Elect 7 - PRELIM Lesson 1

Appraisal Definition

• Appraisal is an estimate of value as of a given time and for a specific purpose.
• It is a systematic, analytical, determination and recording of property facts, based primarily on a personal inspection and inventory of the property.

Appraisal vs. Assessment

• Real Estate Appraiser: a duly registered and licensed natural person who performs 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 and performs appraisal and assessment of real properties, including plants, equipment, and machineries, essentially for taxation purposes.

Real Estate vs. Real Property

• Real Estate: includes economic forces relating to the nature of basic industry and business activity in the neighborhood.
• Real Property: includes physical forces that refer to the location and age of the neighborhood.

Cost, Price, and Value

• Cost: the actual amount spent to build or put a property into being.
• Price: the actual amount paid in a particular transaction.
• Value: the relationship between a thing desired and a potential purchaser.

Market Value

• Market Value: 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.
• Elements: estimated amount as of a given date, willingness of both parties, substantive knowledge and sound judgment by both parties, and known in the open market.

Economic Principles of Value

• Principle of Anticipation: value is created by the expectation that certain events will occur.
• Principle of Balance: value is achieved and maintained when all elements are in proper proportion.
• Principle of Change: real property uses are always in a state of change.
• Principle of Competition: excess profits tend to attract competition.
• Principle of Conformity: real property will generally be higher in value if it is similar in design, construction, age, and use to other properties in the neighborhood.
• Principle of Contribution: any improvement to property is worth only what it adds to the value of the property.
• Principle of Highest and Best Use: the use of the property that will give the most profit.
• Principle of Increasing and Diminishing Return: relates to the principle of balance and the principle of contribution.
• Principle of Substitution: the worth of a property is influenced by the cost of acquiring a substitute or comparable property.
• Principle of Supply and Demand: the value of the property depends on the number of properties available in the market place.

Multiple Meanings of Value

• Assessed Value: the value of property established for property tax purposes.
• Insurable Value: the cost of total replacement of a property's destructible improvements.
• Loan or Mortgage Value: the value set on a property for the purpose of making a loan.
• Going-Concern Value: the value of business based on operation, or property that will continue to be utilized.
• Plottage Value: the increased value of the large combined parcel, called an assemblage, over and above the sum of the smaller parcels.
• Investment Value: the estimated value of property investment.
• Book Value: the original cost of an asset or property less accrued depreciation.
• Rental Value: the price fixed for the right to use a certain property for a specific period of time.
• Liquidation Value: the value of a property in a situation where a corporation under receivership may sell its assets lower than the market value.

The Appraisal Process

• Definition of the Assignment: identification of the real property, valuation, and rights.
• Preliminary Analysis and Data Selection: collection of competitive supply and demand data, cost, and depreciation.
• Highest and Best Use: the use of the property that will give the most profit.
• Land Value Estimate: application of the three approaches: sales comparison, income, and cost.
• Reconciliation of Value Indications and Final Value Estimate: final estimate of value after reconciliation.

Purposes of Real Estate Appraisal

• Transfer, Valuation, and Allocation of Assets: to help buyers or sellers determine the fairness of the asking price.
• Financing, Development, and Insurance: to determine the value of the security offered for a mortgage loan.
• Taxes and Legal: to assess property for property taxes, determine gift or inheritance taxes, and value property in condemnation proceedings.

Types of Written Appraisal Reports

• Letter Report: the least formal written report, used when the supporting data is not required by the client.
• Form Report: a standardized report preferred by lenders and others handling large volumes of appraisals.
• Narrative Appraisal Report: the most formal and detailed type of report, preferred when the user needs to follow the appraiser's step-by-step analysis.

Real Estate Appraisal

• A real estate appraisal is an estimate of value as of a given time and for a specific purpose.
• It is a systematic, analytical, and impartial process of determining the value of a property.
• The accuracy of an appraisal depends on the integrity and competence of the appraiser.

Definition of Appraisal under R.A. 9646 (RESA)

• The process of developing an estimate of the value of an adequately identified and described property as of a specific date, supported by logical presentation of factual and relevant data.

Real Estate Appraiser vs. Real Estate Assessor

• A real estate appraiser is 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.
• A real estate assessor is a duly registered and licensed natural person who works in a local government unit and performs appraisal and assessment of real properties, including plants, equipment, and machineries, essentially for taxation purposes.

Real Estate vs. Real Property vs. Personal Property

• Real estate refers to the physical land and all improvements attached to it.
• Real property refers to the rights, interests, and benefits related to the ownership of real estate (bundle of rights).
• Personal property refers to tangible, movable items or objects not permanently attached to real estate.

Property Rights

• Surface rights refer to ownership rights in a parcel of real estate that are limited to the surface.
• Subsurface rights refer to the landowner's rights to the water and other substances below the surface of the land.
• Air rights refer to the property interest in the "space" above the earth's surface.

Characteristics of Value

• Demand refers to the need or desire coupled with the purchasing power to fill it.
• Utility refers to the ability of a good or service to fill that need.
• Scarcity refers to the shortage of supply relative to the demand.
• Transferability refers to the good or service must be transferable to have value to anyone other than the person who owns it.

Forces that Affect Real Estate Values

• Social forces refer to population growth, birth control measures, and migration.
• Political forces refer to the efficiency of government in the maintenance of peace and order, and provision of primary services and legislation.
• Economic forces refer to the nature of basic industry and business activity in the neighborhood, including employment, income, and housing.
• Physical forces refer to the location and age of the neighborhood, including the size, area, shape, and topography of the land, as well as the improvements, trends, etc.

