LAND MARK LAWs AND STANDARDS IN THE

REFORM OF REAL PROPERTY VALUATION

➢ R.A. 7160 – The Local Government Code of 1991

➢ R.A. 9646 - Real Estate Service Act (RESA) Law

➢ Philippine Valuation Standards (PVS)

➢ Mass Appraisal
 The Philippine Valuation Standards (1st Edition)
– Adoption of the IVSC Valuation Standards
under Philippine Setting is part of a wider on-
going program of land reform in the
Philippines.
 The Long Term Commitment of the Philippine
Government on the Land Reform Program:
Alleviate poverty;
Sustain economic growth by improving the land
tenure security;
Foster efficient land markets.
 Country Strategies:
1. Promote a clear, coherent and consistent set of
land administration policies and laws;
2. An efficient land administration system
supported by a sustainable financing mechanism;
3. An effective and transparent land valuation
system that is in line with internationally
accepted standards.
 2001 – Land Administration and
Management Project (LAMP) was established.
 Australian Government (technical assistance)
 World Bank (financial support)
Valuation and Taxation Reforms:

 Implement a valuation system that will assess

property values at their true market levels;
 Proposed the establishment of an independent
national authority that will set and enforce
valuation standards;
 Develop valuation standards for use by
government and private sectors;
 Raise the level of and professionalize the
property valuation industry.
 Real Estate Service Act of 2009 (RA 9646):
 Professionalization of the real estate service practice;
 Transferred regulatory functions of the Department of
Trade and Industry (DTI) to the Professional
Regulation Commission (PRC), through the
Professional Regulatory Board of Real Estate Service
(PRBRES).
 Proposed bill on the Valuation Reform Act (VRA):
 Establishment of a consistent real property valuation
system based on international standards;
 Creation of a National Valuation Authority (NVA).
 Note: At present, the proposed VRA was watered
down by expanding the BLGF mandate on appraisal
instead of creating the NVA.
“International Valuation
Standards Committee”
 Objectives:
To facilitate cross-border transactions and
contribute to the viability of international
property markets by promoting transparency in
financial reporting as well as reliability of
valuations performed to secure loans and
mortgages, for transactions involving transfers
of ownership, and for settlements in litigation or
tax matters;
To serve as a professional benchmark, or
beacon, for valuers around the world, thereby
enabling them to respond to the demands of
international property markets for reliable
valuations and to meet the financial reporting
requirements of the global business community;
◦ To provide standards of valuation and financial
reporting that meet the needs of emerging and
newly industrialized countries.

◦ To formulate and publish , in the public interest,

valuation standards for property valuation and
to promote their worldwide acceptance; and
◦
◦ To harmonize standards among the world’s
states (countries) and to identify and make
disclosure of differences in statements and/or
applications of standards as they occur.
 There is a common worldwide agreement
regarding fundamentals that underpin the
valuation discipline.

 Local laws and economic circumstances may,

on occasion, require special applications, but
fundamentals of valuation methods are
generally similar throughout the world.
 Note: In the Philippines;

1. Plant – is not in general use

2. Machinery and equipment – adopted by valuers
3. Plant and equipment – adopted by accountants
4. Plant and equipment – adopted by the IVS
5. Plant, machinery and equipment – an extension
adopted in the PVS
 Market value is the estimated amount for
which a property should exchange on the
date of valuation between a willing buyer and
a willing seller in an arm’s-length transaction
after proper marketing wherein the parties
had each acted knowledgeably, prudently,
and without compulsion.
 the most probable use of a property which is
physically possible, appropriately justified,
legally permissible, financially feasible and
which results in the highest value of the
property.
 Utility is a key criterion in the valuation of
any real or personal property.
 Utility is a relative or comparative term,
rather than an absolute condition.
 Land value is established by evaluating its
utility in terms of the legal, physical,
functional, economic and environmental
factors that govern its productive capacity.
 Fair value is an accounting concept (IFRS)
which is the amount for which an asset could
be exchange, or liability settled, between
knowledgeable, willing parties in an arm’s-
length transaction.
 Specialized property is property that is rarely,
if ever, sold in the market except by way of
sale of the business or entity of which it is
part, due to the uniqueness arising from its
specialized nature and design, its
configuration, size, location, or otherwise.
 Basis of Value: Market based valuations
normally employ one or more of the valuation
approaches by applying the economic
principle of substitution, which holds that a
prudent person would not pay more than the
cost of acquiring an equally satisfactory
substitute good or service.
 Market Based Valuation Approaches:
1. Sales Comparison Approach
2. Income Capitalization Approach
3. Cost Approach
 Assessors are governed by the Code and
Conduct of Public Officials
Property Types

 Real Property - Assessors

 Personal Property
 Businesses
 Financial Interests
Political Pressure Irregular conduct
general revision of
SMV’s
 Over 23 government
agencies undertake
valuation using
different methodologies Lack of uniform valuation
standards
 Low property tax
collection

Lack of
Inefficient land
confidence in the
markets
valuation system

Inequitable
Confusion
distribution of
among users
tax burden
 Component 1 – Component 2 – Component 3 –
Development of Institutional Tenure Security &
Policy & Regulatory Development & Land Registration
Framework Capacity Building System

Component 4 –
Component 5 -
Property Valuation &
Project Management
Taxation
Component 4 (Property Valuation and Taxation) Objectives

To improve the
quality of government
To lay the foundation
and private sector
through education
property appraisal
and training for the
performance through To pursue taxation
future expansion of
the adoption of reforms.
property valuation
uniform valuation
and appraisal
standards and a
activities.
single valuation base
for taxation.
 •Policy, legislative and regulatory activities
4.1

•National valuation standards and guidelines

4.2

•Pilot testing of unified single base property valuation system

4.3

•Strengthening of the Property Valuation Staff to provide support services on

4.4 valuation reform and technology transfer

•Development of information technology systems

4.5

•Development of valuation education and training programs

4.6
 Policy and
Legislative Reforms

Formal Valuation
Philippine Valuation
Education and
Standards
Training

Real Property
Single Valuation
Transactions
Base
Database System
Land Administration
Amendments to the
Reform Act
Free Patent Act
LARA
LAMP2 Legislative
Reforms

Valuation Reform Act Real Estate Service Act

VRA RESA
 Objective:
The professionalization of
the real estate service.
 •The BLGF shall assist
Administrative Code of in the formulation and
1987 implementation of
policies in local
(Sec. 33, EO 292) government revenue
and fund management.

