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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

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