130 Questions
What is an appraisal in the context of real estate?
An estimate or opinion of value concerning real estate or other property
What is the main difference between an appraiser and an assessor?
An appraiser is a private professional, while an assessor is a government official
What is included in the definition of 'real estate'?
Land and all those items attached to the land
What is a 'real estate development project'?
A project to develop land for residential, commercial, industrial, or recreational purposes
Who is a 'real estate developer'?
A natural or juridical person engaged in developing real estate development projects
What is 'real property'?
The rights, interests, and benefits related to the ownership of real estate
What is the purpose of an appraisal?
To estimate or opinion of value concerning real estate or other property
What is important to note about appraisal?
It is not a guess, but rather a thorough observation, investigation, and analysis
What is the primary role of an Estate Consultant?
To offer professional advice on the acquisition of lands
What is the primary purpose of property appraisal for banks/financial institutions?
To establish a fair market value for collateral
What is the role of a Real Estate Appraiser?
To estimate and arrive at an opinion of real estate values
Who works in a local government unit to perform appraisal and assessment of real properties?
Real Estate Assessor
What is the role of a Real Estate Broker?
To act as an agent in a real estate transaction
What is the role of a Real Estate Salesperson?
To act on behalf of a duly licensed real estate broker
Who provides professional advice on the acquisition, enhancement, preservation, utilization, or disposition of lands or improvements?
Estate Consultant
What is the common requirement for Real Estate Service Practitioners?
Must be duly registered and licensed
What is the primary purpose of ensuring a satisfactory return to the bank in the event of foreclosure and sale of an acquired asset?
To protect the bank's interest
What is the term used to describe the amount asked, offered, or paid for a good or service?
Price
What is the total cost of a property inclusive of?
All direct and indirect costs of production
What is value in the context of a property?
A hypothetical price based on a valuation basis
What are price and cost considered as in relation to value?
Indicators of value
What is fair market value?
The highest price a property will bring in the open market
Under what circumstances are sellers pressured to sell?
When they are under abnormal pressure
What is one of the factors that create value in a property?
Desirability
What is a key factor that must be present in an object for it to arouse desire in an individual?
Limited supply
Which of the following forces that create value is related to factors emerging from man's social instincts and yearning?
Social
What is the formula used to calculate the present worth of future benefits or income in the principle of anticipation?
V = I/R
According to the principle of change, what happens to the value of a property over time?
It is influenced by constant changes in the environment
What is an example of a physical force that creates value?
Climate and topography
What is the name of the principle that states that the value of a property is set by the present worth of future benefits or income?
Principle of anticipation
What is an example of an economic force that creates value?
Availability of money and credit
What is the result of the rapid transition from residential to commercial land use in an area?
The value of the property increases
What is the primary driver of competition in real estate?
Profit
What is the result of excessive competition in the real estate market?
Dissipation of profit
What is the primary goal of a real estate owner according to the Highest and Best Use principle?
To reap the greatest possible net returns from the property
What is the key to maximizing the value of a property according to the Conformity principle?
A reasonable degree of sociological, architectural, and economic homogeneity
What is the primary consideration for justifying the expenditure of converting a basement into an apartment?
The amount of net returns on investment
What is the relationship between the land and the building according to the Contribution principle?
They are a single economic enterprise
What is the result of improving a property with a modern elevator according to the Contribution principle?
An increase in property value
What is the driving force behind the Highest and Best Use principle?
The desire to reap the greatest possible net returns from the property
APPRAISAL or VALUATION – an estimate or opinion of value concerning real estate or other ______.
property
The REAL ESTATE SERVICE ACT (RESA) of ______ defines the terms 'Appraiser' and 'Assessor'.
2009
An ______ refers to a person who conducts valuation/ appraisal of real property.