Local Government
Code of 1991 and its •The DOF shall
IRR promulgate the
necessary rules and
(Sec. 201, RA 7160; regulations for the
classification, appraisal,
Art. 291, IRR) and assessment of real
property.

•The International
Valuation Standards
Philippine Valuation are adopted and
Standards prescribed as
reference standards
(DOF Department for local government
Order No. 37-09) assessors and other
concerned DOF
agencies.
 GN1: Real Property Valuation
 GN2: Valuation of Lease Interests
 GN3: Valuation of Plant, Machinery, and
Equipment
 GN4: Valuation of Intangible Assets
 GN5: Valuation of Personal Property
 GN6: Business Valuation
 GN7: Consideration of Hazardous and Toxic
Substances in Valuation
 GN8: The Cost Approach for Financial
Reporting
 GN9: Discounted Cash Flow (DCF) Analysis for
Market Valuations and Investment Analysis
 GN10: Valuation of Agricultural Properties
 GN11: Reviewing Valuations
 GN12: Valuation of Trade Related Property
 GN13: Mass Appraisal for Property Taxation
 GN14: Valuation of Properties in the
Extractive Industries
 GN15: The Valuation of Historic Properties
Benefits:
✓ LGU Assessors: Improved SMV in appreciation of
market trends
✓ LGU Treasury: Enhanced tax forecast and estimate
✓ Private Appraisers: Reduced research time improved
quality of appraisal
✓ Realtors and Brokers: Used as tools in arriving at
better asking prices
✓ Bank and Lending Institutions: Used as reference for
mortgage lending
✓ General Public: Transparent market, informed
decision, consistent value
✓ GOP: Value close to market
❑ Act No. 3995 created the Office of the Provincial
Assessor.
❑ The National Assembly of 1939 enacted
Commonwealth Act No. 470 (Assessment Law)
❑ During Martial Law, sweeping reforms on real
property taxation were introduced through
Presidential Decree (PD) Nos. 25 and 76.
❑ In 1974, The Real Property Tax Code ( PD 464, as
amended) became the basis of the Real Property
Tax Administration System in the Philippines.
❑ PD 464, as amended, was recognized under the
Local Government Code of 1983 (Batas Pambansa
Blg. 337).
❑ The 1987 Constitution paved the way for the Local
Government Code of 1991 (RA 7160) which
incorporated real property taxation under Title Two
of Local Taxation and Fiscal Matters (Book II).
❑ In 2001, The Land Administration and Management
Program, Phase I (LAMP1), a 15 – 20 year –
commitment of the Philippine Government was
launched. This was aimed at “poverty alleviation and
economic growth through secure land tenure and
equitable real property valuation and taxation”.
❑ In 2006, LAMP2 was launched for the implementation
of recommendations and learnings under LAMP1. .
❑ In 2008, LAMP2, pursuant to its Valuation
Education Program, signed a Memorandum of
Understanding (MOU) with the University of the
Philippines Open University (UPOU) on the
development and delivery of training and
education programs for real property valuation.
❑ On May 2009, the UPOU Courseware
Development Team paid an immersion visit to
Central Queensland University (CQU), Australia
for exposure to international best practices.
❑ On June 29, 2009, the Real Estate Service Act (RA
9646) was passed into law. .
❑ On October 13, 2009, Executive Order No. 833
created the Property Valuation Office (PVO) for
purposes of sustaining and instituting real
property valuation reforms.
❑ On October 19, 2009, DOF Department Order No.
37-09 prescribed the Philippine Valuation
Standards (1st Edition) – Adoption of the IVSC
Valuation Standards under Philippine Setting.
❑ On June 23 – 24, 2010, the 1st National Congress
on Property Valuation and Taxation was held at
the Hyatt Hotel Manila.
❑ On July 21, 2010, the IRR of the RESA Law was
approved (PRBRES Resolution No. 02, s. 2010)
❑ To date, Senate Bill No. 3519 (The Real Property
Valuation Reform Act) is still pending in Congress
.
 More Higher public &
equitable investor confidence
realty tax that will stimulate the
land market
burden

Increased
Increased revenues GDP
without adopting new share of
tax measures real
property

More
Improved planning on
competen
land use
t valuers
 Unified Single valuation base &
valuation uniform valuation
process standards

Consistency in land Simpler

valuation by
realty
eliminating wide
disparities in values taxation

Improved
decision
Strengthened political
making
functions of LGU
by officials
property
owners
Sec. 198 - Fundamental Principles
The appraisal, assessment, levy and collection
of real property tax shall be guided by the
following fundamental principles:

(a) Real property shall be appraised at its

current fair market value;

(b) Real property shall be classified for

assessment purposes on the basis of its
actual use;
(c) Real property shall be assessed on the basis
of a uniform classification within each local
government unit;
(d) The appraisal, assessment, levy and
collection of real property shall not be let to
any private person; (unless this provision is
repealed or amended, outsourcing of
professional valuers is prohibited) and
(e) The appraisal and assessment of real
property shall be equitable.
 All real property, whether taxable or
exempt, shall be appraised at the current and
fair market value prevailing in the locality
where the property is situated. The
Department of Finance shall promulgate the
necessary rules and regulations for the
classification, appraisal, and assessment of
real property pursuant to the provisions of
this Code.
What real properties are subject of one
appraisal/assessment?

