II.

DEFINITION
OF
HIGHEST AND
BEST USE
“The use of an asset that
maximizes its potential and
that is physically possible,
legally permissible, and
financially feasible.”

Figure :Framework,
Note: Based on IVS 2013: Qualitative Highest and Best Use Filters (CCGA Graphics)
 WHAT IS AN
APPRAISAL REPORT?
The single purpose of a written appraisal report is to
inform, not impress. In so doing, it should
communicate the necessary data, reasoning, and
opinions that were part of the valuation process.
An appraisal report leads a reader from the
definition of an appraisal problem through reasoning
and analysis of relevant descriptive data to a specific
conclusion.
 WHAT IS AN
APPRAISAL REPORT?
The appraiser must present all facts, reasoning and
conclusions clearly and succinctly.
The length, type, content of appraisal reports are
dictated by the client or intended user, regulatory
requirements, the courts, the type of property being
appraised, and the nature of appraisal problem.
 WHAT IS AN
APPRAISAL REPORT?
Every appraisal report is prepared to answer a
particular question and provide the information
needed by a client or intended user.
The report is designed to be a decision making tool
regarding a problem to be solved.
WHAT DOES THE APPRAISAL
REPORT CONTAIN?
Each report must reflect a credible estimate of value
and must identify the following:
The client and other intended users.
The intended use of the report.
The purpose of the assignment. Most often the
appraisal is conducted to determine market value for
purpose of a sale or exchange.
The type of value reported and the definition of the
value reported.
WHAT DOES THE APPRAISAL
REPORT CONTAIN?
Each report must reflect a credible estimate of value
and must identify the following:
The effective date of the appraiser's opinions and
conclusions.
Relevant property characteristics, including location
attributes, physical attributes, legal attributes,
economic attributes, the real property interest
valued, and Non real estate items included in the
appraisal, such as personal property, including trade
fixtures and intangible items.
WHAT DOES THE APPRAISAL
REPORT CONTAIN?
Each report must reflect a credible estimate of value
and must identify the following:
All known: easements, restrictions, encumbrances,
leases, reservations, covenants, contracts,
declarations, special assessments, ordinances, and
other items of a similar nature.
Division of interest, such as fractional interest,
physical segment and partial holding.
The scope of work used to complete the assignment.
 TYPES OF REPORTS
Oral Report
After communicating an oral report, the
appraiser should keep on file all notes and data
relating to the assignment and a complete
memorandum of the analysis, conclusions, and
opinions.
 TYPES OF REPORTS
Written Report
A written appraisal report may be a narrative,
a letter, or a form. Regardless of the format of the
report, the appraiser must keep a file containing all
materials, data, and working papers and must be
able to reconstruct the reasoning and conclusions if
ever required to explain or defend the opinion.
 TYPES OF REPORTS
Written Report
1. LETTER OF OPINION REPORT OR LETTER REPORT

The letter of opinion has limited utility,

however, because it provides none of the supporting
data that the appraiser used to determine the value
estimate and no discussion of the particular methods
used and how any differences in valuation between
methods were reconciled.
 TYPES OF REPORTS
Written Report
1. LETTER OF OPINION REPORT OR LETTER REPORT

A typical letter report sets forth only the

conclusions of the appraiser’s investigation and
analyses. Much data and reasoning are omitted from
a letter report, but all minimum report writing
requirements should be met.
 TYPES OF REPORTS
Written Report
1. LETTER OF OPINION REPORT OR LETTER REPORT

Although the usefulness of a letter report is

limited, a client may desire and specifically request
that the appraiser communicate the opinion in a
letter without detailed documentation.
 TYPES OF REPORTS
Written Report
1. LETTER OF OPINION REPORT OR LETTER REPORT

The appraiser must keep all notes and data

on file, with a complete summary of the analysis,
conclusions, and opinions.
 TYPES OF REPORTS
Written Report
2. FORM REPORT

