3. Selling Price = P120,000/sqm

4. Devt Cost (Land + Bldg) : P35,000/sqm based
on Gross Floor Area of the Bldg.
5. Developers Profit @ 30% of the Gross Sales
6. Marketing and Misc Expenses @ 14% og
Gross Sales
7. Selling period and development = 2 yrs
8. Interest Rate = 10% pa
 COMPUTATION
Buildable Land Area = 80% X 1,500 sqm
= 1,200 sqm
Building Gross Floor Area = 1,500 sqm X 16 = 24,000 sqm
Net Saleable Area = 70% X 24,000 sqm = 16,800 sqm
Gross Sales: 16,800 sqm X P120,000/sqm = P2.016B
Less:
Devt Cost: P35,000/sqm X P24,000/ sqm = P840M
Dev Profit: 30% X P2.016B = P600M
Marketing + Misc Exp: 14% X 2.016B = P280M (P1.72B

P296M
Present Value: 2 yr @ 10 % PVF = 0.867
Present Value = P296M x 0.867 = P256M

Indicated Value of the Property = P256M

Land Indicated Value / sqm = P256M / 1,500 sqm

= P170,000/sqm
 Case Study(10)

A rawland with an area of 12 hectares is subject for

appraisal. The land is ripe for subdivision
development since it is surrounded by several
residential subdivisions. Data gathered during
inspection are as follows:
a) Typical subdivision in the area is selling at P4,000
per sqm
b) Typical lot size is 250 sqm.
c) Roads and open spaces at 35% of gross land area
 Case study (10) con’t.
Compute for the estimated value of the property using
the following assumptions:
1. Development Cost at P700/sqm
2. Sales and marketing@ 12%
3. Developer’s profit @ 25%
4. Miscellaneous Expenses @ 2%
5. Development and Sales Period: 2 years
6. No incremental cost on land value and development
cost during the 2 year period.
7. Prevailing Interest Rate @ 10% pa
 Case Study (11)

How much would a prudent investor pay for a 25

hectares of rawland ripe for a residential
subdivision. The developer would like to
develop the land into a mix residential and
commercial subdivision in a way that the
entrance shall be developed into a commercial
area while the interior portion will be for
residential development. He plans to sell the
residential portion at P7,000 per sqm while the
commercial portion at P12,000 per sqm.
 Case study (11) con’t…
Other factors he considered are as follows:
a) The subdivision scheme shall be 70% salable area:
30% roads and open spaces.
b) The commercial portion shall comprise 25% of the
salable area and shall be developed and sold in one
year period.
c) The residential portion shall be developed and sold
in years 2, 3 and 4 with 10% escalation in prices per
sqm per year and development cost is estimated to
increase by 5% in year 3, and 10% in year 4.
 Case study (11) con’t…

d) Development Cost would be P1,500 per sqm

for the commercial portion while the
residential portion at P1,200 per sqm based on
net salable area.
e) Developer’s profit will be at 28%
f) Marketing and sales program @ 12%
g) Miscellaneous Expenses at 3%
h) Interest rate throughout the development is
pegged at 10% pa.
 Case Study (12)

A vacant lot with an area of 8,500 sqm is for sale

at an asking price of P144.5MM .Based on
highest and best use analysis, the property can
be best utilized for townhouse unit
development. Typical townhouses in the area
are sold at P45,000 per sqm based on the floor
area of the unit. Would you recommend the
sale, assuming the following information:
 Case Study (12) con’t…
Salable area : 80% of the gross land area
Typical land area of townhouse unit: 100 sqm
Typical floor area of townhouse unit: 180 sqm
Cost of each townhouse unit including land
development: P3.24MM
Developers Profit: 20%
Marketing and Sales Program: 12.5%
Miscellaneous Expenses: 2%
Years of development: 2 yrs.
Interest rate: 10%
 CORRELATING VALUES
When the three approaches IN THE
to value are
APPLICATION OF THREE METHODS
applicable in the appraisal of a property, the
appraisers should come up with a final estimate
of value by correlating the three approaches
used. In this method, we give a weight (%) for
every approach used. The weight will depend on
the prevailing land use in the vicinity and
judgment of the appraiser. Below are the
typical weight that can be assigned to each
approach to value:

Property Use Market data/Cost

Income
Income Generating 30%
70%
Non-Income Generating 70%
30%
Properties with potential
to earn Income 50%
the end