MW. vi ‘THE VALUATION PROCESS Definition of the Assignment: 4. Identity the property — What property is to be valued 2. Identify property rights — Bundle of rights 3. Use of the Valuation — Purposs: for sales or valuation only, purchase 4. Define Value ~ Determine the basis of value sought a. Ex Just compensation / insurance value / assessed value 5, Date of Value — Date which the value estimate will apply a. 3 Values — Date of Inspection / Valuation Date / Date of Report Scope of Assignment Limiting Conditions Preliminary Analysis Data Selection and Collection a. General - Regional, City and Neighborhood, Social, Economic, Physical / Environmental, Government and Political b. Spesific (Subject and Comparables) Data i. Land, description of the property, shape, size, location, topography ii, Type of Lot: Comer Lot, Regular / Square, Interior, Cul de Sac, Key Lot i, Improvements ~ Type of building (R = C= 1) “income and Expenses / Capitalization Rate / History of Ownership / Use of Property Competitive Properties (Supply and Demand) ~ Land Banking i. Inventories ~ Land Banking ji, Sales ii, Rentals iv. Vacancies and Offerings v. Absorption Rate — Ex: How long will a project be sold if offered for sale in the market Highest and Best Use — Specified in terms of use, time and market participants Application of the Approaches to Value i. Market or Sales Comparison Approach Cost Approach ji, Ineome Approach Reconciliation of Value and Final Value Estimate Report of Ds 1@ Value — Appraisal Report ~ It indicates the value conclusion HABU ~ Ex. Each properly has one legal use that gives greater value. A 2-storey house (residential) is better than a bungalow if the house to be erected is a jot with @ small area. 2. Vacant lot use as agricultural along the highway must be appraised as commercial, industrial or residential if already classified as commercial, industrial or residential, although the actual use is stil agricultural 3, You do not put a 5-storey building on a lot purchased at P500,000/sqm if high rise is allowed; less if is an ‘example of under improvement. 4. Do not put a high-end development in an area where low income groups or informal settlers are located. This is an over-improvement. Physically Possible - consider the size, shape, area and terrain, location of the property. ‘a. Ex Construction cost of building will be high ifthe lot/soil Is of poor quality (Soil bearing capacity) Legally Permissibie ~ based on LGU approval a. With the LGU allow you to build a high rise building b. Legal used based on zoning and planning, restrictions Government regulations / building code Financially Feasible — will it earn (Investment) will it produce a positive return on investment a. Putting a 10-storey hotel for lease (30 years), the lessee leases it for 30 years, but ownership of the hotel will be given to the owner of the land after 30 years. Maximally Productive — will it bring profit to the investor / must provide a higher rate of return on investment‘Surplus Productivity Balance 4. Retum on Capital ~ refers to investment / interest in land 2. Retum of Capital — refers to investment of building (Income to building) Depreciation ‘a. Land Value is P4,000,000 — 6% interest rate (return on) P240,000 b. Building Value of P8,000,000 ~ gets i, 6% interest rate (retum on) 480,000 ii, 2% recapture rate (return of) 160,000 640,000 Total Income: 880,000 ‘= Ifincome is P1M ~ the excess goes to land P120,000 ‘= If income is P800,000 — the deficiency will be absorbed by the land because it is not wasting asset ‘© This indicates whether the land is being use in its highest and best use. Balance — is at its highest and best use when the four agents of production are present x: CBD in Makati is surrounded by subdivisions such as Forbes Park, Bel-Air Village, Dasmarinas Village, San Lorenzo Village, Urdaneta Village, Magallanes Village. Balance is maintained if there is proof of conformity on the development and highest and best use of land. Externalities — this influence the positive or negative effect on the property 1. Low interest rates will encourage production of houses 2. Low crime rates, income of salaried employees, population density may influence value 3, Government restrictions / regulations - zoning, building code 4, Infitration of informal settiers 5, Industrial companies that were permitted to operate in a residential areas (smoke pollution and health hazard) 6. Police protection 7. Transportation 8 Street rights Factors that Influence Values (Real Estate) 1 Physical / Environmental Forces — availabilty of transportation, school, churches, parks, mails, recreation areas I peace and order Economic Forces — commercial and industrial trends, interest rates, employment trends Goverment / Political Forces ~ zoning, building codes, police and fire regulations, rent controls, government ‘sponsored housing, underpass, flyovers, land use plan Social Forces ~ population growth, shift in business, education and social activities, Architectural design, subdivision and commercial complex, neighborhood associations