Form reports are designed in combination

checklist and fill-in-the-blank format and usually
accompanied by one or more exhibits depicting the
subject property and comparables.
 TYPES OF REPORTS
Written Report
2. FORM REPORT

Form report allows for standardization of information

and provides an efficient and uncomplicated way to
present a survey of background research and data
on the subject property and comparables.
The completed report should be consistent in
its description of the property and should provide all
the data indicated by the listed categories.
 TYPES OF REPORTS
Written Report
2. FORM REPORT

The properties and neighborhoods compared

should be as similar as possible and all appropriate
adjustments should be made.
If the form does not provided for the
inclusion of appropriate data and explanations, the
appraiser must add these in an addendum.
 TYPES OF REPORTS
Written Report
2. FORM REPORT

A form appraisal report is unacceptable if the

appraiser fails to do :
Consider the purpose of the report, the value
definition, and the assumption and conditions
inherent in the report.
Question the client about any underwriting criteria
that conflict with proper appraisal practice (age,
 TYPES OF REPORTS
Written Report
2. FORM REPORT
General Contents
Part 1 - Property Description
Subject property includes basic information about
the subject property.
Neighborhood in which the subject property is
located including trends and other factors that affect
the subject property and its neighborhood.
 TYPES OF REPORTS
Written Report
2. FORM REPORT
General Contents
Part 1 - Property Description
Site data for the property under appraisal.
Description of improvements found on property
under appraisal.
Comments of appraiser regarding additional features
of property, condition of property improvements and
adverse environmental conditions.
 TYPES OF REPORTS
Written Report
2. FORM REPORT
General Contents
Part 2 – Valuation Section
Cost approach analysis, including a breakdown of
reproduction cost figures.
Sales comparison approach analysis, including
itemization of factors contributing to price
differences between the subject property and
comparable properties.
 TYPES OF REPORTS
Written Report
2. FORM REPORT
General Contents
Part 2 – Valuation Section
Income approach analysis, using the right method
for the type of property.
Reconciliation statement, explaining how appraiser
correlated values derived by the appraisal
approaches used to arrive at a single final estimate
of market value. The appraiser signs the appraisal.
 TYPES OF REPORTS
Written Report
3. NARRATIVE REPORTS

An important and frequently necessary tool in

the valuation of complex properties, however,
particularly for establishing value as part of a legal
proceeding.
 TYPES OF REPORTS
Written Report
3. NARRATIVE REPORTS

A narrative report gives the appraiser the

opportunity to support and explain the opinions and
conclusions presented and to convince the reader of
the soundness of the final conclusion or value
estimate.
 TYPES OF REPORTS
Written Report
3. NARRATIVE REPORTS

The objective of a narrative appraisal

report are to answer in writing, the questions asked
by a client and to substantiate those answers with
facts, reasoning, and conclusions.
 TYPES OF REPORTS
Written Report
3. NARRATIVE REPORTS

In preparing a narrative appraisal report,

factual and descriptive data are presented in early
sections, and subsequent analysis and
interpretations may refer to those facts and indicate
how they influence the final value estimate.
 STYLE AND FORMAT
An organized presentation for client’s ease of
understanding; order and detail depend upon client’s
needs.
Generalized Outline (Order of Variable) Introduction,
Title page; letter of transmittal; table of contents;
certification of value; summary of important
conclusion.
 STYLE AND FORMAT
An organized presentation for client’s ease of
understanding; order and detail depend upon client’s
needs.
Premises of the appraisal, Qualifying and limiting
conditions, including general underlying
assumptions; purpose of the appraisal; definition of
value and date of value estimate; property rights
appraised.
 STYLE AND FORMAT
An organized presentation for client’s ease of
understanding; order and detail depend upon client’s
needs.
C. Presentation of data, Identification of the
property with photographs; area, city, neighborhood
and location of data; zoning and taxes; site data;
description of improvements; history.
 STYLE AND FORMAT
An organized presentation for client’s ease of
understanding; order and detail depend upon client’s
needs.
D. Analysis of data and conclusions, Highest and
best use of the land though vacant; highest and best
use of the property as improved; land value; the
sales comparison approach; the cost approach; the
income capitalization approach; reconciliation of the
value indications to a final value estimate.
 Sample of Certification
of Value
I certify that, to the best of my knowledge and
belief:

The statements of fact contained in this report are

true and correct.
The reported analyses, opinions, and conclusions are
limited only by the reported assumptions and
limiting conditions, and are my personal unbiased
professional analyses, opinions, and conclusions.
 Sample of Certification
of Value
I certify that, to the best of my knowledge and
belief:

I have no (or the specified) present or prospective

interest in the property that is the subject of this
report, and I have no (or the specified) personal
interest or bias with respect to the parties involved.
 Sample of Certification
of Value
I certify that, to the best of my knowledge and
belief:

My compensation is not contingent upon the

reporting of a predetermined value or direction in
value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated
result, or the occurrence of a subsequent event.
 Sample of Certification
of Value
I certify that, to the best of my knowledge and
belief:

My analyses, opinions, and conclusions were

developed, and this report has been prepared, in
conformity with the ethics and standards of practice.
 Sample of Certification
of Value
I certify that, to the best of my knowledge and
belief:

I have (or have not) made a personal inspection of

the property that is the subject of this report. (if
more than one person signs the report, this
certification must clearly specify which individual did
and which individuals did not make a personal
inspection of the appraised property.
 Sample of Certification
of Value
I certify that, to the best of my knowledge and
belief:

No one provided significant professional assistance

to the person signing this report. (If there are
exceptions, the name of each individual providing
significant professional assistance must be stated.
• Signature
• Name of Appraiser
 Sample of Limiting
Conditions
This report is prepared at the request of (client) for
the purpose of an appraisal of market value to assist
in ( ). It is not reasonable for any person other than
( ) to rely upon this appraisal without first obtaining
written authorization from (client) and this
appraiser. The report is prepared on the assumption
that no other person will rely on it for any other
purpose and that all liability to all such persons is
denied.
 Sample of Limiting
Conditions
While expert in appraisal matters, the author is not
qualified and does not purport to give legal advice. It
is assumed that:
• a legal description as furnished by ( ) is
correct;
• title to the property is good and
marketable;
• there are no encroachments,
 Sample of Limiting
Conditions
Because these assumptions have been made, no
investigation, legal or otherwise, has been
undertaken which would verify these assumptions,
except as expressly noted herein.
The author is not a qualified surveyor (and no legal
survey concerning the subject property has been
provided). Sketches, drawings, diagrams,
photographs etc. are presented in this report for the
limited purpose of illustration and are not to be
relied upon in themselves.
 Sample of Limiting
Conditions
The author is not qualified to give engineering
advice. It is assumed that there are no patent or
latent defects in the subject improvements, that no
objectionable materials are present, that they are
structurally sound and in need of no immediate
repairs, unless expressly noted within this report.
No soil tests for either load bearing capacity or
contamination have been done, nor have tests been
done of the heating, plumbing, electrical, air-
conditioning or other systems and, for the purpose
 Sample of Limiting
Conditions
No investigation has been undertaken with the local
zoning office, the fire department, the buildings
inspector, the health department or any other
government regulatory agency unless such
investigations are expressly represented to have
been made in this report. The subject property must
comply with such government codes and regulations
and, if it does not comply, its non-compliance may
affect market value. To be certain of compliance,
further investigations may be necessary.
 Sample of Limiting
Conditions
Market data has been obtained, in part, from
documents at the land registry office, or as reported
by the real estate board. As well as using such
documented and generally reliable evidence of
market transactions, it was also necessary to rely on
hearsay evidence. Except as noted herein, a
reasonable attempt has been made to verify all such
information.
Because market conditions, including economic,
social and political factors, change rapidly and, on
 Sample of Limiting
Conditions
The compensation for services rendered in this
report does not include a fee for court preparation or
court appearance, which must be negotiated
separately. However, neither this nor any other of
these limiting conditions is an attempt to limit the
use that might be made of this report should it
properly become evidence in a judicial proceeding.
In such a case, it is acknowledged that it is the
judicial body which will decide the use of the report
which best serves the administration of justice.
 Sample of Limiting
Conditions
The distribution of the total valuation between land
and improvements applies only under the proposed
program of property utilization and is invalidated if
the appraisal is used for any other purpose.
Information identified in this report as being
furnished by others is believed to be reliable, and
has been checked to the best of the appraiser's
ability, although no responsibility is assumed for its
accuracy.
 GENERAL
INFORMATION
The appraisal report is a detailed formal
communication of the appraiser's investigation of the
property on behalf of the client.