1. Land
2. Buildings and other Structures
3. Machinery
 What is Appraisal?
 Appraisal is the act or process of
determining the value of real property as of
a specific date for a specific purpose.

 Assessment – is the act or process of

determining the value of property, or
proportion thereof subject to tax, including
the discovery, listing classification and
appraisal.
• "Acquisition Cost" for newly-acquired
machinery not yet depreciated and appraised
within the year of its purchase, refers to the
actual cost of the machinery to its present owner,
plus the cost of transportation, handling, and
installation at the present site;

 "Actual Use" refers to the purpose for which

the property is principally or predominantly
utilized by the person in possession thereof;

 "Ad Valorem Tax" is a levy on real property

determined on the basis of a fixed proportion
of the value of the property;
 "Agricultural Land" is land devoted principally to
the planting of trees, raising of crops, livestock and
poultry, dairying, salt making, inland fishing and
similar aquacultural activities, and other
agricultural activities, and is not classified as
mineral, timber, residential, commercial or
industrial land;
 "Appraisal" is the act or process of determining the
value of property as of a specified date for a
specific purpose;
 "Assessment" is the act or process of determining
the value of a property, or proportion thereof
subject to tax, including the discovery, listing,
classification, and appraisal of properties;
 "Assessment Level" is the percentage applied to
the fair market value to determine the taxable
value of the property;

 "Assessed Value" is the fair market value of the

real property multiplied by the assessment
level. It is synonymous to taxable value;

 "Commercial Land" is land devoted principally

for the object of profit and is not classified as
agricultural, industrial, mineral, timber, or
residential land;
 "Depreciated Value" is the value remaining
after deducting depreciation from the
acquisition cost;

 (k) "Economic Life" is the estimated period

over which it is anticipated that a machinery
or equipment may be profitably utilized;

 (l) "Fair Market Value" is the price at which a

property may be sold by a seller who is not
compelled to sell and bought by a buyer who
is not compelled to buy;
 "Improvement" is a valuable addition made to
a property or an amelioration in its condition,
amounting to more than a mere repair or
replacement of parts involving capital
expenditures and labor, which is intended to
enhance its value, beauty or utility or to adapt
it for new or further purposes;

 (n) "Industrial Land" is land devoted

principally to industrial activity as capital
investment and is not classified as
agricultural, commercial, timber, mineral or
residential land;
 "Machinery" embraces machines, equipment,
mechanical contrivances, instruments, appliances
or apparatus which may or may not be attached,
permanently or temporarily, to the real property.
It includes the physical facilities for production,
the installations and appurtenant service
facilities, those which are mobile, self-powered
or self-propelled, and those not permanently
attached to the real property which are actually,
directly, and exclusively used to meet the needs
of the particular industry, business or activity and
which by their very nature and purpose are
designed for, or necessary to its manufacturing,
mining, logging, commercial, industrial or
agricultural purposes;
 "Mineral Lands" are lands in which minerals,
metallic or non-metallic, exist in sufficient
quantity or grade to justify the necessary
expenditures to extract and utilize such
materials;
 "Reassessment" is the assigning of new
assessed values to property, particularly real
estate, as the result of a general, partial, or
individual reappraisal of the property;
 "Remaining Economic Life" is the period of
time expressed in years from the date of
appraisal to the date when the machinery
becomes valueless;
 "Remaining Value" is the value corresponding
to the remaining useful life of the machinery;

 "Replacement or Reproduction Cost" is the

cost that would be incurred on the basis of
current prices, in acquiring an equally
desirable substitute property, or the cost of
reproducing a new replica of the property on
the basis of current prices with the same or
closely similar material;

 "Residential Land" is land principally devoted

to habitation.
 Section 200. Administration of the Real
Property Tax. - The provinces and cities,
including the municipalities within the
Metropolitan Manila Area, shall be primarily
responsible for the proper, efficient and
effective administration of the real property
tax.
 Section 201. Appraisal of Real Property. - All
real property, whether taxable or exempt,
shall be appraised at the current and fair
market value prevailing in the locality where
the property is situated. The Department of
Finance shall promulgate the necessary rules
and regulations for the classification,
appraisal, and assessment of real property
pursuant to the provisions of this Code.
 Section 202. Declaration of real Property by
the Owner or Administrator. - It shall be the
duty of all persons file with the provincial,
city or municipal assessor, a sworn statement
declaring the true value of their property,
whether previously declared or undeclared,
taxable or exempt, which shall be the current
and fair market value of the property, as
determined by the declarant, once every three
(3) years during the period from January first
(1st) to June thirtieth (30th)
 Section 203. Duty of Person Acquiring Real
Property or Making Improvement Thereon. -
any person, or his authorized representative,
acquiring at any time real property in any
municipality or city or making any
improvement on real property, to file with the
provincial, city or municipal assessor, a sworn
statement declaring the true value of subject
property, within sixty (60) days after the
acquisition of such property or upon
completion or occupancy of the
improvement, whichever comes earlier.
 Section 204. Declaration of Real Property by
the Assessor. - When any person, natural or
juridical, by whom real property is required to
be declared under Section 202 hereof,
refuses or fails for any reason to make such
declaration within the time prescribed, the
provincial, city or municipal assessor shall
himself declare the property in the name of
the defaulting owner, if known, or against an
unknown owner, as the case may be, and
shall assess the property for taxation in
accordance with the provision of the Code.
No oath shall be required of a declaration
thus made by the provincial, city or municipal
assessor.
 Section 205. Listing of Real Property in the
Assessment Rolls. whether taxable or
exempt, Real property shall be listed, valued
and assessed in the name of the owner or
administrator, or anyone having legal interest
in the property.
 Section 205. Listing of Real Property in the
Assessment Rolls. -
(b) The undivided real property of a deceased
person may be listed, valued and assessed in
the name of the estate or of the heirs and
devisees without designating them
individually; and undivided real property
other than that owned by a deceased may be
listed, valued and assessed in the name of
one or more co-owners:
Section 205. Listing of Real Property in the
Assessment Rolls. -
`continuation:

such heir, devisee, or co-owner shall be

liable severally and proportionately for all
obligations and the payment of the real
property tax with respect to the undivided
property.
 (c) The real property of a corporation,
partnership, or association shall be listed,
valued and assessed in the same manner as
that of an individual.

