PHILIPPINE VALUATION STANDARDS

Guidance Notes by: Cesar E. Santos

Source: Philippine Valuation Standards,

1st Edition 2009/ Adoption of IVSC under Philippine Setting

1. Purpose - development of a uniform set of standards or professional practice in the country to

promote and maintain a high level of public trust in professional practice by establishing
requirements for the valuation of land and other types of properties.

2. Assessor’s primary role- proper property appraisal to fairly distribute the tax burden.

3. Abbreviations and meanings

a. IVS - International Valuation Standards
b. IVSC - International Valuation Standards Council
c. USPAP - Uniform Standards of Professional Appraisal Practice
d. GVCP - General Valuation Concepts and Principles
e. RICS - Royal Institution of Chartered Surveyors
f. IFRSs - International Financial Reporting Standards
g. IASs - International Accounting Standards
h. GAVP - Generally Accepted Valuation Principles
i. IAOO - International Association of Assessing Officers
j. AIREA - American Institute of Real Estate Appraisers
k. SREA - Society of Real Estate Appraisers
l. PARA - Philippine Association of Realty Appraisers
m. IPREA - Institute of Real Estate Appraisers
n. HABU - Highest and Best-Use
o. LGU - Local Government Unit
p. LAMP - The Land Administration and Management Project (2001)
q. DOF - Department of Finance
r. BLGF - Bureau of Local Government Finance
s. RESA - Real Estate Service Act of 2009
t. PRBRES - Professional Board of Real Estate Services
u. PRC - Professional Regulation Commission
v. PPV - Professional Property Valuer
w. CPV - Certified Property Valuer ( called to PARA members)
x. REITs - Real Estate Investment Trust
y. GBE - Government Business Enterprise

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 4. Four major factors of production
a. Land, labor, capital and entrepreneurship

5. Elements of value ( determinants or creators of value)

a. Demand ( plus purchasing power), utility, scarcity and transferability

6. Fee simple- absolute ownership of property limited only by:

a. Taxation, eminent domain, police power and escheat

7. Bundle of rights – synonymous to fee simple interest

a. Right to posses, enjoy the fruits, sell, mortgage, lease, abuse, recover

8. Real estate - physical land and improvements (physical entity)

9. Real property – rights and interests and benefits related to ownership (legal concept)
10. Personal property – interests in tangible and intangible items which are not real estate

11. Depreciation – loss in value of property brought by:

a. Physical wear and tear, functional and economic obsolescence

12. Cost, price and value

a. Cost – actual amount paid for the property by the buyer
b. Price – actual amount received by the seller
c. Value – most likely value of the property if offered for sale in an open market. Also
called appraised or exchange value; an economic concept; hypothetical price

13. Market value – characteristics / assumptions:

a. Estimated amount for which a property should exchange
b. On the date of valuation
c. Willing seller and willing buyer
d. In an arms-length transaction
e. Proper marketing
f. Parties each acted knowledgeably, prudently
g. And without compulsion

14. Four (4) property types

a. Real property, personal property, businesses and financial interests

15. Principles of values

a. Substitution, anticipation, conformity, balance, highest and best-use, progression,
regression, externalities, contribution, surplus productivity, increasing and diminishing
return, plottage, etc.