Whether oral, in a letter form, or narrative

document, the appraisal report must contain
minimum elements that are required for practical
and professional reasons that have evolved for many
years ago based on theory and practice.
In report writing the 10 basic elements of a written
 ESSENTIAL ELEMENTS
OF APPRAISAL
The form REPORT:
and content are generally governed
by good business practice and appraisal tradition.
Even the client contracts for a oral (verbal) report of
value, notes concerning the essentials elements of
the appraisal should be maintained in appraiser's
file.
 PRACTICAL AND
PROFESSIONAL
CONSIDERATION
Extraneous data should be omitted
 Incorporate pertinent data into the
report in a logical order and in
nontechnical terms.
 Appraisal reports should contain all
the facts and elements necessary to
support the value opinion.
 THE ESSENTIAL
ELEMENTS
The following should be included in every appraisal
report:
 The name of the client requesting the
appraisal
 An adequate identification and
description of the property
 A statement of the rights being
 THE ESSENTIAL
ELEMENTS
 The final estimate of value.
 The assumptions and limiting
conditions under which the appraisal
was made.
 The appraiser's certificate and
signature.
The elements of appraisal reports should define the
 Three General Types
1. THE LETTER REPORT – a short business letter,
defining the appraisal assignment. Brief summary of
the investigation, an opinion of the value of the
property. Length between three to six pages.

 Should contain ALL the essential

elements of an appraisal report.
 Description of the subject is brief and
 Three General Types
 Exhibits such as a plot plan, floor plan,
and pictures may be attached.
 Supporting data are included by
reference only. e.g. comparable sales
data usually would be in the report
itself with specific details retained in
the appraiser' file.
Three General Types
2. THE FORM (or short-form) REPORT

 Usually designed in a checklist format

on a printed page.
 Types of data commonly required are
presented in orderly of sequence that
is easy to review.
Three General Types
2. THE FORM (or short-form) REPORT

 Some agencies and appraisal

services develop their own forms for
each property type.
 Form defines the appraisal problem,
presents factual data revealed in the
Three General Types
3. THE NARRATIVE APPRAISAL REPORT

 The most formal of the written

appraisal report. Ranging from a
dozen to a hundred pages or more in
length.
 Most often required by large
Three General Types
3. THE NARRATIVE APPRAISAL REPORT