Appraiser
Real estate development projects include, but are not limited to, ______ resorts.
tourist
A real estate developer is a natural or juridical person engaged in the business of developing ______ development projects.
real estate
Real property includes ______ interests and benefits related to the ownership of real estate.
rights
Appraisal is not a ______, but is determined through thorough observation, investigation, and analysis.
guess
The value of a property today may not be the same ______.
tomorrow
The primary purpose of ensuring a satisfactory return to the __________ in the event of foreclosure and sale of an acquired asset.
bank
The term used to describe the amount asked, offered, or paid for a good or service is __________.
price
The total cost of a property includes all direct and indirect costs of its __________.
production
Value is a relationship between a thing desired and a potential __________.
purchaser
Fair market value is the highest price in terms of money which a property will bring if exposed for sale in the open market, allowing reasonable time to find a __________.
purchaser
Desirability to be effective must be supported by __________ power.
purchasing
A thing must be __________ to have value.
useful
Sellers are pressured to sell under circumstances such as __________.
abnormal pressure
An object must have limited ______ in order to arouse desire in an individual.
supply
The four forces that create value are social, economic, political, and ______.
physical
The value of a property is influenced by the constant ______ occurring in the environment.
changes
Value tends to be set by the present worth of the future ______ or income that may be derived from the ownership of the property.
benefits
The formula used to calculate the present worth of future benefits or income is V = I/______.
R
The primary driver of the value of a property is the ______ of the future benefits or income that may be derived from the ownership of the property.
anticipation
The value of a property is set by the present worth of the future ______ or income that may be derived from the ownership of the property according to the principle of ______.
benefits, anticipation
The value of a property is influenced by the ______ changes occurring in the environment according to the principle of ______.
constant, change
A ______ Consultant is a duly registered and licensed natural person who, for a professional fee, compensation or other valuable consideration, offers or renders professional advice and judgment on acquisition, enhancement, preservation, utilization, or disposition of lands or improvements.
Real Estate
A ______ Appraiser is 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.
Real Estate
A ______ Assessor is a duly registered and licensed natural person who works in a local government unit, who performs appraisal and assessment of real properties, including plants, equipment, and machinery essentially for taxation purposes.
Real Estate
The primary purpose of property appraisal for ______ is to establish a fair market value for the collateral offered in order to arrive at a sound credit decision.
banks/financial institutions
A ______ Broker is a duly registered and licensed natural person who, for a professional fee, commission or other valuable consideration, acts as an agent in a party in real estate transaction to offer, advertise, solicit, list, promote, mediate, negotiate or effect the meeting of the minds on the sale, purchase, exchange, mortgage.
Real Estate
A ______ Salesperson is a duly registered and licensed natural person who performs service for and in behalf of a duly licensed real estate broker for or expectation of a share in commission, professional fee, compensation or other valuable consideration.
Real Estate
The primary objective of property appraisal is to establish a ______ MARKET VALUE for the collateral offered in order to arrive at a sound credit decision.
FAIR
Real Estate Service Practitioners such as Estate Consultants, Estate Appraisers, Real Estate Assessors, Estate Brokers, and Real Estate Salespersons are all duly registered and ______.
licensed
The principle states that no prudent buyer will pay more than what it will cost him to buy or build an equally desirable ______ property.
substitute
Mr.Roxas decided to put up a boutique selling local and imported clothes; shoes and other accessories along the ______ side of Nicanor Reyes St.
southeast
There is an oversupply of office buildings in Makati, like in ______ and Legaspi Villages.
Salcedo
Changes in the proportionate relationship between ______ and demand tend to affect the price obtainable in the market.
supply
Demand of for a commodity is created by its ______ ad the scarcity of supply.
usefulness
To compete in the market, owners have no option but to offer their buildings/condominiums for rent or for sale at the lower side of the ______ prevailing in the area.
price
Velez St. in Cagayan de Oro City is a commercial strip forming part of the city's ______ district.
business
The principle involves the interplay of economic forces affecting ______ value.
market
An appraiser is an official in the local government unit who performs appraisal and assessment of real properties.