 (d) Real property owned by the Republic of

the Philippines, its instrumentalities and
political subdivisions, the beneficial use of
which has been granted, for consideration or
otherwise, to a taxable person, shall be listed,
valued and assessed in the name of the
possessor, grantee or of the public entity if
such property has been acquired or held for
resale or lease.
 Section 206. Proof of Exemption of Real
Property from Taxation. - Every person who
shall claim tax exemption for such property
shall file with the provincial, city or municipal
assessor within thirty (30) days from the date
of the declaration of real property sufficient
documentary evidence in support of such
claim including corporate charters, title of
ownership, articles of incorporation, by-laws,
contracts, affidavits, certifications and
mortgage deeds, and similar documents.
 Section 208. Notification of Transfer of Real
Property Ownership. - Any person who shall
transfer real property ownership to another
shall notify the provincial, city or municipal
assessor concerned within sixty (60) days
from the date of such transfer. The
notification shall include the mode of
transfer, the description of the property
alienated, the name and address of the
transferee.
 Section 209. Duty of Registrar of Deeds to
Appraise Assessor of Real Property Listed in
Registry. -
 (b) It shall also be the duty of the Registrar of
Deeds to require every person who shall present
for registration a document of transfer,
alienation, or encumbrance of real property to
accompany the same with a certificate to the
effect that the real property subject of the
transfer, alienation, or encumbrance, as the case
may be, has been fully paid of all real property
taxes due thereon.
 Section 210. Duty of Official Issuing Building
Permit or Certificate of Registration of Machinery
to Transmit Copy to Assessor.
 Section 211. Duty of Geodetic Engineers to
Furnish Copy of Plans to Assessor.

 Section 212. Preparation of Schedule of Fair

Market Values. - Before any general revision
of property assessment is made there shall be
prepared a schedule of fair market values by
the provincial, city and municipal assessor of
the municipalities within the Metropolitan
Manila Area for the different classes of real
property situated in their respective local
government units for enactment by ordinance
of the sanggunian concerned.
 Section 215. Classes of Real Property for
Assessment Purposes. - For purposes of
assessment, real property shall be classified
as residential, agricultural, commercial,
industrial, mineral, timberland or special.
 Section 216. Special Classes of Real Property. -
All lands, buildings, and other improvements
thereon actually, directly and exclusively used for
hospitals, cultural, or scientific purposes, and
those owned and used by local water districts,
and government-owned or controlled
corporations rendering essential public services
in the supply and distribution of water and/or
generation and transmission of electric power
shall be classified as special.
 Section 217. Actual Use of Real Property as Basis
for Assessment. - Real property shall be
classified, valued and assessed on the basis of its
actual use regardless of where located, whoever
owns it, and whoever uses it.
 Section 218. Assessment Levels. - The
assessment levels to be applied to the fair
market value of real property to determine its
assessed value shall be fixed by ordinances
of the sangguniang panlalawigan,
sangguniang panlungsod or sangguniang
bayan of a municipality within the
Metropolitan Manila Area, at the rates not
exceeding the following:
 (a) On Lands:
CLASS -ASSESSMENT LEVELS Residential-20%
,Agricultural-40%, Commercial-50%,
Industrial-50%, Mineral-50%, Timberland-
20%
  (b) On Buildings and Other Structures
(1) Residential
Fair market
On Lands
CLASS ASSESSMENT LEVELS
Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
 (b) On Buildings and Other Structures
(1) Residential
Fair market
On Buildings and Other Structures (Residential)

FAIR MARKET VALUE ASSESSMENT LEVEL

Over Not Over

Php 175,000 0%

Php 300,000 10%

175,000
300,000 500,000 20%

500,000 750,000 25%

750,000 1,000,000 30%

1,000,000 2.000,000 35%

2,000,000 5,000,000 40%

5,000,000 10,000,000 50%

10,000,000 60%
Source: Sec. 17, LAR No. 1-92
On Buildings and Other Structures (Agricultural)
FAIR MARKET VALUE ASSESSMENT LEVEL
Over Not Over
Php 300,000 25%
Php 300,000 500,000 30%
500,000 750,000 35%
750,000 1,000,000 40%
1,000,000 2,000,000 45%
2,000,000 50%
On Special Classes: All lands, buildings, machineries and other
improvements

ACTUAL USE ASSESSMENT LEVELS

Cultural 15%
Scientific 15%
Hospital 15%
Local Water District, Government- 10%
owned or controlled corporation
engaged in the supply and
distribution of water and/or
generation and transmission of
electric power
 The Cost Approach
◦ Based on the proposition that an informed purchaser
would pay no more for a property than the cost of
producing a substitute property with the same utility as
the subject property.
 Reproduction Cost New (RCN) is the cost of
producing or constructing the property in like
kind at current prices using the same materials,
construction or manufacturing standards, design
layout, and quality of workmanship.
 Cost of Replacement (COR) is the cost of
producing or constructing a property of equivalent
utility at current prices using modern materials
according to modern standards, design, and
layout.
 The Cost Approach
 Quantity Survey Method
 Computation is made of the quantity and quality
of all materials used and of all categories of labor
hours required, to which unit cost figures are
applied to arrive at a total cost estimate for
materials and labor. To this, estimates are added
for architectural and engineering design fees,
licenses and fees and contractor’s – overhead,
profits and fees.
 Unit-in-Place Method
 The unit cost for various property components are
developed, using workable units such as the
square meter, linear meter, or other appropriate
basic unit of measurement, and applied to
recorded unit quantities.
 The Cost Approach
 Index Method
 The cost is estimated by applying an
adjustment factor, determined from a
pertinent index, to original cost. This is
sometimes referred to as trending method. An
index is a mechanism for showing the relative
changes in the prices or cost of specific items
or groups of items over a period of time.
 Comparative Method
 The cost is estimated from known
construction cost of similar property
expressed in terms of units of size or capacity
(e.g. per square meter of floor area)
 Cost Approach

