PROFCOR7&10.PRELIM.WEEK2.pptx

BASIC APPRAISAL FOR REAL ESTATE BROKERS  INTRODUCTION TO PROPERTY APPRAISAL DEFINITION OF APPRAISAL APPRAISAL or VALUATION – an estimate or opinion of value concerning real estate or other property. - an estimate of the monetary value of a property. - process of developing an estimate of value o...

BASIC APPRAISAL FOR REAL ESTATE BROKERS  INTRODUCTION TO PROPERTY APPRAISAL DEFINITION OF APPRAISAL APPRAISAL or VALUATION – an estimate or opinion of value concerning real estate or other property. - an estimate of the monetary value of a property. - process of developing an estimate of value of an adequately identified and described property as of specified date, supported by logical presentation of Important notes on Appraisal:  It is not a guess. Value is determined only after thorough observation, investigation, & analysis.  Usually presented in written form. With complete description so as not to confuse it with other assets.  Value of property today may not be the same tomorrow. DEFINITION OF TERMS THE REAL ESTATE SERVICE ACT (RESA) OF 2009 – RA 9646 “Appraiser” – also known as Valuer, refers to 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” – refers to an official in the local government unit, who performs appraisal & assessment of real properties, including plants, DEFINITION OF TERMS “Real Estate” – refers to land and all those items which are attached to the land. It is physical, tangible entity, together with all the additions or improvements on, above or below the ground. “Real estate development project”- means 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 DEFINITION OF TERMS “Real estate developer”- refers to any natural or juridical person engaged in the business of developing real estate development project for his/her or its 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” shall refer to: Estate Consultant – duly registered Real 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 and conception, “Real Estate Service Practitioners” shall refer to: Estate Appraiser – duly registered Real and licensed natural person who, for a professional fee, compensation or other valuable consideration, performs or renders or offers to perform services in estimating and arriving at an opinion of or acts as an expert on real estate values, such services of which shall be finally rendered by the “Real Estate Service Practitioners” shall refer to: Real Estate Assessor – a duly registered and licensed natural person who works in a local government unit, who performs appraisal & assessment of real properties, including plants, equipment, and machinery essentially for taxation purposes. “Real Estate Service Practitioners” shall refer to: Estate Broker - duly registered and Real 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 Service Practitioners” shall refer to: Real Estate Salesperson - duly registered and licensed natural person who performs service for & in behalf of a duty licensed real estate broker for or expectation of a share in commission, professional fee, compensation other valuable consideration. OBJECTIVES OF APPRAISAL  PRIMARY PURPOSE OF PROPERTY APPRAISAL FOR BANKS/FINANCIAL INSTITUTIONS: 1. To establish a FAIR MARKET VALUE for the collateral offered in order to arrive at a sound credit decision. 2. To ensure a satisfactory return to the bank in the event of foreclosure and sale of acquired asset.  OTHER PURPOSES: 1. Sale & Disposition 2. Taxation 3. Condemnation Proceedings 4. Basis for Insurance 5. Accounting & Property records PRICE, COST and VALUE  PRICE, COST and VALUE PRICE - Actual amount paid in a particular transaction - Term used for the amount asked, offered, or paid for a good or service - Generally an indication of a relative value placed upon goods or services. COST - Actual amount spent to build or put a property into being. - The total cost of the property includes all direct & indirect costs of its production. - The amount of money required to create or  PRICE, COST and VALUE VALUE - A relationship between a thing desired and a potential purchaser. - An economic concept referring to price most likely to be concluded by the buyers & sellers. - Is a hypothetical price, and the hypothesis on which the value is estimated determined by the valuation basis adopted. *Price and Cost are factual figures and considered as indicators of value. Anything that is desired for financial, economic or sentimental FAIR MARKET VALUE  FAIR MARKET VALUE  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 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. Sellers are pressured to sell under the following circumstances: FACTORS THAT CREATE VALUE (DUST) TORS THAT CREATE VALUE (DUST) 1. DESIRABILITY - Property must arouse the desire of potential buyer. - Desirability to be effective must be supported by purchasing power. 2. UTILITY - A thing must be useful to have value. 