False
Real estate includes only the land and not the items attached to it.
False
A real estate developer is a person who buys and sells real estate properties.
False
Real property includes only the physical land and not the rights and interests related to it.
False
A Real Estate Service Practitioner can be a duly registered and licensed natural person who works in a local government unit.
True
Appraisal is a guess or an estimate of value without thorough observation and investigation.
False
Estate Consultants are responsible for estimating and arriving at an opinion of real estate values.
False
The value of a property remains the same over time.
False
A Real Estate Broker is responsible for performing appraisal and assessment of real properties.
False
A real estate development project includes only residential projects.
False
The primary purpose of property appraisal for banks/financial institutions is to establish a fair market value for the collateral offered.
True
The primary purpose of appraisal is to determine the price of a property.
False
A Real Estate Salesperson is responsible for performing services for and in behalf of a duly licensed real estate broker.
True
Real Estate Service Practitioners are not required to be registered and licensed.
False
Estate Appraisers are the same as Real Estate Assessors.
False
The primary purpose of property appraisal is to establish a fair market value for the collateral offered.
True
The scarcity principle states that an object must have an unlimited supply to arouse desire in an individual.
False
The social force that creates value is related to factors emerging from man's economic instincts.
False
The principle of anticipation states that the value of a property is set by the present worth of past benefits or income.
False
The purpose of appraisal is to ensure a satisfactory return to the bank in the event of foreclosure and sale of an acquired asset.
True
The principle of change states that the value of a property remains constant over time.
False
Climate and topography are examples of economic forces that create value.
False
Value is the actual amount spent to build or put a property into being.
False
Fair market value is the highest price that a seller would sell and a buyer would buy under abnormal pressure.
False
The formula used to calculate the present worth of future benefits or income in the principle of anticipation is V = I/R.
True
The rapid transition from residential to commercial land use in an area results in a decrease in property value.
False
Desirability is a physical force that creates value in a property.
False
The appraisal or valuation of a property is not an estimate or opinion of value concerning real estate or other properties.
False
The total cost of a property includes all direct and indirect costs of its production.
True
Price is a hypothetical figure and is not an indicator of value.
False
Cost is an economic concept referring to the price most likely to be concluded by buyers and sellers.
False
Utility is a factor that creates value in a property by making it useless.
False
Excessive competition can lead to higher profits in the real estate market.
False
Conformity is achieved when a property stands out from its surroundings.
False
The value of land is dependent on the amount of net returns on investment on the building.
True
The highest and best use of a property is always its current use.
False
Improving a property with a modern elevator will always increase its value.
True
The principle of competition is driven by the desire to maximize profits.
True
Conformity is not a key factor in determining the value of a property.
False
The highest and best use of a property is determined by the owner's personal preferences.
False
Match the following appraisal principles with their definitions:
Substitution = The principle states that no prudent buyer will pay more than what it will cost him to buy or build an equally desirable substitute property. Supply and Demand = The principle involves the interplay of economic forces affecting market value. Conformity = The principle states that the value of a property is influenced by its conformity to the surrounding area. Anticipation = The principle states that the value of a property is set by the present worth of future benefits or income.
Match the following appraisal principles with their examples:
Substitution = Mr. Roxas decided to put up a boutique selling local and imported clothes along the southeast side of Nicanor Reyes St. Supply and Demand = There is an oversupply of office buildings in Makati, like in Salcedo and Legaspi Villages. Highest and Best Use = Velez St. in Cagayan de Oro City is a commercial strip forming part of the city's business district. Contribution = Improving a property with a modern elevator
Match the following terms with their definitions:
Real Property = Includes land and interests and benefits related to the ownership of real estate. Appraisal = An estimate or opinion of value concerning real estate or other assets. Real Estate Developer = A natural or juridical person engaged in the business of developing real estate development projects. Price = The amount asked, offered, or paid for a good or service.