 Income Approach

 Market Approac
 The Cost Approach
◦ Depreciation brought about by the
following:

 Physical deterioration
 Functional Obsolescence
 Economic (or Environmental) Obsolescence
 The Market Data Approach

◦ Applicable when there is an active market with

sufficient quantities of reliable data which are
verifiable by authoritative sources.
◦ Comparison – an estimation of two or more items
to establish similarities and dissimilarities of
various attributes

◦ Adjustment – an amount which is added to or

subtracted from the selling price of a comparable
property; considers, among other factors, physical
characteristics, utility, time of sale, location,
condition of sale, and terms of financing, if any.
 The Income Approach
◦ Applicable when the future benefits of ownership may
reasonably be estimated in the light of related risks to
be incurred.
◦ Steps
 Estimate potential gross income;
 Estimate and deduct a vacancy and collection loss allowance
to derive the effective gross income;
 Estimate and deduct expenses of operation to derive net
operating income (net income before recapture);
 Estimate remaining economic life of the duration and pattern
of the projected income stream;
 Select an applicable capitalization method and technique;
 Develop the appropriate rate(s);
 Complete the necessary computations to derive an economic
value indication by income approach.
 Section 219. General Revision of Assessment and
Property Classification. - The provincial, city or
municipal assessor shall undertake a general revision
of real property assessments every three (3) years.
 Section 220. Valuation of Real Property. - In cases
where (a) real property is declared and listed for
taxation purposes for the first time; (b) there is an
ongoing general revision of property classification
and assessment; or (c) a request is made by the
person in whose name the property is declared, the
provincial, city or municipal assessor or his duly
authorized deputy shall, make a classification,
appraisal and assessment or taxpayer's valuation
thereon: Provided, the assessment of real property
shall not be increased oftener than once every three
(3) years except in case of new improvements
substantially increasing the value of said property or
of any change in its actual use.
 Section 221. Date of Effectivity of Assessment or
Reassessment. - All assessments or
reassessments made after the first (1st) day of
January of any year shall take effect on the first
(1st) day of January of the succeeding year:
Provided, however, That the reassessment of real
property due to its partial or total destruction, or
to a major change in its actual use, or to any
great and sudden inflation or deflation of real
property values, or to the gross illegality of the
assessment when made or to any other abnormal
cause, shall be made within ninety (90) days from
the date any such cause or causes occurred, and
shall take effect at the beginning of the quarter
next following the reassessment.
 Section 222. Assessment of Property Subject
to Back Taxes. - Real property declared for
the first time shall be assessed for taxes for
the period during which it would have been
liable but in no case of more than ten (10)
years prior to the date of initial assessment:
Provided, however, That such taxes shall be
computed on the basis of the applicable
schedule of values in force during the
corresponding period.
 Section 223. Notification of New or Revised
Assessment. - When real property is assessed
for the first time or when an existing
assessment is increased or decreased, the
provincial, city or municipal assessor shall
within thirty (30) days give written notice of
such new or revised assessment to the
person in whose name the property is
declared.
 Section 224. Appraisal and Assessment of
Machinery. -
 (a) The fair market value of a brand-new
machinery shall be the acquisition cost. In all
other cases, the fair market value shall be
determined by dividing the remaining economic
life of the machinery by its estimated economic
life and multiplied by the replacement or
reproduction cost.
 (b) If the machinery is imported, the acquisition
cost includes freight, insurance, bank and other
charges, brokerage, arrastre and handling, duties
and taxes, plus charges at the present site. The
cost in foreign currency of imported machinery
shall be converted to peso cost on the basis of
foreign currency exchange rates as fixed by the
Central Bank.
 Section 225. Depreciation Allowance for
Machinery. - For purposes of assessment, a
depreciation allowance shall be made for
machinery at a rate not exceeding five
percent (5%) of its original cost or its
replacement or reproduction cost, as the case
may be, for each year of use: Provided,
however, That the remaining value for all
kinds of machinery shall be fixed at not less
than twenty percent (20%) of such original,
replacement, or reproduction cost for so long
as the machinery is useful and in operation.
 Section 226. Local Board of Assessment
Appeals. - Any owner or person having legal
interest in the property who is not satisfied
with the action of the provincial, city or
municipal assessor in the assessment of his
property may, within sixty (60) days from the
date of receipt of the written notice of
assessment, appeal to the Board of
Assessment Appeals of the provincial or city
by filing a petition under oath in the form
prescribed for the purpose, together with
copies of the tax declarations and such
affidavits or documents submitted in support
of the appeal.
 Section 227. Local Board of Assessment
Appeals. -
(a) The Board of Assessment Appeals of the
province or city shall be composed of the
Registrar of Deeds, as Chairman, the
provincial or city prosecutor and the
provincial, or city engineer as members, who
shall serve as such in an ex officio capacity
without additional compensation.
 Section 229. Action by the Local Board of
Assessment Appeals. -
(a) The Board shall decide the appeal within one
hundred twenty (120) days from the date of
receipt of such appeal. The Board, after hearing,
shall render its decision based on substantial
evidence or such relevant evidence on record as
a reasonable mind might accept as adequate to
support the conclusion.
(b) The owner of the property or the person having
legal interest therein or the assessor who is not
satisfied with the decision of the Board, may,
within thirty (30) days after receipt of the
decision of said Board, appeal to the Central
Board of Assessment Appeals.
 Section 232. Power to Levy Real Property
Tax. - A province or city or a municipality
within the Metropolitan Manila Area my levy
an annual ad valorem tax on real property
such as land, building, machinery, and other
improvement