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 16. Professional property valuer–person who possesses the necessary qualifications, ability and
experience to estimate property value for a diversity of purposes.
17. Code of Conduct –addresses the ethical and competency requirements of valuers in professional
practice.
18. Standards – the most fundamental and permanent among Standards, Applications, and
Guidance notes.
19. Applications – the application of both private and public sector asset valuation to financial
statements or related accounts, and to decisions involving loan or mortgage security is
described.
20. Guidance notes- provide guidance on specific valuation issues and how standards are to be
applied. Compliance with the guidance notes, as well as, standards and applications is a must
for all valuers preparing assignments under the International Valuation Standards.
21. Economics – science of the production, distribution, and consumption of wealth.Valuation of
land as if vacant or of land and improvements is an economic concept.
22. Business entity – a commercial, industrial, or service organization pursuing an economic activity
23. Geography- study of the earth’s surface, climate continents, countries and people.
24. Property valuers, asset valuers, appraisers – must meet rigorous tests of :
a. Education, training, competence and demonstrated skills, maintain Code of Conduct
25. Intangible assets, examples:
a. Management, marketing skill, credit rating, goodwill, legal rights (patents, trademarks,
copyrights, franchises and contracts)
26. Utility – key criterion in the valuation of any real or personal property.
27. Highest and best-use (four criterion)
a. Physically possible, appropriately justified, legally permissible, financially feasible
28. Fair value – an accounting concept; defined by IFRS as the amount for which an asset could be
exchanged or a liability settled, between knowledgeable, willing parties in arms length
transaction.
29. Special value – may arise when an asset has attributes that make it more attractive to a
particular buyer.
30. Synergistic value – a type of special value or plottage value or marriage value
31. Going concern value – situation where the entire business is transferred as an operational
entity.
32. Liquidation value – situation where a group of assets employed together in a business are
offered for sale separately usually following closure of business.
33. Salvage value- value of an asset that has reached the end of its economic life for the purpose it
was made. It can be used for another or recycled.
34. Scrap value – value that the basic recoverable materials (usually metals) of physical property
would have as junk if it were completely broken.
35. Investment value – value to an investor that is going concern.
36. Forced sale value – often used in circumstances where seller is under compulsion to sell or
proper marketing period is not available (usually for a short period of time)

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 37. Specialized property – property that is rarely, if ever, sold in the market.
38. Assumptions – suppositions taken to be true.
39. Internal valuer – an employ of the entity owning the assets or the accounting firm responsible
for preparing the entity’s financial record.
40. External valuer – no material links with the client, an agent acting on behalf of the client
41. Ethics –
a. integrity, conflict of interest, confidentiality, impartiality
42. Competence –
a. Acceptance of instructions, outside assistance, efficiency and diligence
43. Freehold – fee simple estate
44. Interest or rights in real estate being appraised:
a. Fee simple (freehold) – to the owner
b. Leased fee – to the owner-lessor
c. Leasehold – to the lessee
d. Subleasehold - to the sublessee
e. Easement and right of way
f. Partial interest (pro-indiviso)
g. Trust – interest of a beneficiary under a trust is known as the equitable or equity
interest. Beneficiary is said to hold equitable title, while legal title is held by the trustee.
h. Security or financial interest – created by mortgage pledges ( lien) – say banks

45. Business – any commercial, industrial, service or investment entity pursuing an economic
activity.

46. Financial interests (intangible assets)

a. General partnership – ownership arrangement where all partners share in investment
gains and losses and each is fully responsible for all liabilities.
b. Limited partnership – consists of general and limited partners; the general partners
manage the business, assume full liability for partnership debt while the limited
partners are passive and liable only to the extent of their own capital contribution.
c. Syndication – often organized by general partner. Investors become limited partners. It
pools funds for the acquisition and development of real estate.
d. Joint venture – combination of two or more entities with the purpose of undertaking a
specified project. It has limited duration unlike in partnership.
e. Securitized investment instruments like
i. Real estate investment trusts (REIT)
ii. Collateralized mortgage obligations

47. Financial instrument – a contract that gives rise to both financial asset of one entity and
financial liability of another entity.

