SUMMARY OF APPRAISAL FORMULA

A) COMPOUNDED INTEREST

1. Future Value of Single Investment

FV = P (1+ r)n

Where:
FV - Future Value
P - Principal
r - interest rate
n - no. of compounding periods

Example:
Land purchased for P50,000 cash appreciates at the rate of 15% compounded
annually. How much is the land worth after 5 years? Disregard taxes, insurance
and selling expenses.
Solution
FV = P (1+ r)n
FV = P 50,000 x (1 + .15)5
FV = P 100,567.90 say P 100,568

2. Future Value of Annuity

FVA = A [(1+ r)n - 1 ]

r

FVA - Future Value of Annuity

A - Annual Uniform Payment
r - interest rate
n - no. of years

Example:
How much will a yearly investment of P 150,000 be after 10 years if the investor
is satisfied with a return of 12%?

Solution
FVA = A [(1+ r)n - 1 ]
r
FVA = 150,000 [(1+ .12)10 - 1 ]
0.12
FVA = P 2,632,310

3. Present Value of Single Investment (Discounting or Reversion Formula)

-n
PV = FV (1+ r)
 Where:
PV - Present Value
FV - Future Value
r - interest rate
n - no. of compounding periods

Example:
What is the reversion value of a property in 2 years with an estimated market value of
P12, 540,000 an interest rate of 10% per year?
Solution
PV = P (1+ r)-n
PV = P12,540,000 * (1+ .10)-2
PV = P 10,363,636.00

4. Present Value of Annuity

-n
PVA = A [1 - (1+ r) ]
r

PVA - Present Value of Annuity

A - Annual Uniform Payment
r - interest rate n - no. of years

Example:
If a property is expected to produce a yearly income of P 3,600,000 for 8 years.
What is the present value of the yearly income today if discounted at a rate of
8%.

Solution
-n
PVA = A [1 - (1+ r) ]
r
-8
PVA = 3,600,000 [1 - (1+ .08) ]
0.08
PVA = P 20,687,900.20

5. Amortization Formula

r
M.A. = P x
[1 - (1+ r)-n ]

MA - Monthly Amortization
P - Principal Amount (Loan Amount)
r - interest rate
n - no. of months
Example:
Mr. A purchases a house and lot thru installment basis. The contract price is P
3,500,000 with a required downpayment of 20%. Compute the monthly
amortization if the loan interest rate per year is 8% for 5 years.

M.A. = P x ( r )
-n
1 - (1 + r)
 Where:
P = 3,500,000 - (3,500,000 x 20%)
P = 2,800,000
n = 5yrs x 12 = 60
months r = .08/12 =
0.006667

M.A. = P 2,800,000 x ( .006667 )

1 - (1.006667)-60

M.A. = P 56,774.44

6. Income Approach (Direct Capitalization)

Income I
Value = V=
Rate R

Example:
What is the value of a property consisting of land and building with an annual
net operating income of P330,000 and with an over-all capitalization rate of
12.50% is

I
V=
R

330,000
V=
0.125

V= P 2,640,000

7. Gross Rent Multiplier or Gross Income Multiplier (GRM or GIM)

Sales Price or Value

GRM =
Gross Rent

Example 1:
Compute the Gross Rent Multiplier (GRM) of the property that rented for P
250,000 per year and was sold a month ago at P 8,500,000.

Sales Price
GRM = Gross Rent

P 8,500,000
GRM = P 250,000

GRM = 34
 Example 2:
Compute the indicated value of the property that rented for P 750 per month,
using a month monthly Gross Rent Multiplier (GRM) of 100, if the expenses
attribute to the property were 115 per month.

Value or Sales
GRM =
Price Gross
Rent

Value = GRM x Gross

Rent Value = 100 x P
750 Value = P 75,000

7. Land Residual Technique

- If Building Value is given; Land Value is Unknown

Step 1 Compute Net Operating Income (NOI) or Net Income Before

Recapture (NIBR) if Not Given

Potential Gross Income

Less: Allowance for Vacancy & Bad debts
Equals: Effective Gross Income
Add: Other Income or Miscellaneous Income
Less: Operating Expense (Admin. Expense, RPT, Depreciation)
Equals: Net Operating Income (NOI)
Less: Mortgage Payment (Debt Servicing)
Equals: Net Income Before Tax

Step 2 Analyze Income

a) Income due to Building = Building Value x Over-all rate

Where: Over-all rate = Interest rate (Land) + Recapture
Rate Recapture rate = 1/Remaining Economic
Life

b) Income due to Land = NOI - Income due to Building

Step 3 Compute Land Value

Value of Land= Income due to Land x Interest Rate (Land only)