 Section 233. Rates of Levy. - basic real

property tax:
(a) province not exceeding one percent (1%) of
the assessed value of real property;

(b) city or a municipality within the MMA not

exceeding two percent (2%) of the assessed
value of real property.
 Section 230. Central Board of Assessment
Appeals. - The Central Board of Assessment
Appeals shall be composed of a chairman,
and two (2) members to be appointed by the
President, who shall serve for a term of seven
(7) years, without reappointment. Of those
first appointed, the chairman shall hold office
for seven (7) years, one member for five (5)
years, and the other member for three (3)
years.
 Section 231. Effect of Appeal on the Payment
of Real Property Tax. - Appeal on
assessments of real property made under the
provisions of this Code shall, in no case,
suspend the collection of the corresponding
realty taxes on the property involved as
assessed by the provincial or city assessor,
without prejudice to subsequent adjustment
depending upon the final outcome of the
appeal.
 Market Value
◦ the estimated amount for which a property should exchange on
the date of valuation between a willing buyer and a willing
seller in an arm's-length transaction after proper marketing
wherein the parties had each acted knowledgeably, prudently,
and without compulsion.
 Special Value
“An amount above the Market Value that
reflects particular attributes of an asset that are
only of value to a Special Purchaser”
 Special Purchaser
“a purchaser to whom a particular asset has
Special Value because of advantages arising
from its ownership that would not be available
to general purchasers in the market”
could be associated with elements of Going
Concern Value. The valuer must ensure that
such criteria are distinguished from Market
Value, making clear any special assumptions
made
• Fair Value
– “The amount for which an asset could be
exchanged or a liability settled, between
knowledgeable, willing parties in an arm’s-
length transaction”
• “Although in many cases the price that is fair
between the parties will equate to that
obtainable in the general market, there will be
cases where the assessment of Fair Value will
involve taking into account matters that have
to be disregarded in the assessment of
Market Value.
• may represent a price that is deemed fair
between the relevant parties, but does not
presume that the property has been properly
marketed.
 Synergistic Value
◦ “an additional element of value created by the
combination of two or more interests where the
value of the combined interest is worth more
than the sum of the original interests”
 Investment Value or Worth
◦ “The value of property to a particular investor,
or a class of investors, for identified investment
or operational objectives. This subjective
concept relates specific property to a specific
investor, group of investors, or entity with
identifiable investment objectives and/or
criteria”
 Mortgage Lending Value
The value of the property as determined by a
prudent assessment of the future marketability of
the property taking into account long-term
sustainable aspects of the property, the normal and
local market conditions, the current use and
alternative appropriate uses of the property.
 Insurable Value
The ‘insurable value’ of a property means the sum
stated in the insurance contract applying to that
property as the liability of the insurer where
damage and financial loss is caused to the insured
by a risk specified in the insurance contract
occurring to that property.
• Alternative Use Value
– This means the market value of the property without
presuming the continuation of its present use.
• Forced Sale Value
– A sum that could be obtained for the property where, for
whatever reason, the seller is under constraints requiring
the disposal of the property.
• Salvage Value
– The value of an asset estimated with regard to the
specific circumstances under which the asset is
sold.
• Scrap Value
– The value that the basic recoverable materials
(usually metals) of a physical property would have
as junk if it were completely broken up or too badly
deteriorated to serve its normal purpose
Highest and Best Use (HABU)

 most probable use of a property which is

physically possible, appropriately justified,
legally permissible, financially feasible, and
which results in the highest value of the
property being valued

 significant differences in how properties can

be used

 optimal utility
 Section19. Duty of the Provincial/City/Municipal
Assessor - It is the duty of all provincial and city
assessors, and municipal assessors of the
municipalities within the Metropolitan Manila Area
to prepare or cause to be prepared a schedule of
market values as the basis for the appraisal and
assessment of lands, buildings and other
improvements situated in their respective
jurisdictions within one (1) year after the effectivity
of the Code and every three (3) years thereafter.
 Market values for real property situated
within the province shall be prepared by the
provincial assessors who shall be assisted by
the municipal assessors of municipalities within
his jurisdiction.
 Before any general revision of property
assessment is made pursuant to the
provisions of this Title, there shall be
prepared a schedule of fair market values by
the provincial, city and the municipal
assessors of the municipalities within the
Metropolitan Manila Area for the different
classes of real property situated in their
respective local government units for
enactment by ordinance of the sanggunian
concerned. The schedule of fair
market values shall be published in a
newspaper of general circulation in the
province, city or municipality concerned, or in
the absence thereof, shall be posted in the
provincial capitol, city or municipal hall and in
two other conspicuous public places therein.
A. Commercial Lands
I. First Class Commercial Lands
a) Located along concrete road;
b) Where the highest trading, social
(or educational activities of the
City/Municipality take place);
c) Where concrete or high grade
commercial or business buildings are
situated;
 d) Where vehicular and pedestrian traffic
flow are exceptionally busy;
e) Apparently commands the highest
commercial land value in the City or
municipality.
II. Second Class Commercial Lands
a) Along concrete or asphalted road;
b) Where trading, social (or educational)
activities are considerably high, but
fall short from that of the First Class
Commercial Lands;
c) Where semi-concrete commercial or
business buildings are situated;
d) Where vehicular and pedestrian traffic
flow are considerably busy, but fall-
short from that of the First Class
Commercial Lands;
e) Commands lesser value than the First
Class Commercial Lands.
III. Third Class Commercial Lands
a) Along concrete or asphalted road;
b) Where trading, social (or educational)
activities are significantly less than the
Second Class Commercial Lands
c) Where average grade commercial or
business buildings are situated;
d) Where vehicular and pedestrian traffic
flow are fairly busy;
e) Commands lesser value than the
Second Class Commercial Lands.
IV. Fourth Class Commercial Lands
a) Along all-weather road;
b) Where trading, social (or educational)
activities are significantly low, but
predominant;
c) Where mixed commercial and
residential buildings are situated;
d) Where vehicular and pedestrian traffic
flow are regularly less busy;
e) Commands lesser value than the Third
Class Commercial Lands.
B. Residential Lands
I. First Class Residential Lands
a) Along concrete road;
b) Where high-grade apartment or
residential buildings are predominantly
situated;
c) Where public utility transportation
facilities are exceptionally regular
towards major trading centers;
d) Located next to a commercially
classified lands;
 e) Where water, electric and telephone
facilities are available;
f) Commands the highest residential
land value in the city/municipality;
g) Free from squatters.