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 48. Depreciated replacement cost – the current cost of replacing an asset with its modern
equivalent asset less deductions for depreciation from all causes.
49. Carrying amount- amount which an asset is recognized after deducting any accumulated
depreciation and accumulated impairment losses. (IAS 36)
50. Depreciable amount- cost of an asset or other amount substituted for cost less its residual
value.
51. Impairment loss – the amount by which the carrying amount of an asset exceeds its recoverable
amount ( carrying amount – recoverable amount = impairment loss).
52. Net realizable value – estimated selling price in the ordinary course of business less estimated
costs of completion and sale estimated costs

53. Lease Interest

a. Leased fee estate - interest of the owner-lessor
b. Leasehold estate – interest of the lessee
c. Sandwich lease estate - interest of the lessee
d. Sandwichleasehold – interest of the sublessee

e. Market rent – probable rent in an open market or economic rent; sometimes called passing rent
f. Contract rent - rental amount as appearing in the lease contract
g. Turnover rent or passing rent – rent based on earnings of the lease
h. Percentage lease – an example of turnover rent where lease is based on a certain percentage of
sales
i. Positive leasehold – if market rent is higher than contract rent
j. Negative leasehold – if market rent is lower than contract rent
k. Positive sandwich lease – if contract rent is lower than than sandwich lease rent
l. Freehold interest – fee simple estate
m. Ground lease – usually long term lease where lessee is permitted to improve the land
n. Headlease or master lease – lease to a single entitly with the intention of subleasing it to several
sublesses
o. Headleasehold interest – same as sandwich lessor interest – the holder of master lease or the
lessee.
p. Lease – contract arrangement between owner-lessor and lessee.
q. Finance lease – lease that transfers substantially all the risks and rewards incidental to
ownership of an asset.

54. Plant, Machinery and Equipment

a. Plant – assets that are inextricably combined with others and that may include
specialized buildings, machinery and equipment.
b. Machinery- individual machines or a collection of machines. Machine is an apparatus
used for a specific purpose in connection with the operation of the entity.
c. Equipment – other assets that used to assist the operation of the enterprise or entity.

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 55. Intangible Assets
a. Business entity – a commercial, industrial, or service organization pursuing an economic
activity
b. Intangible assets – assets that manifest themselves by their economic properties; they
do not have physical substance; they grant rights and privileges to their owners and
usually generate income for their owner.
c. Intangible property – rights and privileges granted to the owner or intangible assets.
d. Legal life – life of an intangible asset allowed by law.
e. Categories of intangible assets:
i. Rights exists according to the terms of the contract, written or unwritten, that is
of economic benefit to the parties.
ii. Relationships between parties which are normally non-contractual, can be
shortlived and can have great value to the parties. Examples:
1. Assembled workforce
2. Customer relationship
3. Supplier relationships
4. Distributor relationship
iii. Grouped intangibles are the residual intangible asset value left after all
identifiable assets have been valued and deducted from total intangible asset
value, oftentimes called goodwill – the extra value of the entity as a whole over
and above the aggregate value of its constituent identifiable assets.
iv. Intellectual property – a special classification of intangible asset which is
protected by law from unauthorized use of others such as:
1. Tradenames or brand names
2. Trademarks
3. Copyrights
4. Patents
5. Trade secrets or know-how

56. Personal property

• It is a legal concept referring to all rights, interests and benefits related to ownership of
items other than real estate.
a. The following are deemed to be personal property:
i. Movables susceptible of appropriation
ii. Real property considered by law as personal property
iii. Forces of nature which are brought under control by science
iv. In general, all things which can be transported from place to place without
impairment of the real property to which they are fixed

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 v. Art. 417 NCC
1. Obligations and actions which have for their object movables or
demandable sums;
2. Shares of stocks of agricultural, commercial and industrial entities,
although they may have real estate

b. Auction price – final accepted bid price at a public auction. Sometimes called hammer
price.
c. Collectibles – broad descriptive term for objects collected because of the interest they
arouse owing to their rarity, novelty, or uniqueness. Examples: antiques, paintings,
gems, jewelry, musical instruments, rare books, cars, etc.
d. Replica – copy of the original item, as near as possible to the original in terms of nature,
quality and age of materials but created by means of modern construction methods.
e. Facsimile – exact copy of the original item, created with materials of closely similar in
nature, quality and age and using construction methods of the originalperiod.
f. Fixture and fittings – totality of improvements integral to a property, valued
collectively.
g. Furniture, fixtures and equipment – term used in North America to refer to tangible
personal property plus trade fixtures and leasehold improvements.
h. Intrinsic value – amount considered, on the basis of an evaluation of available facts, to
be true or real worth of an item.
i. Personalty –legal term used in certain countries to designate items of personal
property.