3. SCARCITY - An object must have limited supply in order to arouse desire in an individual. 4. TRANSFERABILITY FORCES THAT AFFECT VALUE (SEEP) TORS THAT CREATE VALUE (DUST) 1. SOCIAL - Factors emerging from man’s social instincts and yearning. Such as: population growth & decline Changes in family size 2. ECONOMIC - Factors which have direct or indirect effect upon power. Availability of money and credit Price level, Interest rates and tax burdens TORS THAT CREATE VALUE (DUST) 3. POLITICAL - Government regulations Rent Controls Building Codes Police & Fire Regulations 4. PHYSICAL - Forces created by man or nature Climate and Topography Mineral Resources Flood Control Community Factors such as transportation, schools, parks & VALUATION PRINCIPLES ALUATION PRINCIPLES 1. 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. Example: When an office building has a net income expectancy of P 100,000 per annum. Rate of return is @ 12%. Its value today or its present worth based on future benefits or future income is derived from the formula for capitalization V = I/R Thus, V= P 100,000/12% = P 833,333.00 – This amount represents what a buyer is justified to pay for the ALUATION PRINCIPLES 2. CHANGE - Value of property is influenced by the constant changes occurring in the environment. Value of today may not be the same tomorrow. - Today evolved out of yesterday & is the shadow of tomorrow. Example: A decade ago, real properties along Pasay Road were exclusively used for residential purposes. Presently however, the area is experiencing a rapid transition from residential to commercial land use. In effect, values of real ALUATION PRINCIPLES 3. COMPETITION - The principle stems from the fact that profit creates competition. Excessive competition dissipate profit. In real estate, profit is the monetary incentive for investment. Example: Office condominiums made large profits when they were first introduced in Legaspi Village, Makati. This potential influenced the construction of similar structures in the area which led to a great degree of competition. In the process, condominium markets slowed down and ALUATION PRINCIPLES 4. CONFORMITY - Most satisfactory use of land is realized when it conforms to the standards governing the area where it is located. The principle holds that maximum value of a property is realized when a reasonable degree of sociological, architectural and economic homogeneity is present. Example: BF Homes Paranaque is a residential subd. inhabited by middle income family groups where improvements are mostly bungalows ranging from P 600,000 to P 800,000 construction cost. If a property within the subdivision were to be improved with a ALUATION PRINCIPLES 5. 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. Example: The expenditure of P 50,000 needed to convert a basement into an apartment, or to add a recreation room to a home, is justified only if the result is the production of additional value, in excess of the amount spent. Similarly, the installation of modern elevators in place of the old one should increase the net income by either ALUATION PRINCIPLES 6. HIGHEST AND BEST USE (HABU) - The principle states that the most profitable use of the property will yield the highest land value. Land has no value unless man can use it, but the amount of the value of land depends on how it is used. Because real estate owner wishes to reap the greatest possible net returns from his property. Example: Velez St. in Cagayan de Oro City is a commercial strip forming part of the city’s business district. If a 3-storey commercial building is constructed on a lot along this span, ALUATION PRINCIPLES 7. 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. When several properties or services with substantially the same utility are available, the one with the lowest price attracts the greater demand and the widest distribution. ALUATION PRINCIPLES Example: Mr. Roxas decided to put up a boutique selling local and imported clothes; shoes and other accessories along the southeast side of Nicanor Reyes St. within the University Belt. He has to choose between the following spaces for rent: Store Space 1: Floor Area – 80 sq.m. Rental Rate – P 6,000/month Characteristics: good condition; newly renovated Store Space 2: Floor Area – 83 sq.m. Rental Rate – P 8,500/month Characteristics: good condition; newly renovated ALUATION PRINCIPLES 8. 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 obtainble in the market. It also states that scarcity influences supply and desire influences demand. Demand of for a commodity is created by its usefulness ad the scarcity of supply. ALUATION PRINCIPLES Example: There is an oversupply of office buildings in Makati, like in Salcedo and Legaspi Villages. Some of this buildings do not get maximum occupancy because the demand is less. 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 price gamut/range prevailing in the area.