II. Second Class Residential Lands

a) Along concrete or asphalted road;
b) Where semi-high grade
apartments or residential buildings
are predominantly situated;
c) Where public utility transportation
facilities are fairly regular towards
major trading centers;
General Formula: MV=Area x Unit Value

1.Rectangular Lot within the standard depth

2.Rectangular Lot beyond the standard depth
3.Rectangular corner lot
4.Triangular lot with base on the street or
road
5.Triangular lot with apex on street or road
6.Irregularly shaped lots
 Use General Formula: MV=Area x UV
 +/- adjustments
 3 Adjustment Factors– The following are the
percentages/adjustments for the valuation
of agricultural lands:
 (1) Type of Road % Adjustment
 (a) Provincial or National Road ---------
No Deduction
 (b) For all weather Roads ---------
3% Deduction
 (c) Along Dirt Road ---------
6% Deduction
 (d) For no road outlet ---------
9% Deduction
Distance to: (a) All weather (b) Local trading
Road center (Poblacion

0 – 1 km 0- +5%

Over 1 – 3 km -2% 0%

Over 3 – 6 km -4% -2%

Over 6 – 9 km -6% -4%

Over 9 km -8% -6%

 A parcel of first class riceland containing an
area of 10 has. Located along the national hi-
way is 2kms from the poblacion. Determine
its market value if the unit value for said
riceland is P20,000 per ha.
Per SMV, Apartment Bldgs. have the following unit costs:
Type Unit Cost

I-A P7,300
I-B 5,100
I-C 4,000
 I-A I-B I-C
 1st5 Yrs 1.8% 2.0% 2.2%
 2nd 5Yrs 1.4 1.8 2.0
 3rd 5Yrs 1.2 1.5 1.7
 4th 5yrs 1.0 1.2 1.3
On basis of the above data, determine the
market value of a Type I-A 2-Storey Apartment
bldg. with a total land area of 17osqm and
floor area of 160 sqm completed 12 yrs ago
with the following additional items:
CHB Fence @ P2,000 per lineal meter;
90 sqm pavement @ P1,500 per sqm
 Adj factors ;18.4
 80 (2) = 160
 Totlal170
 Fence 2000 lm
 90sqm pavement @ 1,500, UV=7,300
 BMV =A x UV = 160 x 7,300 = 1,168,000.
 ABMV= 1,168,00 x (100%-18.4%) + 2,000
(52) + 90 (1,500) =
 Where: AL=170 take sq root to get the one
sides 13.04m
Therefor Perimeter = 4sides x 13=52m
 Application:

Given:

Parcel 1 2

Land Area = 200m
 Total Building Area (2S)= 180m2
 Building Age = New
 Selling Price = Php 1.85 million
 With Block fences = 60lm
 Paving = 83m2


Parcel 2 2

Land Area = 180m (9m x 20m)
 Unit Value = Php 3,000/m2
 Building Age = 5 years old
 Depreciation Rate = 5.5%
 Total Building Area (2S)= 140 m2
 Selling Price = Php 1.45 million
 With Block fences = Php1,200/lm
 Conditions:
 Lands are similarly situated. Buildings are
similarly constructed.
 Paving = Php800/m2

 Determine the land unit value of

Parcel 1.
 Determine land value and building value of Parcel 2.
 Land Value = 180m2 x Php
3,000/m2
 = Php 540,000
 Block Fences = Perimeter x
Php1,200/lm
 = 58 lm x Php1,200/lm
 = Php 69,600
 Depreciated Building Value = 1,450,000 – 540,000 –
69,600
 = Php 840,400
 Building Value New = Php 840,400 ÷ (1.0-
0.055)
 = Php 888,312
 Building Unit Value = Php 888,312 ÷ 140m2
 = Php 6,352/m2
 = Php 6,500/m2
 Apply the unit value of building to parcel 1:

 Value of Building = 180m2 x Php

6,500/m2
 = Php 1,170,000
 Value of Fence = 60 lm x Php1,200/lm =
72,000
 Value of Pavement = 83 m2 x Php800/m2
 = Php 66,400
 Value of Land (Parcel 1) = 1,850,000 –
1,170,000 – 72,000
 – 66,400
 = Php 541,600
 Unit Value of Land = Php 541,600 ÷
200m2
 = Php 2,708/m2
 = say Php 3,000/ m2
Stripping Method

Land at various distances from the front of the

site is allocated with a different value as a
percentage of the value of land at the front.
Usually used for large lots.
Stripping Method

There are mixed views whether this method reflects

market dynamics.

It can be considered as a valid method in adjusting

valuation IF pattern exists and proven that it applies
to many transactions.