57. Business Valuation

• It is the act or process of arriving at an opinion or estimation of the value of a business
or entity or an interest therein.
a. Adjusted book value – book value that results when one or more asset or liability
amounts are added or deleted or changed from the reported book amounts.
b. Asset-based approach – means of estimating value of a business and /or equity interest
using methods based on the market value of individual business assets less liabilities.
c. Book value – the capitalized cost of an asset less accumulated depreciation, depletion,
or amortization as it appears on the account books of the business.
d. Holding company – a business that receives returns on its assets.
e. Invested capital – the sum of the debt and equity in a business on a long term basis.
f. Majority interest – ownership position greater than 50% of the voting interest in a
business.
g. Gross cash flow – net income after taxes, plus non-cash items such as depreciation and
amortization.
h. Net cash flow – amount of cash that remains after all cash needs of the business have
been satisfied, it is cash available to equity or invested capital.
i. Equity net cash flow –

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 i. Net income after taxes, plus depreciation and other non-cash charges,
Less : increases in working capital, capital expenditures, decreases in invested
capital debt principal
Plus : increases in invested debt principal
j. Invested capital net cash flow = equity net cash flow, plus interest payments net of tax
adjustments, less net increases in debt principal

58. Hazardous and toxic substances

a. It is defined as specific materials that, by their presence or proximity, may have adverse
effect on property value ( economic obsolescence or externalities) because of their
potential to harm to life forms (like the nuclear power plant in Japan). They might be
also offsite, but nearby or maybe airborne.

59. Agricultural properties

a. Cropping farms – agricultural properties used for growing commodities that are
typically planted and harvested within 12-month cycle.
b. Dairy farms – agricultural properties used for the production of milk from cows,
carabaos, goats, etc. for dairy products.
c. Forestry / timberland – used for growing of non-orchard trees that are periodically
harvested over extended growing periods (10-20 years or more).
d. Irrigated cropping farm or irrigated grazing land – used to produce crops of forage for
livestock and which require the application of water other than that from natural
rainfall.
e. Livestock ranches/stations – used to raise and feed animals such as cattles, sheep, pigs,
goats, horses, etc.
f. Perennial plantings – crops grown from plantings that have a life extending beyond one
year or one-crop cycle. Examples: vineyards and orchards.
g. Biological asset – living animal or plant.
h. Integrated unit – an agricultural entity that has common ownership of all or part of the
processes involving the production and marketing of its products.
i. Agricultural land (RA 7160) – land devoted principally to the planting of trees, raising of
crops, livestock and poultry, dairying, salt making, inland fishing and similar aqua-
cultural activities and other agricultural activities and is not classified as mineral, timber,
residential, commercial or industrial land.
j. Integrated Forest Management Agreement – (DENR A.O. 99-53) – a production sharing
contract entered into by and between the DENR and a qualified applicant wherein the
DENR grants to the latter the exclusive right to develop, manage, protect, and utilize a
specified area of forestland and forest resources therein for a period of 25 years and
may be renewed for another 25-year period.

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 60. Reviewing (compliance) Review
a. It is a valuation review performed by a client or user of valuation service as an exercise
in due diligence when the valuation is to be used for purpose of decision making such as
underwriting, purchasing, or selling the property.
b. Desk review – a valuation review that is limited to the data presented in the report
which may or may not be independently confirmed.
c. Field review – a valuation review that includes inspection of the exterior and sometimes
the interior of the subject property and possibly inspection of the comparable
properties to confirm the data provided in the report.
d. Technical review – a valuation review performed by a valuer to form an opinion as to
whether the analyses, opinions and conclusions in the report under review are
appropriate, reasonable and supportable.
e. Valuation review – a valuation assignment that covers a range of types and purposes.
Here the valuer exercises impartial judgment in considering the work of another valuer.
A valuation review may support the same value conclusion under review or it may result
in disagreement with that value conclusion. It is a credibility check of the valuer who
did the report.