Step 4 Compute Total Property Value (TPV)

TPV = Land Value + Building Value

Example
Assume the following data:
Gross Income: P 2,350,000/year
Allowance
for Vacancy
& Bad
debts: 5%
of Gross
Income/yea
rOperating
Expense: P
220,000/ye
ar
Building
Value: P
15.0M
Interest
rate on
Land: 8%
Economic
Life of
building:
40 years
Using
Land
Residual
Techniqu
e,
compute
the Value
of the
Property:
 a) Compute NOI 2,350,000.00
Less: Allowance of (117,500.00) (5% of P 2,350,000)
2,232,500.00
Vac. Less:
NOI (220,000.0
Operating Exp. 0)
2,012,500.00

b) Analyze Income
Income due to Bldg. = Building Value x Over-all Rate
= P 15,000,000 x (Interest Rate on Land + Recapture Rate)
Recapture Rate = 1/40 = 2.5%
= P 15,000,000 x (8% + 2.5%)
Income (Bldg) = P 1,575,000

Income due to Land = NOI - Income due

to Bldg. Income (Land) =P
2,012,500 - P 1,575,000
= P 437,500

c) Compute Value of Land

Value of Land= Income due to Land / Rate (Interest on Land only)
= 5,468,750.00

d) Compute Total Property Value

TPV = Value of Land + Value of Building
= P 5,468,750 + 15,000,000
TPV = 20,468,750.00

8. Building Residual Technique

- If Land Value is given; Building Value is Unknown
Step 1 Compute Net Operating Income (NOI) or Net Income Before
Recapture (NIBR) if Not Given
Gross Income
Less: Allowance for Vacancy & Bad debts
Equals: Effective Gross Income
Add: Other Income or Miscellaneous Income
Less: Operating Expense
Equals: Net Operating Income (NOI)

Step 2 Analyze Income

a) Income due to Land = Land Value x Interest rate (Land only)
Where: Over-all rate = Interest rate (Land) + Recapture
Rate Recapture rate = 1/Remaining Economic
Life
b) Income due to Building = NOI - Income due to Land
 Step 3 Compute Building Value
Value of Building= Income due to Bldg. x Over-all Rate
Where: Over-all rate = Interest rate (Land) + Recapture
Rate Recapture rate = 1/Remaining Economic
Life

Step 4 Compute Total Property Value (TPV)

TPV = Land Value + Building Value

Examp
le Assume the following data:
Net Operating Income: P
2,350,000/year Land Value: P
5.0M
Interest rate on Land: 8%
Economic Life of building: 40
years
Using Building Residual Technique, compute the Property Value:

a) Analyze Income
Income due to Land = Land Value x Interest rate
(Land only)
= P 5,000,000 x 8%
Income (Land) = P 400,000

Income due to Bldg.= NOI - Income due

to Land Income (Bldg.) = P
2,350,000 - P 400,000
= P 1,950,000

c) Compute Value of Building

Value of Bldg.= Income due to Bldg./ Over-all Rate (Interest on land +
Recapture rate)
= P 1,950,000 / (8% + 2.5%) Recapture rate = 1/Rem. Economic
Life
= 18,571,428.57 = 1/40
d) Compute Total Property Value = 2.5%
TPV = Value of Land + Value of Building
= P 5,000,000 + 18,571,428.57
TPV = 23,571,428.57

9. Basic Appraisal Mathematics s

a) Area of Square = s x s s

b) Area of Rectangle= L x W
W
 L

c) Area of Circle= π r2
r
 b1

d) Area of Trapezoid = (b1 + b2) x h h

2
b2

e) Area of Triangle = 1/2 (b x h)