Match the following appraisal principles with their factors:
Anticipation = Factors emerging from man's social instincts and yearning Supply and Demand = Scarcity and desire Highest and Best Use = The present worth of future benefits or income Contribution = The interplay of economic forces affecting market value
Match the following appraisal principles with their effects:
Supply and Demand = Changes in the proportionate relationship between supply and demand tend to affect the price obtainable in the market. Substitution = The one with the lowest price attracts the greater demand and the widest distribution. Conformity = The value of a property is influenced by its conformity to the surrounding area. Anticipation = The value of a property is set by the present worth of future benefits or income.
Match the following appraisal principles with their goals:
Highest and Best Use = To maximize the value of a property Conformity = To ensure that a property conforms to the surrounding area Anticipation = To estimate the present worth of future benefits or income Substitution = To determine the value of a property based on its substitute properties
Match the following appraisal principles with their characteristics:
Substitution = Several properties or services with substantially the same utility are available Supply and Demand = Changes in the proportionate relationship between supply and demand Conformity = The surrounding area influences the value of a property Anticipation = The present worth of future benefits or income is considered
Match the following appraisal principles with their applications:
Highest and Best Use = Determining the primary use of a property Conformity = Evaluating the influence of the surrounding area on a property's value Anticipation = Estimating the present worth of future benefits or income Substitution = Determining the value of a property based on its substitute properties
Match the following appraisal principles with their relationships:
Contribution = The relationship between the land and the building Substitution = The relationship between the price and the value of a property Supply and Demand = The relationship between the buyer and the seller Anticipation = The relationship between the present and the future benefits
Match the following appraisal principles with their implications:
Supply and Demand = The value of a property may increase or decrease due to changes in supply and demand Substitution = The value of a property is influenced by the availability of substitute properties Conformity = The value of a property is influenced by its conformity to the surrounding area Anticipation = The value of a property is set by the present worth of future benefits or income
Study Notes
Introduction to Property Appraisal
- Appraisal or valuation is an estimate or opinion of value concerning real estate or other property.
- It is an estimate of the monetary value of a property or an estimate of the value of an adequately identified and described property as of a specified date, supported by a logical presentation of relevant data.
Important Notes on Appraisal
- Appraisal is not a guess; value is determined only after thorough observation, investigation, and analysis.
- The appraisal is usually presented in written form with a complete description to avoid confusion with other assets.
- The value of a property today may not be the same tomorrow.
Definitions of Terms
Real Estate Service Act (RESA) of 2009 - RA 9646
- An "Appraiser" or "Valuer" is a person who conducts valuation/appraisal, possessing the necessary qualifications, license, ability, and experience to execute or direct valuation of real property.
- An "Assessor" is an official in the local government unit who performs appraisal and assessment of real properties.
Real Estate
- Refers to land and all items attached to the land, including physical, tangible entities, with all additions or improvements on, above, or below the ground.
- Includes rights, interests, and benefits related to the ownership of real estate.
Real Estate Development Project
- Means development of land for residential, commercial, industrial, agricultural, institutional, or recreational purposes or any combination of these, including tourist resorts, reclamation projects, building or housing projects.
Real Estate Developer
- Refers to any natural or juridical person engaged in the business of developing real estate development projects for their own account and offering them for sale or lease.
Real Estate Service Practitioners
- Includes:
- Estate Consultant: a duly registered and licensed natural person who offers professional advice and judgment on the acquisition, enhancement, preservation, utilization, or disposition of lands or improvements thereon.
- Estate Appraiser: a duly registered and licensed natural person who performs or renders services in estimating and arriving at an opinion of or acts as an expert on real estate values.
- Real Estate Assessor: a duly registered and licensed natural person who works in a local government unit, performing appraisal and assessment of real properties, including plants, equipment, and machinery, primarily for taxation purposes.