61. Mass appraisal for property taxation

• Mass appraisal is the practice of appraising multiple properties as of a given date by
systematic and uniform application of appraisal methods and techniques that allow for
statistical review and analysis of results.
a. The basis for mass appraisal is the market value as defined in IVS1 Section 3. It should
follow scientific standards in statistical applications.
b. The fundamental principles of property taxation per Section 197 of the Local
Government Code of 1991 must be the guide, such as:
i. Real property must be appraised at its current and fair market value;
ii. It shall be assessed for taxation purpose based on actual use;
iii. Shall be assessed on the basis of a uniform classification within each local
government unit;
iv. Appraisal, assessment, levy and collection of real property tax shall not be let to
any private person; and
v. Appraisal and assessment of real property should be equitable.

c. Add valorem property taxation – a revenue raising procedure based on the assessed
value of the property related to a scale of charges defined by stature within a specified
time-frame.
d. Calibration – the process of analyzing sets of property and market data to determine
the specific parameters operating upon a model.
e. Mass appraisal process – the procedure applied in mass appraisal assignments for
arriving at assessments and /or indices.

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 62. Extractive industries
a. Extractive industries comprise the mineral and petroleum industry, but do not include
activities focused on the extraction of water from the earth. These are industries
involved in the finding , extracting and processing of natural resources located on, in or
near the earth’s crust. They are composed of mineral and petroleum industries.
b. Valuation in the extractive industries often must rely heavily on information provided
by a technical experts or other accredited specialists to the industry.
c. Extraction industries are characterized by depletion or wasting of natural resources,
that can be replaced in their original stage by natural actions following extraction only in
special cases. The means of production is extraction from the earth of natural resources
that form part of the real estate.
d. Examples of depleting or wasting natural resources:
i. Metallic mineral deposits
1. Copper, aluminum, gold, iron, manganese, nickel, cobalt, zinc, lead,
silver, tin, tungsten, uranium and platinum;
ii. Non-metallic minerals
1. Coal, potash, phosphates, sulphur, magnesium, limestone, salt, mineral,
construction materials such as gravel and sand, diamonds and other
gemstones
iii. Petroleum deposits
1. Oil, natural gas, natural gas liquids, other gases, heavy oil and oil sands
e. The residual value of the real property interest, plant, machinery and equipment as well
as environmental reclamation requirements are pertinent factors in the valuation
process for extractive industry properties.
f. Exploration property or area – a mineral or petroleum real property interest that is
being actively explored for mineral deposits or petroleum accumulations, but for which
economic viability has not been demonstrated.
g. Mining area – defined by RA 7942 or Philippine Mining Act of 1995, means a portion of
the contract area identified by the contractor for purposes of development, mining,
utilization and sites for support facilities or in the immediate vicinity of the mining
operations.
h. Feasibility study in the mining industry – comprehensive study for the mineral deposit
or petroleum accumulation, in which all geological, engineering, operating, economic,
marketing, environmental, regulatory and other relevant factors are considered in
sufficient detail.
i. Mineral – any naturally occurring material useful to and /or having a value placed on it
by humankind, and found in or on the earth’s crust. Petroleum is not included in
mineral.
j. Minerals - as defined by Phil. Mining Act of 1995, it refers to all naturally occurring
inorganic substance in solid, gas, liquid, or any intermediate state excluding energy