f) Volume of cube = S x S x S

g) Volume of parellelepiped = L x W x H

W
L

h) Volume of Cylinder = π R2 x H

i) Volume of Pyramid = B2 x H
10. Basic Statistics
Statistics - is the study of how to collect, organize, analyze and interpret
numerical information. Variable - is a quantity that may assume any set of
value. (ex. Monthly income, volume, price,etc.) Constant – is a quantity that
does not change its value (ex. 12 inches = 1 foot, 1 year = 12 months)
Ungrouped data –Raw data that are not organized in
any specific way (subject to analysis &
interpretation)
Grouped data – are raw data organized into groups or categories with
corresponding frequencies (distribution)
Population – the entire collection of all possible observations of a particular
characteristic of interest (ex. grades of all students who took an
entrance examination)
Sample – is a representative set of observations that reflects the characteristics of
the whole, that is, the population from which it is taken.
Parameter – is any statistical characteristic of a population, for example, the
Mean and Standard Deviation.
Measures of Central Tendency
- Statistical tools designed to give information concerning the average, or
typical score of a large number of scores.
Three Methods of measuring central tendency:
a) The Mean – arithmetic average of
all scores ( X/n) M – Mean
Summation of X
X – raw score
n – number of observations
Three Methods of measuring central
tendency:
b) The Median (Mdn) - the exact midpoint of any distribution, or the point
that separates the upper half from the lower half of the
distribution.
c)The Mode (Mo) - Is the measure that determines which score occurs
number of times. Frequently appearing score in the
distribution.
Examp
le:
X
120
118
115 Median = (115 + 114)/2 = 114.5
114 Mode =
114 114
112
X 693; n = 6
Mean (simple) = X/n
= 693/6
= 115.50
Weighted Mean – incorporates into the formula the weight
of each term. Example:
An exam was given for 3 subjects with corresponding weights-
Grade (X) Weight (W)
Exam No. 1 85 20%
Exam No. 2 90 30%
Exam No. 3 80 50%
100%
Weighted Mean (Mw) = 85(.20) + 90(.30) + 80(.50)
= 84
Three Methods of measuring variability (Measure of Dispersion):
a) The Range – the difference between the highest & lowest scores.
Example: If the highest score is 140; lowest is 60, range is (140 – 60) = 80
b) The Standard Deviation (SD) – Is the absolute heart & soul of variability
concept. Takes into account all scores in a distribution.
It measures how much all scores deviate or vary from the
Mean (Average) 2 Methods in Computing Standard
Deviation:
1. Deviation Method
2. Computational Method (Long process)

Deviation Method
Formula; SD = √ x2/n MAD =
X/n SD- Standard deviation
X - Raw
score M -
Mean
x - deviation score
n - number of scores
X - summation of x = (X-M)

Raw Score (X) Deviation Score x=(X-M) Absolute

Dev. x2
10 10 - 6 = 4 4 16
8 8-6 =2 2 4
6 6-6 =0 0 0
4 4 - 6 = -2 2 4
2 2 - 6 = -4 4 16
X 30 12 40
Mean = X/n
M= 30/5 = 6 SD 40 MAD =
= 5 Ab
s.
xn
SD = 2.828427 MAD = 12/5
Range = Highest - Lowest Score MAD = 2.4
= 10 - 2
Range = 8
11. Rawland Valuation (Subdivision
Development Approach) Step 1 Analyze
Gross Income
Gross Income = Total Cash Price
Total Cash Price = Selling Price of Developed Lot/Sq.M. x
Saleable Area Where:
Saleable area = 70% x Gross Land Area
Step 2 Analyze Expenses
a) Development Cost
b) Administrative Expenses
c) Sales Expenses (Brokers Commission, Advertising, etc)
d) Interest on Working Capital
e) Miscellaneous Expenses
f) Contractor's Profit
Step 3 Compute Ultimate Rawland Value (URV)
URV = Gross Income - Expenses

Step 4 Compute Rawland Value/Sq.M.

Rawland Value/Sq.M. = URV x Annuity Factor
No. of Years x Gross Area

Compute Annuity Factor (if not

given):
Annuity Factor = 1 - (1+r)-n
r
r = interest
Exampl rate n = no. of
e: years

Mr. A offers his 10.0 hectare rawland in Lumbia, Cagayan de Oro City. Prices of
developed lots in Lumbia is at P 3,500/sq.m. Subdivision developers disclose a
development cost of P 800/sq.m. of the Gross Area; Admin., Sales & other
expenses is estimated at P 21,000,000. At how much should you buy the
property given a 5 year development & sales period of 5 years?
Annuity based on a 12% interest rate is 3.60477.
a) Analyze Gross Income
Total Cash Price = Selling Price of Developed Lot/Sq.M. x
Saleable Area TCP = P 3,500/Sq.M. x 10 has x
10,000Sq.M./hectare x 70%
TCP = Php171,500,000.00
b) Analyze Expenses
Total Expense = Development Cost + Other
Expenses Total Expense =
Php101,000,000.00
c) Ultimate Rawland Value = Gross Income - Total Expenses
= Php70,500,000.00
d) Compute Rawland Value/Sq.M.
Rawland Value/Sq.M. = URV x Annuity Factor
No. of Years x Gross
Area RV/Sq.M. = Php171,500,000.00
x 3.60477
5 x 100,000
RV/Sq.M. = 508.27 or P
510/Sq.M.
12. Appraisal of Machinery/Equipment