- Estate Broker: a duly registered and licensed natural person who acts as an agent in a real estate transaction to offer, advertise, solicit, list, promote, mediate, negotiate, or effect the meeting of minds on the sale, purchase, exchange, mortgage, or lease of real estate.
- Real Estate Salesperson: a duly registered and licensed natural person who performs services for and in behalf of a duly licensed real estate broker for or in expectation of a share in the commission, professional fee, compensation, or other valuable consideration.
Objectives of Appraisal
- Primary purpose for banks/financial institutions:
- To establish a fair market value for the collateral offered to arrive at a sound credit decision.
- To ensure a satisfactory return to the bank in the event of foreclosure and sale of acquired assets.
- Other purposes:
- Sale and disposition
- Taxation
- Condemnation proceedings
- Basis for insurance
- Accounting and property records
Price, Cost, and Value
- Price: the actual amount paid in a particular transaction or the term used for the amount asked, offered, or paid for a good or service.
- Cost: the actual amount spent to build or put a property into being, including all direct and indirect costs of its production.
- Value: a relationship between a thing desired and a potential purchaser, referring to the price most likely to be concluded by buyers and sellers.
Fair Market Value
- The highest price in terms of money that a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with knowledge of all the uses to which it is adapted or capable of being used.
- A price that a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure.
Factors That Create Value (DUST)
- Desirability: a property must arouse the desire of potential buyers, supported by purchasing power.
- Utility: a thing must be useful to have value.
- Scarcity: an object must have a limited supply to arouse desire in an individual.
- Transferability: the ability to transfer ownership easily and quickly.
Forces That Affect Value (SEEP)
- Social: factors emerging from man's social instincts and yearning, such as population growth and decline, changes in family size, and social trends.
- Economic: factors that have a direct or indirect effect on purchasing power, such as availability of money and credit, price level, interest rates, and tax burdens.
- Political: government regulations, rent controls, building codes, police and fire regulations.
- Physical: forces created by man or nature, such as climate and topography, mineral resources, flood control, and community factors like transportation, schools, parks, and amenities.
Valuation Principles
- Anticipation: value tends to be set by the present worth of the future benefits or income that may be derived from the ownership of the property.
- Change: value of property is influenced by constant changes occurring in the environment; value today may not be the same tomorrow.
- Competition: profit creates competition, and excessive competition dissipates profit.
- Conformity: maximum value of a property is realized when it conforms to the standards governing the area where it is located.
- Contribution: the principle states that the land and building is a single economic enterprise; therefore, the value of land is dependent on the amount of net returns on investment on the building.
- Highest and Best Use (HABU): the principle states that the most profitable use of the property will yield the highest land value.
Introduction to Property Appraisal
- Appraisal or valuation is an estimate or opinion of value concerning real estate or other property.
- It is an estimate of the monetary value of a property.
- The process involves developing an estimate of value of an adequately identified and described property as of a specified date, supported by a logical presentation of data.
Important Notes on Appraisal
- Appraisal is not a guess; value is determined only after thorough observation, investigation, and analysis.
- Appraisal is usually presented in written form with a complete description to avoid confusion with other assets.
- The value of property today may not be the same tomorrow.
Definition of Terms
- Appraiser (also known as Valuer) refers to a person who conducts valuation/appraisal, possessing the necessary qualifications, license, ability, and experience to execute or direct valuation of real property.
- Assessor refers to an official in the local government unit, who performs appraisal and assessment of real properties, including plants, equipment, and machinery.
- Real Estate refers to land and all those items attached to the land, including physical, tangible entities, and improvements on, above, or below the ground.
- Real Estate Development Project refers to the development of land for residential, commercial, industrial, agricultural, institutional, or recreational purposes, including tourist resorts, reclamation projects, building or housing projects.
- Real Estate Developer refers to any natural or juridical person engaged in the business of developing real estate development projects for their own account and offering them for sale or lease.
- Real Property includes rights, interests, and benefits related to the ownership of real estate.