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 materials such as coal, petroleum, natural gas, radioactive materials and geothermal
energy.
k. Mineral lands – as defined by RA 7160 ( Local Government Code of 1991) 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.
l. Mineral reserve – the economically mineable part of a measured and /or indicated
mineral resource.
m. Mineral reservations – as defined by Phil. Mining Act, refer to areas established and
proclaimed as such by the President upon the recommendation of the director through
the secretary, including all submerged lands within the contiguous zone and exclusive
economic zone.
n. Mineral resources – a concentration of occurrence of material of intrinsic economic
interest in or on the earth’s crust (a deposit) in such form and quantity that there are
reasonable prospects for eventual economic extraction.
o. Petroleum – any naturally occurring hydrocarbon, whether in gaseous, liquid or solid
state. Raw petroleum products are primarily crude oil and natural gas.
p. Petroleum industry – entities involved in exploration for petroleum, including
extraction, processing and refining and marketing.
q. Petroleum reserves –quantities of petroleum which are anticipated to be commercially
recovered from known accumulations from a given date forward.
r. Petroleum resources – comprise only of 1) petroleum reserve and 2) contingent
resources
s. Contingent resources – quantities of petroleum, which are estimated on a given date, to
be potentially recoverable from known accumulations but which are not currently
considered to be commercially recoverable.
t. Royalty or royalty interest – landowner or lessor’s share of production, in money or
product, free from charge for expenses of production. An overriding royalty is a share of
mineral or petroleum produced, free of the expense of production, paid to someone
other than the lessor, over and above any lessor’s royalty.
u. According to RA 7942, a 10% share of all royalties and revenues to be derived by the
government from the development and utilization of the mineral resources within
mineral reservations as provided under this Acts shall accrue to the Mines and
Geoscience Bureau to be allotted for special projects and other administrative expenses.
v. Co-production agreement- an agreement between the government and the contractor
wherein the government shall provide inputs to the mining operations other than the
mineral resource.
w. Joint venture agreement – agreement wherein the JV company is organized by the
government and the contractor with both parties having equity shares. Aside from
earnings from equity, the government shall be entitled to a share in the gross output.
x. Technical expert in the extractive industry called technical expert – a person, who is
responsible for all or part the technical assessment that supports an extractive industry
valuation.

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 y. Technical assessment in the extractive industry – a technical document prepared by 1)
technical experts and is appended to, or forms part of valuation report.

63. Historic properties

a. Historic properties are assets that embody a cultural, historic and or architectural
heritage.
b. Historic house owner associations – not for profit membership associations that
promote the preservation of historic properties and provide their owner members with
advice on matters such as management, repair, maintenance, taxation and insurance.
c. Listing of heritage buildings or historic properties register – recording of officially
designated historic properties.
d. Preservation incentives – incentives given to the owners to promote restoration and
maintenance like exemption of inheritance taxes (estate taxes)
e. Publicly designated historic properties – those properties, the historic status of which is
officially recognized by government-chartered bodies to identify historic properties and
to promote historic preservation.
f. Heritage asset – an asset having some cultural, environmental, or historical significance.
g. Cultural heritage – three groups recognized by UNESCO
i. Monuments – architectural works, monumental sculpture and painting,
structures of archeological nature, cave dwellings which are of outstanding
universal value from the point of view of history, art or science;
ii. Groups of buildings – because of their architecture; with outstanding universal
value from the point of view of history
iii. Sites – works of man or combined works of nature and man such as
archeological sites
h. Cultural property- property inscribed in the World Heritage List after passing the test of
authenticity

i. Classification of historic sites and structures

i. National shrine – ex. Rizal shrine in Calamba, and Fort Santiago, Aguinaldo
Shrine, Mabini Shrine
ii. National monument – Rizal and Bonifacio monuments
iii. National landmarks – Paoay church in Ilocos, Barasaoain church in Bulacan
iv. Heritage houses – Syquia mansion in Vigan, houses in Silay City, Negros
Occidental
v. Historic sites – Biak naBato in Bulacan, Pamitinan cave in Montalban, Rizal
vi. Classified – structures and sites not falling under the above categories

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

Concept of Highest and Best-use

It is based on the notion that although two or more parcels of real estate may have
physical similarities and closely resemble to one another, there may be a significant differences in
how they can be used. How a property can be optimally utilized is the foundation for
determining its market value.