 High standard is expected of this

report.
 The preparation of a narrative report is
a test of competence for appraiser.
 Users of narrative reports have
 OUTLINE OF THE
NARRATIVE REPORT
Acceptable format for narrative appraisal
reports divide the report into three main sections.
The middle section divided into two parts, separating
description from analysis and conclusion.
 OUTLINE OF THE
NARRATIVE REPORT
Introduction
 Title Page
 Letter of transmittal
 Table of contents
 Photograph of the subject
 Summary of salient facts and
 OUTLINE OF THE
NARRATIVE REPORT
B. Description, Analysis, and Conclusion
 Identification of the property.
 Objectives of the appraisal.
 Property rights appraised
 Date of value estimate
 Purpose of the appraisal and definition
 OUTLINE OF THE
NARRATIVE REPORT
B. Description, Analysis, and Conclusion
 Intended use of the appraisal report
 Description of neighbourhood and
community.
 Description of land, zoning,
community services, and taxes
 Description of improvements
 OUTLINE OF THE
NARRATIVE REPORT
B. Description, Analysis, and Conclusion
 Analysis of data by the value
approaches
• The cost of Approach
• The Market Approach
• The Income Approach
 Reconciliation and final conclusion of
Addenda or Supporting
Material
Maps and Photographs
Plot plan of subject property
Diagram of Improvements
Statistical data
Addenda or Supporting
Material
Sales data sheets and sale location maps
 Appraisal reports often mix the
features of the three types of reports
—letter reports sometimes extend in
length to become what could be called
short narrative reports.
 Other written reports will often mix the
COLLATERAL VALUATION
REAL ESTATE PROPERTY
Legislative Advocacy
Adoption of Philippine
Valuation Standards
by NGAs – Where do
we go from here?
Select a Partner Agency = BSP
Agree scope of study in principle
Undertake Study into valuation procedures and
requirements for adopting Standards
Adoption of Philippine
Valuation Standards
by NGAs – Where do
we go from here?
Report on Findings, including Recommendations
Assist NGA to implement change
Roll-out to other NGAs
Passing of VRA (2010?) and Adoption by NVA
 VRA in the 14th
Congress (Nov. 11, 2009)
Senate Bill No. 3519
Sen. Panfilo Lacson; Sen. Rodolfo Biazon;
Sen. Edgardo Angara; Sen. Manuel Lapid;
Sen. Miguel Zubiri; Sen. Noynoy Aquino
 VRA in the 14th
Congress (Nov. 11, 2009)
House Bill No. 7094
Rep. Liwayway Vinzons-Chato;
Rep. Erico Fabian; Rep. Erico Fabian;
Rep. Rod Valencia; Rep. Sonny Angara;
Rep. Ed Zialcita
 Proposed Valuation
Reform Act – 2010?
(VRA)
OBJECTIVE:
To establish a consistent real property valuation
system based on internationally accepted valuation
standards, concepts, principles & practices.
Promote, develop and maintain a just, equitable,
nationally consistent real property valuation based
on internationally accepted standards, concepts/
practices.
 Proposed Valuation
Reform Act – 2010?
(VRA)
OBJECTIVE:
Establish and adopt a set of Philippine Valuation
Standards based on international valuation
standards
Adopt a single real property valuation base for
valuing/appraising real property for taxation and as
basis for various real property transactions by all
government agencies
 Proposed Valuation
Reform Act – 2010?
(VRA)
POWERS & FUNCTIONS:
National Valuation Authority (NVA) will be created as
the primary agency on matters concerning valuation
of real property - Property Valuation Office (PVO)
within BLGF will serve as the interim nucleus of the
NVA.
 Proposed Valuation
Reform Act – 2010?
(VRA)
POWERS & FUNCTIONS:
Will provide leadership & policy direction to LGUs,
NGAs, private sector institutions & individuals
dealing with valuation…including the development &
maintenance of valuation standards, the regulation
of valuation activities and other related matters…
valuation education and continuing professional
development.
 Proposed Valuation
Reform Act – 2010?
(VRA)
POWERS & FUNCTIONS:
Expected impact – A harmonized valuation processes
among government agencies, & private sector;
Consistency in land valuation by eliminating wide
disparities of values; Improved public & investor
confidence that will stimulate the land market.
Creation of the National
Valuation Authority
Train government assessors and appraisers
Promote valuation profession, training and
development
Maintain a roster of government appraisers and
assessors, and a national database of real property
transactions; and
Promote continuing studies, information base on
global and country trends/developments in real
property transactions
 Single Valuation
Base/Uniform Standards
Eliminate wide disparities & therefore achieve
consistency in real property valuation
Predictability of valuation with positive impact for
planners
Harmonize the real property valuation among the
different government agencies