- Real Estate Service Practitioners include:
- Estate Consultant: a duly registered and licensed natural person who offers professional advice and judgment on the acquisition, enhancement, preservation, utilization, or disposition of lands or improvements.
- Estate Appraiser: a duly registered and licensed natural person who performs or renders services in estimating and arriving at an opinion of real estate values.
- Real Estate Assessor: a duly registered and licensed natural person who works in a local government unit, performing appraisal and assessment of real properties, including plants, equipment, and machinery, essentially for taxation purposes.
- Estate Broker: a duly registered and licensed natural person who acts as an agent in a real estate transaction, offering, advertising, soliciting, listing, promoting, mediating, or negotiating the sale, purchase, exchange, mortgage, or lease of real estate.
- Real Estate Salesperson: a duly registered and licensed natural person who performs services for and in behalf of a duly licensed real estate broker, for or in expectation of a share in commission, professional fee, compensation, or other valuable consideration.
Objectives of Appraisal
- Primary purpose for banks/financial institutions:
- Establish a fair market value for the collateral offered in order to arrive at a sound credit decision.
- Ensure a satisfactory return to the bank in the event of foreclosure and sale of acquired assets.
- Other purposes:
- Sale and disposition
- Taxation
- Condemnation proceedings
- Basis for insurance
- Accounting and property records
Price, Cost, and Value
- Price: the actual amount paid in a particular transaction; the amount asked, offered, or paid for a good or service.
- Cost: the actual amount spent to build or put a property into being; the total cost of the property includes all direct and indirect costs of its production.
- Value: a relationship between a thing desired and a potential purchaser; an economic concept referring to the price most likely to be concluded by buyers and sellers; a hypothetical price and the hypothesis on which the value is estimated, determined by the valuation basis adopted.
Fair Market Value
- The highest price in terms of money that a property will bring if exposed for sale in the open market, allowing reasonable time to find a purchaser who buys with knowledge of all the uses to which it is adapted or capable of being used.
- A price that a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure.
Factors that Create Value (DUST)
- Desirability: a property must arouse the desire of a potential buyer; desirability must be supported by purchasing power.
- Utility: a thing must be useful to have value.
- Scarcity: an object must have limited supply in order to arouse desire in an individual.
- Transferability: the ability to transfer ownership or possession of a property.
Forces that Affect Value (SEEP)
- Social: factors emerging from man's social instincts and yearning, such as population growth and decline, changes in family size, and community factors.
- Economic: factors which have direct or indirect effects on power, such as availability of money and credit, price level, interest rates, and tax burdens.
- Political: government regulations, such as rent controls, building codes, police and fire regulations.
- Physical: forces created by man or nature, such as climate and topography, mineral resources, flood control, and community factors.
Valuation Principles
- Anticipation: value tends to be set by the present worth of the future benefits or income that may be derived from the ownership of the property.
- Change: value of property is influenced by the constant changes occurring in the environment; value of today may not be the same tomorrow.
- Substitution: the principle states that no prudent buyer will pay more than what it will cost him to buy or build an equally desirable substitute property.
- Supply and Demand: the principle involves the interplay of economic forces affecting market value; changes in the proportionate relationship between supply and demand tend to affect the price obtainable in the market.
Introduction to Property Appraisal
- Appraisal or valuation is an estimate or opinion of value concerning real estate or other property.
- It is an estimate of the monetary value of a property or an estimate of the value of an adequately identified and described property as of a specified date, supported by a logical presentation of relevant data.
Important Notes on Appraisal
- Appraisal is not a guess; value is determined only after thorough observation, investigation, and analysis.
- The appraisal is usually presented in written form with a complete description to avoid confusion with other assets.
- The value of a property today may not be the same tomorrow.
Definitions of Terms
Real Estate Service Act (RESA) of 2009 - RA 9646
- An "Appraiser" or "Valuer" is a person who conducts valuation/appraisal, possessing the necessary qualifications, license, ability, and experience to execute or direct valuation of real property.