Estimating Reproduction Cost New (RCN) by trending of indexing (based on ori

x Trending Factor a)For Imported Machinery
RCN = Original Cost x Current Exchange Rate x Trend
Factor
Exchange Rate at Acquisition date
Trend Factor – Kemper International Replacement Value Cost Trend
b) For Locally Manufactured Machinery
RCN = Original Cost x Local Index (from NEDA)
c) Appraisal of Machinery for Tax Purposes
RCNLD = OC x FC2 x PI x REL
FC1 EL
where:
RCNLD – Reproduction Cost New less
Depreciation (DRC) OC – Original/Acquisition
Cost
FC1 – Exchange Rate (Acquisition)
FC2 – Exchange Rate
(Assessment Date) EL –
Economic Life
REL – Remaining
Economic Life PI – Price
Index (if available only)

Example A commercial machinery from USA was acquired, installed and in

operation in February 1999 at total original cost of $10,000,000. Re-
appraisal was made in December 2003.
Dollar Exchange Ra Php 39.0890
to $1.00 Dollar Exchange Ra Php
54.2033 to $1.00 Estimated
Economic Life: 30 years
To compute:
RCNLD = OC x FC2 x PI x REL
EL
RCNLD = $10,000,000 x P54.2033 x 1.0 x 26/30
P39.0890
RCNLD = Php 12,018,065.00
ASSESSED VALUE: RCNLD x Assessment Level
= Php 12,018,065.00 x 80%
= Php 9,614,452.00
13. 4-3-2-1 Rule

Lot D Value of Lot D = 10% x Total Value of Property

Lot C Value of Lot C = 20% x Total Value of Property
Lot B Value of Lot B = 30% x Total Value of Property
Lot A Value of Lot A = 40% x Total Value of Property
ROAD

14. Market Data Approach COMPARAB

LE 2
SUBJECT COMPARABLE 1 COMPARAB P zzzz.zz
VALUE ? P xxxx.xx LE 2
Adjustment(s) P yyyy.yy +
Time (if applicable) + (+/-
+ )
Location (+/-)
(+/- (+/-)
Size (+/-)
) (+/-)
Shape (+/-)
(+/-) (+/-)
Topography (+/-)
(+/-) (+/-)
Terrain (+/-)
(+/-) (+/-)
Corner Influence (+/-)
(+/-)
Adjusted Value
(+/-) 100% - X%
Weight X%
Y% -Y%
 Indicated Value = (Price of Comparable - Adjustments) x Weight

If Comparable is SUPERIOR
COMPARABLE (Subtract Adjustment Factor)

(-)
SUBJECT
(+)
If Comparable is INFERIOR
COMPARABLE (Add Adjustment Factor)

14. Cost Approach

Step 1 Value Land by Market Data
Approach Step 2 Compute
Replacement Cost, New (RCN)
RCN = Cost of Replacement/Sq.M. x Floor Area (in Sq.M.)
Less: a) Physical Deterioration , SLM = Actual Age / Economic Life
b) Functional Obsolescence (if any)
c) Economic Obsolescence (if
any) Equals: Depreciated
Replacement Cost (DRC) Step 3
Compute Total Property Value
(TPV)
TPV = Land Value + Depreciated Replacement Cost (Building)
Example
Subject Property House and Lot
Location Pine Street, P.N. Roa Valley Subd., Cagayan de Oro City
Land Area (Sq.M.) 182
Building Single-storey residential house; High cost; Year built - 2004, well-
maintained
Floor Area (Sq.M.) 146
MARKET
VALUATION BY COST APPROACH per VALUE
Sq.M. 273,000.0
0
b
b) F
LAND: 182 Sq.M. @ s
u
Php1,500 o
n
l
c
IMPROVEMENT: (Residential Building) e
t
Reproduction Cost, New 146 Sq.M. @ s
i
Php15,000 e
o
n
n
a) Physical Deterioration - Straight Line Method c
a
(SLM) - 6/40 x 100% e
l
-
O
-
 5%

per 2,190,00
Sq.M. 0
c) Economic Obsolesence - 0%
328,500.
00
2,134,500
.00

106,725.
00
2,027,775
.00

0.00
2,027,775
.00
Depreciated Replacement Cost (DRC)

2,300,775

.00 TOTAL PROPERTY VALUE