Real Property and Personal Property

• Real property refers to the physical land and all improvements attached to the land, including buildings, structures, and other man-made objects.
• Personal property, on the other hand, refers to tangible, movable objects that are not permanently attached to real estate.

Property Rights

• Surface rights refer to ownership rights limited to the surface of the land, excluding air rights and subsurface rights.
• Subsurface rights refer to the landowner's rights to water and other substances beneath the surface of the land.
• Air rights refer to the property interest in the "space" above the earth's surface, including the right to use and develop the space without interference.

Characteristics of Value

• Demand refers to the need or desire coupled with the purchasing power to fulfill that need.
• Utility refers to the ability of a good or service to fulfill a need.
• Scarcity refers to the shortage of supply relative to demand.
• Transferability refers to the ability to transfer ownership of a good or service.

Forces that Affect Real Estate Values

• Social forces relate to population growth, birth control measures, and migration.
• Political forces relate to the efficiency of government in maintaining peace and order, providing primary services, and legislation.
• Economic forces relate to the nature of basic industry and business activities in the neighborhood.
• Physical forces relate to the location, size, area, shape, topography, and improvements of the neighborhood.

Cost vs. Price vs. Value

• Cost refers to the actual amount spent to build or put a property into being.
• Price refers to the actual amount paid in a particular transaction.
• Value refers to the relationship between a thing desired and a potential purchaser.

Marketing Value

• Market value is 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.
• Elements of market value include the estimated amount as of a given date, willingness of both parties, substantive knowledge and sound judgment by both parties, and knowledge in the open market.

Economic Principles of Value

• Principle of Anticipation: value is created by the expectation that certain events will occur.
• Principle of Balance: value is achieved and maintained when all elements are in proper proportion.
• Principle of Change: real property uses are always in a state of change.
• Principle of Competition: excess profits tend to attract competition.
• Principle of Conformity: real property will generally be higher in value if it is similar in design, construction, age, and use to other properties in the neighborhood.
• Principle of Contribution: any improvement to property is worth only what it adds to the value of the property regardless of the cost.
• Principle of Highest and Best Use: the use of the property that will give the most profit, the greatest net income.
• Principle of Increasing and Diminishing Return: as capital units are added, a certain point is reached where the added units do not contribute value commensurate with their costs.
• Principle of Substitution: the worth of a property is influenced by the cost of acquiring a substitute or comparable property.
• Principle of Supply and Demand: the value of the property depends on the number of properties available in the market place.

Multiple Meanings of Value

• Assessed Value: the value of property established for property tax purposes.
• Insurable Value: the cost of total replacement of a property's destructible improvements.
• Loan or Mortgage Value: the value set on a property for the purpose of making a loan.
• Going-Concern Value: the value of a business based on its operation.
• Plottage Value: the increased value of a large combined parcel over and above the sum of the smaller parcels.
• Investment Value: the estimated value of a property investment.
• Book Value: the original cost of an asset or property less accrued depreciation.
• Rental Value: the price fixed for the right to use a certain property for a specific period.
• Liquidation Value: the value of a property sold in a forced sale.

The Appraisal Process

• Definition of the Assignment: identifying the real property to be appraised and the purpose of the appraisal.
• Preliminary Investigation: collecting general and specific data about the subject property and comparable properties.
• Land Value Estimate: estimating the value of the land as though vacant.
• Application of the Three Approaches: applying the sales comparison, income, and cost approaches to estimate the value of the property.

Purposes of Real Estate Appraisal

• Transfer, Valuation, and Allocation of Assets
• Financing, Development, and Insurance
• Taxes and Legal Purposes

Real Estate Appraisal

• A real estate appraisal is an estimate of value as of a given time and for a specific purpose.
• It is a systematic, analytical, and impartial process of determining the value of a property.
• The accuracy of an appraisal depends on the integrity and competence of the appraiser.

Definition of Appraisal under R.A. 9646 (RESA)

• The process of developing an estimate of the value of an adequately identified and described property as of a specific date, supported by logical presentation of factual and relevant data.

Real Estate Appraiser vs. Real Estate Assessor

• A real estate appraiser is 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.
• A real estate assessor is a duly registered and licensed natural person who works in a local government unit and performs appraisal and assessment of real properties, including plants, equipment, and machineries, essentially for taxation purposes.

Real Estate vs. Real Property vs. Personal Property

• Real estate refers to the physical land and all improvements attached to it.
• Real property refers to the rights, interests, and benefits related to the ownership of real estate (bundle of rights).
• Personal property refers to tangible, movable items or objects not permanently attached to real estate.

Property Rights

• Surface rights refer to ownership rights in a parcel of real estate that are limited to the surface.
• Subsurface rights refer to the landowner's rights to the water and other substances below the surface of the land.
• Air rights refer to the property interest in the "space" above the earth's surface.

Characteristics of Value

• Demand refers to the need or desire coupled with the purchasing power to fill it.
• Utility refers to the ability of a good or service to fill that need.
• Scarcity refers to the shortage of supply relative to the demand.
• Transferability refers to the good or service must be transferable to have value to anyone other than the person who owns it.

Forces that Affect Real Estate Values

• Social forces refer to population growth, birth control measures, and migration.
• Political forces refer to the efficiency of government in the maintenance of peace and order, and provision of primary services and legislation.
• Economic forces refer to the nature of basic industry and business activity in the neighborhood, including employment, income, and housing.
• Physical forces refer to the location and age of the neighborhood, including the size, area, shape, and topography of the land, as well as the improvements, trends, etc.