- An "Assessor" is an official in the local government unit who performs appraisal and assessment of real properties.
Real Estate
- Refers to land and all items attached to the land, including physical, tangible entities, with all additions or improvements on, above, or below the ground.
- Includes rights, interests, and benefits related to the ownership of real estate.
Real Estate Development Project
- Means development of land for residential, commercial, industrial, agricultural, institutional, or recreational purposes or any combination of these, including tourist resorts, reclamation projects, building or housing projects.
Real Estate Developer
- Refers to any natural or juridical person engaged in the business of developing real estate development projects for their own account and offering them for sale or lease.
Real Estate Service Practitioners
- Includes:
- Estate Consultant: a duly registered and licensed natural person who offers professional advice and judgment on the acquisition, enhancement, preservation, utilization, or disposition of lands or improvements thereon.
- Estate Appraiser: a duly registered and licensed natural person who performs or renders services in estimating and arriving at an opinion of or acts as an expert on real estate values.
- Real Estate Assessor: a duly registered and licensed natural person who works in a local government unit, performing appraisal and assessment of real properties, including plants, equipment, and machinery, primarily for taxation purposes.
- Estate Broker: a duly registered and licensed natural person who acts as an agent in a real estate transaction to offer, advertise, solicit, list, promote, mediate, negotiate, or effect the meeting of minds on the sale, purchase, exchange, mortgage, or lease of real estate.
- Real Estate Salesperson: a duly registered and licensed natural person who performs services for and in behalf of a duly licensed real estate broker for or in expectation of a share in the commission, professional fee, compensation, or other valuable consideration.
Objectives of Appraisal
- Primary purpose for banks/financial institutions:
- To establish a fair market value for the collateral offered to arrive at a sound credit decision.
- To ensure a satisfactory return to the bank in the event of foreclosure and sale of acquired assets.
- Other purposes:
- Sale and disposition
- Taxation
- Condemnation proceedings
- Basis for insurance
- Accounting and property records
Price, Cost, and Value
- Price: the actual amount paid in a particular transaction or the term used for the amount asked, offered, or paid for a good or service.
- Cost: the actual amount spent to build or put a property into being, including all direct and indirect costs of its production.
- Value: a relationship between a thing desired and a potential purchaser, referring to the price most likely to be concluded by buyers and sellers.
Fair Market Value
- The highest price in terms of money that a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with knowledge of all the uses to which it is adapted or capable of being used.
- A price that a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure.
Factors That Create Value (DUST)
- Desirability: a property must arouse the desire of potential buyers, supported by purchasing power.
- Utility: a thing must be useful to have value.
- Scarcity: an object must have a limited supply to arouse desire in an individual.
- Transferability: the ability to transfer ownership easily and quickly.
Forces That Affect Value (SEEP)
- Social: factors emerging from man's social instincts and yearning, such as population growth and decline, changes in family size, and social trends.
- Economic: factors that have a direct or indirect effect on purchasing power, such as availability of money and credit, price level, interest rates, and tax burdens.
- Political: government regulations, rent controls, building codes, police and fire regulations.
- Physical: forces created by man or nature, such as climate and topography, mineral resources, flood control, and community factors like transportation, schools, parks, and amenities.
Valuation Principles
- Anticipation: value tends to be set by the present worth of the future benefits or income that may be derived from the ownership of the property.
- Change: value of property is influenced by constant changes occurring in the environment; value today may not be the same tomorrow.
- Competition: profit creates competition, and excessive competition dissipates profit.
- Conformity: maximum value of a property is realized when it conforms to the standards governing the area where it is located.
- Contribution: the principle states that the land and building is a single economic enterprise; therefore, the value of land is dependent on the amount of net returns on investment on the building.
- Highest and Best Use (HABU): the principle states that the most profitable use of the property will yield the highest land value.
