PROFCOR7&10.PRELIM.WEEK1.pptx

R E A L E S TAT E A P P R A I S A L APPRAISAL  Is an estimate of value as of a given time and for a specific purpose.  It is the process of valuation, in a more technical usage, a systematic, analytical, determination and recording of property facts, based primarily on a personal inspe...

R E A L E S TAT E A P P R A I S A L APPRAISAL  Is an estimate of value as of a given time and for a specific purpose.  It is the process of valuation, in a more technical usage, a systematic, analytical, determination and recording of property facts, based primarily on a personal inspection and inventory of the property. Being an estimate, it may or may not be accurate, its accuracy depends on: 1. The Integrity; and 2. The Competence of the Appraiser.  Definition under R.A. 9646 (RESA): is 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 primarily based on NOTE: Appraisal does not create value but observes and interprets forces which create value. It includes: Research Data Reasoning Analysis Conclusions necessary to arrive at a value estimate. REAL ESTATE APPRAISER VS. REAL ESTATE ASSESSOR  Real Estate Appraiser Real Estate Assessor - a duly registered and - a duly registered and licensed natural person licensed natural person who, for a professional who works in a local fee, compensation or government unit and other valuable performs appraisal and consideration, performs or assessment of real renders, or offers to properties, including perform services in plants, equipment, and estimating and arriving at machineries, essentially an opinion of or acts as an for taxation purposes. expert on real estate values, such services of which shall be finally  REAL ESTATE VS. REAL PROPERTY VS. PERSONAL PROPERTY  Real Estate Real Property Personal Property Is the physical land and all Refers to the rights, improvements which interests and Tangible, movable are attached to the benefits related to items or objects land. It is the the ownership of not permanently physical, tangible real estate (Bundle attached to real entity which can be of Rights) estate. seen and touched together with all the additions or improvements thereon.  PROPERTY RIGHTS 1. Surface Rights- refer to those ownership rights in a parcel of real estate that are limited to the surface. It does not include air rights or subsurface rights 2. Subsurface Rights- Landowner's rights to the water and other substances below the surface of land. 3. Air Rights- are the property interest in the "space" above the earth's surface. Generally speaking, owning, or renting, land or a building includes the right to use and develop the space above the land without interference by others. 4. Subject to rights reserved by the State: a. Taxation b. Eminent Domain c. Police Power Characteristics of Value 1. Demand the need or desire coupled with the purchasing power to fill it 2. Utility the ability of a good or service to fill that need 3. Scarcity refers to shortage of supply relative to the demand 4. Transferability the good or service must be transferable to have value to anyone other than the person Forces that Affect Real Estate Values 1.Social 2.Political 3.Economic 4.Physical  Social Political Forces that are related Forces relating to to the efficiency of population growth, government in the birth control measures maintenance of peace and migration. and order providing primary services and legislation.  Economic Physical Forces relating to the Forces that refer to nature of basic the location and age of industry and business the neighbourhood: activity in the size, area, shape, neighbourhood, i.e. topography, employment, income, improvements, trends, housing, etc. etc. COST VS. PRICE VS. VALUE  Cost Price Value - Is the actual - Is the actual - Is the amount spent amount paid in relationship to build or put a particular between a a property into transaction thing desired being and a potential purchaser (or a person who desired) What is Market Value? It 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 wherein the parties had each acted knowledgeably, prudently and without compulsion Elements: a. Estimated amount as of a given date b. Willingness of both parties c. Substantive knowledge and sound judgment by both parties d. Known in the open market Economic Principles of Value 1. Principle of Anticipation - Value is created by the expectation that certain events will occur 2. Principle of Balance - Value is achieved and maintained when all elements are in proper proportion 3. Principle of Change - Real property uses are always in a state of change since no physical or  Economic Principles of Value 4. Principle of Competition - Is the interaction of supply and demand. Excess profits tend to attract competition. Real property will generally be higher in value if it is similar in design, construction, age and use to other properties in the neighbourhood 5. 