“The stripping method shall not be applied on

commercial and industrial properties”

Appropriate adjustment for commercial and

industrial properties may be done using other
criteria or adjustment factors.
Stripping Method
Establishing a standard depth:

• Analyze a set of homogeneous

properties grouped by frontage and
depth.
• Compare sales values.
• If property values fall as the depth
gets longer, then value is affected by
depth.
• Standard depth varies between
market areas.
Stripping Method
Analysis for Stripping Method
Unit
Front x Area
Sale Lot Price Value/ Computations Analysis
Depth (m2)
m2
Lot is smaller than typical and
1 15 x 25 375 6,000,000 16,000 16,000/15,000 = 1.07 reflects slightly higher than
typical unit value
The typical depth for this
2 15 x 35 525 7,875,000 15,000 15,000/15,000 = 1 locality is 35m. There is no
need for stripping in this lot.
The typical depth for this
3 15 x 35 525 7,875,000 15,000 15,000/15,000 = 1 locality is 35m. There is no
need for stripping in this lot.
Base lot size, 525m2
x P15,000 = P7.875M
Sale of P9.135M –
P7.875M = P1.26M Shows 20% lesser in value
4 15 x 42 630 9,135,000 12,000
Therefore, rear strip than front strip
= P1.26M/(7mx15m)
= P12,000/m2
12,000/15,000 = 0.8
Stripping Method
Analysis for Stripping Method
Unit
Front x Area
Sale Lot Price Value/ Computations Analysis
Depth (sqm)
m2
Base lot of 525m2 x P15,000
= P7.875M
Sale of P10.35M – P7.875M
= P2.475M
Rear strip has a value of There was a drop in value by
5 15 x 50 750 10,350,000 11,000
P2.475M/(15m x 15m) = 26.7%
P11,000/m 2

UV for rear strip =

P11,000/m2
11,000/15,000 = 0.733
(15x30)+ 480m2 x P15,000 = P7.2M Corner lot shows additional 15%
6* 480 8,280,000 17,250
(30.1x2) P8.28M/P7.2M = 1.15 value from basic lot
This lot will not be considered
30.1x
for stripping since it has a
7** (17(N), 20 292.5 4,095,000 14,000 14,000/15,000 = 0.93
different frontage and side
(S), 30(W))
street

* Irregular corner Lot ** Slightly irregular corner lot

Stripping Method
Analysis for Stripping Method (cont.)
Table 21 Unit
Front x Area
Sale Lot Price Value/ Computations Analysis
Depth (m2)
m2
540m2 x P15,000 = P8.1M
P9.072M – P8.1M =
P972,000
N(19x30),
Additional value of a An additional 12% value from a
8*** W (30.1m), 540 9,072,000 16,800
corner lot: P972,000 basic lot
S (17m)
(P972,000/540m = 1,800
2

additional unit value)

18,000/15,000 = 1.12
*** Slightly irregular corner lot
For Imported Machinery:
RCN = OC x (D2 / D1) x (EL-N/EL)
Where:
RCNLD-Reproduction/Replacement Cost New
Less Depreciation
OC - Original Cost
D1 - $ rate at the time of acquisition
D2 - $ rate at the time of Appraisal
EL - Economic Life
N - Number of years the machinery is in
operation
PI – Price Index (optional)
 Depreciation:
 Annual Depreciation = 1/ Economic Life
 Ex. A Machinery with a 20-year economic life
will have an annual depreciation of:
 1/20yrs or 5% per year

 Maximum Depreciation Allowance = 5%/yr

  To illustrate:
 Basic Assumptions:
(1) Standard depth = 35m
(2) Base price for a 35m deep lot is
Php15,000.00/m2 (Established by Sale 2
and 3)
 (3) All Lots were sold recently
 (4) Frontage = 15 meters (except for lots 7
& 8)

 Analyze each sale and determine if there is

a pattern evolving from these transactions.
 The original cost of an imported machinery
acquired in 2001 was P500,000.00.
Determine its market value if it was installed
and fully operational in March 2002.
Compute for the Market value if the economic
life of said machinery was determined to be
(a) 30yrs; (b) 15 yrs.
 Section 232. Power to Levy Real Property
Tax- A Province or City or a Municipality
within the Metropolitan Manila Area may levy
an annual ad-valorem tax on real property
such as land, building, machinery, and other
improvement not hereinafter specifically
exempted.
Ad Valorem- is a levy
on real property
determined on the
basis of a fixed
proportion of the
value of the property.
1) Real Property is declared and listed for
taxation purposes for the 1st time;
2) There is an ongoing general revision of
property classification and assessment; or
3) A request is made by the person in
whose name the property is declared.
➢ Provided that such
assessment shall not be
increased oftener than once
every three (3) years EXCEPT
when there is NEW
IMPROVEMENT
Residential, Agricultural,
Commercial, Industrial,
Mineral, Timberland &
Special
Real property shall be classified,
valued and assessed on the
basis of its actual use
regardless of where located,
whoever owns it, and
whoever uses it.
➢ Allassessment made after January 1st shall
take effect on January 1st of the following
year.
Except:
1) Reassessment made due to partial or
total destruction;
2) Major change in actual use;
3) There is good and sudden
inflation/deflation of property values;
4) Gross illegality of the assessment when
made or to any abnormal cases.
a) Real Property owned by the
Republic of the Philippines
or any of its political
subdivisions except when
the beneficial use thereof
has been granted, for
consideration or otherwise,
to a taxable person;
b) Charitable institutions, churches, parsonages
or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries
and all lands, buildings, and improvements
actually, directly, and exclusively used for
religious, charitable or educational
purposes;
c) All machineries and equipment that are
actually directly and exclusively used by
local water districts and government-
owned or controlled corporations engaged
in the supply and distribution of water
and/or generation and transmission of
electric power;
d) All real property owned by duly registered
cooperatives as provided for under R.A. No.
6938; and
e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any
exemption from payment of real
property tax previously granted
to, or presently enjoyed by, all
persons, whether natural or
juridical, including all
government-owned or controlled
corporations are hereby
withdrawn upon the effectivity of
this Code.
➢For real properties declared for
the 1st time shall be assessed for
taxes for the period during which
it would have been liable.
➢In no case for more than ten (10)
years prior to date of initial
assessment.
Provided that such taxes shall be
computed on the basis of the
applicable schedule of values in
force during the corresponding
period.
- Assessed for the 1st time
- Existing assessment is increased or
decreased
- Delivered personally or by
registered mail or through the
assistance of the punong
barangay
End