Introduction to Property Appraisal
- Appraisal or valuation: an estimate or opinion of value concerning real estate or other property, which involves developing an estimate of value of an adequately identified and described property as of a specified date, supported by logical presentation of relevant data.
- Important notes on appraisal: it is not a guess, value is determined only after thorough observation, investigation, and analysis; usually presented in written form; and value of property today may not be the same tomorrow.
Definition of Terms
- Appraiser/Valuer: a person who conducts valuation/appraisal; specifically one who possesses the necessary qualifications, license, ability, and experience to execute or direct valuation of real property.
- Assessor: an official in the local government unit who performs appraisal and assessment of real properties, including plants, equipment, and machinery.
- Real Estate: land and all those items which are attached to the land; physical, tangible entity, together with all the additions or improvements on, above or below the ground.
- Real Estate Development Project: development of land for residential, commercial, industrial, agricultural, institutional, or recreational purposes or any combination of such, including but not limited to tourist resorts, reclamation projects, building or housing projects.
- Real Estate Developer: any natural or juridical person engaged in the business of developing real estate development projects for their own account and offering them for sale or lease.
- Real Property: includes rights, interests, and benefits related to the ownership of real estate.
- Real Estate Service Practitioners:
- Estate Consultant: a duly registered and licensed natural person who, for a professional fee, compensation, or other valuable consideration, offers or renders professional advice and judgment on acquisition, enhancement, preservation, utilization, or disposition of lands or improvements thereon.
- Estate Appraiser: a duly registered and licensed natural person who, for a professional fee, compensation, or other valuable consideration, performs or renders services in estimating and arriving at an opinion of or acts as an expert on real estate values.
- Real Estate Assessor: a duly registered and licensed natural person who works in a local government unit, who performs appraisal and assessment of real properties, including plants, equipment, and machinery, essentially for taxation purposes.
- Estate Broker: a duly registered and licensed natural person who, for a professional fee, commission, or other valuable consideration, acts as an agent in a party in real estate transaction to offer, advertise, solicit, list, promote, mediate, negotiate, or effect the meeting of the minds on the sale, purchase, exchange, mortgage, or lease of real estate.
- Real Estate Salesperson: a duly registered and licensed natural person who performs services for and in behalf of a duly licensed real estate broker for or expectation of a share in commission, professional fee, compensation, or other valuable consideration.
Objectives of Appraisal
- Primary purpose of property appraisal for banks/financial institutions: to establish a fair market value for the collateral offered in order to arrive at a sound credit decision.
Forces that Affect Value
- Social: factors emerging from man’s social instincts and yearning, such as population growth and decline, changes in family size.
- Economic: factors which have a direct or indirect effect on power, such as availability of money and credit, price level, interest rates, and tax burdens.
- Political: government regulations, rent controls, building codes, and police and fire regulations.
- Physical: forces created by man or nature, such as climate and topography, natural resources, flood control, and community factors like transportation, schools, and parks.
Valuation Principles
- Anticipation: value tends to be set by the present worth of the future benefits or income that may be derived from the ownership of the property.
- Change: value of property is influenced by the constant changes occurring in the environment; value of today may not be the same tomorrow.
- Competition: profit creates competition; excessive competition dissipates profit.
- Conformity: maximum value of a property is realized when a reasonable degree of sociological, architectural, and economic homogeneity is present.
- Contribution: the land and building is a single economic enterprise; therefore, the value of land is dependent on the amount of net returns on investment on the building.
- Highest and Best Use (HABU): the most profitable use of the property will yield the highest land value.
- Substitution: no prudent buyer will pay more than what it will cost him to buy or build an equally desirable substitute property.
- Supply and Demand: the principle involves the interplay of economic forces affecting market value; changes in the proportionate relationship between supply and demand tend to affect the price obtainable in the market.
Learn the fundamentals of property appraisal, including the definition of appraisal and the process of determining a property's value. Explore the importance of thorough analysis and logical presentation in real estate appraisal.
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