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 neighbourhood 6. Principle of Contribution - Any improvement to property is worth only what it adds to the value of the property regardless of the  Economic Principles of Value 7. Principle of Highest and Best Use - The use of the property that will give the most profit, the greatest net income. The use should be physically possible, legally permissible, financially feasible, which results in the highest value of the property being valued 8. Principle of Increasing and Diminishing Return - Relates to the principle of balance as well as to the principle of contribution. This principle holds that as capital units are added, a certain point is reached where the added units do not contribute value commensurate with their costs 9. Principle of Substitution - The worth of a property is influenced by the cost of acquiring a substitute or comparable property  Economic Principles of Value 10.Principle of Surplus Productivity - The surplus productivity principle recognizes the four agents of production to wit (in the order as to priority of payment): Labor Capital Entrepreneurship Land 11.Principle of Supply and Demand - The value of the property depends on the number of properties available in the market place- the supply of the product - Other factors include the prices of other properties;  Multiple Meanings of Value 1. Assessed Value - The value of property established for property tax purposes typically done by the assessor 2. Insurable value - The cost of total replacement of a property’s destructible improvements 3. Loan or Mortgage Value - The value set on a property for the purpose of making a loan. Normally, this is the same as market value 4. Going-Concern Value - The value of business based in operation, or property that will continue to be utilized 5. Plottage Value - The increased value of the large combined parcel, called an assemblage, over and above the sum of the smaller parcels  Multiple Meanings of Value 6. Investment Value The estimated value of property investment 7. Book Value The original cost of an asset or property less accrued depreciation 8. Rental Value Refers to the price fixed for the right to use a certain property for a specific period of time 9. Liquidation Value When a corporation under receivership may sell its assets lower than the market value because the owners are forced to sell 10.Other Values Salvage Value Scrap Value  THE APPRAISAL PROCESS Definition of the Assignment Identi Identif Use of Defin Dat Scope of Identif fy y the e e of the y Real Real Propert Valuatio Value Valu Assignme Estate y n Estat e nt Rights Analysis and Data Selection and ePreliminary General Specific Collection ( Subject and Competitive Supply & (Regional, city comparable data) Demand and Cost and Depreciation (The subject market) neighbourhood Income and Expenses Inventory & Competitive ) Social Capitalization Rate Properties Economic History of Ownership Sales & Listings Government Use of Property Vacancies & Offerings al Demand Studies  THE APPRAISAL PROCESS Highest and Best Use Land as though vacant Property as improved Specified in terms of Use, Time and Market Participants Land Value Estimate Application of the Three Approaches Sales Income Capitalization Cost Comparison Approach Approach Approach Reconciliation of Value Indications and Final Value Estimate  Purposes of Real Estate Appraisal 1. Transfer, Valuation & Allocation of Assets To help a buyer or lessee determine the fairness of the asking price or to decide on offering prices To help a seller or lessor set an acceptable price To set a fair basis for the exchange of real property To set the value of a property in mergers,  Purposes of Real Estate Appraisal 2. Financing, Development and Insurance To determine the value of the security offered for a mortgage loan To determine property insurance value To determine the value of property losses due to fire, earthquake, flood damage and other disasters To determine viability and development costs  Purposes of Real Estate Appraisal 3. Taxes and Legal To assess property for property taxes To determine gift or inheritance taxes To value property as part of a marital dissolution To value property in an arbitration of a dispute To value property in condemnation proceeding To determine the effect on value of Three Common Types of Written Appraisal Reports 1. Letter Report - This is the least formal written report. This is used when the supporting data is not required by the client. This consists of one to five page business letter. This may include certain exhibits such as lot plan, pictures, or supporting document. 2. Form Report - This is preferred by lenders and others handling large volumes of appraisals. This offers standardization of data and analysis for easy review. Forms are available for various types of property. Some allow for extensive narrative supplement as desired. 3. Narrative Appraisal Report - Most formal and detailed type of report. It is preferred when user needs to follow the appraiser’s step-by-step  What are the Basic Appraisal Documents? 1. For Real Estate a) Photocopy of the title b) Lot plan with vicinity map signed by a licensed Geodetic Engineer c) Photocopy of the current tax declaration d) Latest real estate tax receipts payment e) Building Plans and approved building permit 2. For Chattel Mortgage (Transportation Equipment) a) Photocopy of Registration Certificate What are the Government/ Non-Government Agencies Involved for the Verification/Inquiry in Real Assessor’s Office Estate Registry Appraisal? of Deeds Local Residents Real Estate Brokers/License Appraisers Subdivision Developers/Owners Bank Credit Officers/ Appraisers Newspaper clipping/classified ads Buy and Sell