OBJECTIVES
To discuss Basic Concepts in appraisal To be able to compute value of properties based on common approaches To be able to enumarate relevant data to be gathered during verification To be able to prepare an Appraisal Report
APPRAISAL :
Rendition of sound estimate of value of real estate and /or any interest therein as of a given time and for a specific purpose, for a fee. Process of valuation A systematic , analytic determination and recording of property facts, investments and value based primarily on a personal inspection and inventory.
MARKET VALUE
The FUNDAMENTAL OBJECTIVE of APPRAISAL is to estimate value , the most common of which is : MARKET VALUE - The Highest price estimated in terms of money which a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with the knowledge of all the uses to which the property is adapted and for which it is capable of being used.
VALUE CONCEPTS
Price
Cost
Value
KINDS OF VALUE
Purpose Sale Loan Taxation Insurance Forced liquidation Kind of Value Market Value Loan Value Assessed Value Sound/Actual cash/ insurable value Liquidation value
Factors of Value
Utility
Scarcity
Desirability
Affordability
BASIC PRINCIPLES of PROPERTY APPRAISAL
Supply and Demand Change Substitution Highest Best Value Surplus productivity Increasing and decreasing returns Contribution Competition Uniformity Anticipation
Location Pinpointing
IDENTIFICATI ON OF REAL ESTATE PROPERTY Title
Verification
LOCATION PINTPOINTING
NORTH
WEST
EAST
SOUTH
Property Location Tie Line Bearings and distance of boundary lines Area of Property Description of Property Corners Boundaries
Kinds of TITLE
Kind Examples
Judicial Administrative Title
Free Patent Homestead patent Emancipation patent
Basic data:
Legal description Name of Resgistered Owner Any restriction to the exercise of the right of ownership
ANNOTATED LIENS : Section 7 , RA 26 2 years lien over the
property because of the reconstitution Section
4 , Rule 74 of the Rules of
Court 2-year lien over the property which had
been the subject of inheritance
TYPES OF TITLE: Good Doubtful Bad
Lis pendens serves as notice that the
property is subject to a lawsuit
Morgages, leases and assessments
MARKET DATA OR COMPARABLE SALES APPROACH COST APPROACH INCOME APPROACH o Capitalization of net income o Capitalization of rental income
Uses market data of all kinds To be able to find the similarities between the proerty being appriased and other similar property Based on the market or exchange concept of value and price
Assumption : VALUE is established by buyers and sellers in the marketplace
Based on the principle of Substitution No prudent purchaser will pay more than what it will cost him to acquire an equally desirable property/machinery
BASIC REQUIREMENTSS : 1) 2) 3) 4) Estimate of the floor area, machinery or equipment Familiarization with current construction costs Familiarization with prices of equipment/machineries Knowledge of basic methods of depreciation
Based on the principle of Anticipation The value is created by the anticipated net income or benefits to be derived from the property in the future.
BASIC REQUIREMENTS : 1) Study income history of the property and comparable property 2) Evaluation of the need to stabilize income-expense data 3) Verification on the net return of comparable property in the area 4) Estimate the remaining economic life of the property 5) Method of conversion
VERIFICATION
Establish ownership Inspect and verify documenst submitted Check current price with suppliers, dealers, et. Estimate repdouction or replacement cost Estimate accrued depreciation; and Come up with indicated value using the above information
Pricing and Cost Estimating
Cost of basic machine Cost of auxiliaies/optional accessories Freight from source to site Insurance Bank charges Documentation Brokerage, arraster and heavy lifts Custom duties and taxes,a nd Installation which includes cost of controls and wirings, electrical and mechanical connections, millwright and foundation
Depreciation
The total observed depreciation or accumulated depreciation is the sum of the following : 1) Physical deterioration wear and tear from use, exposure to elements, corrosion and vibration 2) Functional obsolescence - inadequacy or excess construction; and 3) Economic obsolescence radical economic changes, new technology and raw materials
Guidelines in Observing the conditions of machineries/equipments
Condition Very good condition Good condition Fair condition Poor condition Junk condition Description
0% - 20% accum. depreciation
Operates slightly lower than rated capacity
Output is 50% 75% - 90% Accum. depreciation 100% depreciated
Rule of Thumb
Type of Machinery Brand New Second Hand, fully reconditioned As is , Where is : a) Can still be reconditioned b) Can no longer be reconditioned Value/Cost
Current market value/Replacement Cost, New (RCN)
50% of RCN or Market Value
25% of RCN Scrap or junk value/kilo
REPORT PREPARATION
Samples of Appraisal Reports