Basic determinants of highest and best-use (HABU four criterion)

1. Is the suggested use a reasonable and likely one? (appropriately justified)

2. Is the use legal, or is there a reasonable likelihood that a legal entitlement for the use can be
obtained? (legally permissible)

3. Is the property physically suited to the use or can it be adapted to the use? (physically possible)

4. Is the suggested use financially feasible? (financially feasible)

Of those uses that meet the first four tests, is the selected HABU the most productive use of the land?

Three approaches to value (applicability)

1. Sales comparison approach

• When data are available, it is the most direct and systematic approach to estimated
value
• Valuers apply quantitative and /or qualitative methods to analyze differences and
estimate adjustments
• The approach uses the principle of substitution, that is, when several similar
commodities or services are available, the one with the lowest price attracts the
greatest demand. It recognizes that property prices are determined by the market.

• Elements of comparison (adjustment factors)

1. Real property rights conveyed – the transaction price is always assumed to be real
or true.
2. Financing terms - interest rate, paying period
3. Conditions of sale – cash or installment
4. Expenditures made immediately after the purchase – say cost to repair
5. Market conditions- valuation date should be specified because of rapid changes of
values due to developments ( factors which influences values)
6. Physical characteristics
7. Economic characteristics – income and expense, lease provision, management,
tenant mix are used in income producing properties
8. Use – comparable with similar uses
9. Non-realty components of sale – furnitures and fixtures included in the sale, as is
where is, appliances included in the sale

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

 10. Formula :
Value = Value of comparable plus or minus adjustments

2. Cost approach
Appropriate when properties are new or of relatively new construction
Formula :
11. Value = RCN less Depreciation + Land Value

3. Income approach

• Applicable to properties that were purchased and sold on the basis of their
earning capabilities
• It is not merely quantitative or mathematical but requires qualitative assessments
as well.
• For direct capitalization approach, it uses an overall rate or all risks yield:
12. Value = NOI (one year income) / Rate (OAR)
13. Overall rate based on market formula:
= NOI of comparable / Selling price of comparable)
14. Overall rate based on band of investment method
15. Value = GIM of comparable property x Income of subject property
16. Value = GRM comparable property x Income of subject property
• For residual method (straight line capitalization)
17. Land residual method : if building value can easily be computed
18. Building residual method: if land value can easily be computed
19. Property residual method – just like direct capitalization
method/applicable to old properties
• For annuity method (straight line discounting)
20. Land, building and property residual method
21. Discounted cash flow (usually estimated income is discounted on a per
year basis)

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards

Valuation Process

1. Definition of the process

1. Identify real estate

2. Identify property rights
3. Use of valuation
4. Define value
5. Date of value
6. Scope of the assignment
7. Other limiting conditions

2. Preliminary analysis and data selection and collection

1. General data (regional, city and neighborhood)

a. Social, economic, governmental, and environmental
2. Specific data (subject property and comparable data)
a. Cost and depreciation
b. Income and expense
c. Capitalization rate
d. History of ownership
e. Use of property
3. Competitive supply and demand (the subject market)
a. Inventory and competitive properties
b. Sales and listings
c. Vacancies and offerings
d. Demand studies
e. Absorption rate
4. Highest and best-use analysis
a. Land as though vacant
b. Property as improved
5. Specified in terms of use, time and market participants
6. Land value estimate
7. Applicable valuation approaches
a. Sales comparison approach
b. Cost approach
c. Income capitalization approach
8. Reconciliation of value indications and final estimate of value
9. Report of defined value

Cesar E. Santos Real Estate Academy: Philippine Valuation Standards