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What is capitalization in perpetuity?
- § In capitalizing net income earned on land, it is assumed that it will continue to earn more income indefinitely. The market value by capitalization in perpetuity formula is MV=I/R where I is the income and the income and R is the rate of return.
What is Market Data Approach?
- § The market data approach is essential in almost every appraisal of the value of the real property. The resulting value by this approach frequently is defined as the “price at which a willing seller would sell and a willing buyer would buy neither being under abnormal pressure.”
- § This definition assumes that both buyer and seller are fully informed as to the property and state of the market for that type of property, and that the property has been exposed in the open market for a reasonable time.
- § This approach produces an estimate of value of a property by comparing it with similar properties of the same type and class which have been recently sold or currently being offered for sale in the same areas. The comparative process utilized in determining the degree of comparability between two properties, involves judgment as to their similarity with respect to many value factors such as location, orientation, plottage, elevation, and size. The prices of those comparable properties will set the range in which value of the subject property will be.
What data are needed in Market Data Approach?
- § Sales or asking prices of comparable properties
- § Condition influencing each sale
- § Location of each property
- § Description of the land and improvements of each property
What is Correlation?
§ The last stage in the appraisal process is the correlation of the three values derived by the cost, income and market data approaches. In correlating these approached into his final estimate of value, the appraiser should take into account the purpose of the appraisal, the type of property, and the adequacy of the data available and used in each of the three approaches. These will determine the weight to be given to each approach. The appraiser should not average the three value arrived at by means of the cost, market date and income approaches. The appraiser instead should take the three value estimate and examines the spread between the minimum and maximum figures. He should then consider the approach which appears to be the most reliable. Then he should make adjustments in accordance with his judgment and experience.
What is an Appraisal Report?
A word portrayal of the property, the facts concerning that property, and the reasoning by which the appraiser has developed his estimate of value. The best report is the one which, in the fewest number of words, permit the reader to follow intelligently the appraiser’s reasoning and to concur in the conclusions reached thereby. As every report is an answer to a question by a client, it should show the facts considered and clearly outline the reasoning employed by the appraiser in arriving at his valuation.
What are the steps in appraisal process?
1. Definition of the problem
- § Analysis of the TCT
- § Prepare the plotting based on technical description stated in the title.
- § Compute the lot area based on the measurement on your plotting against the area stated in the title.
2. Determination of property rights
- § -Check the encumbrances annotated at the back of the TCT
- § -Watch for possible annotations that might affect the value of the land.
- § -All annotations, adverse or informative, should be included in the report, such as: lease contracts, claim of levy, right of way and Sec. 4, Rule 74 of the Rules of Court.
3. Preliminary survey and appraisal
- § Check the exact location at the cadastral map.
- § If the property appears to be an interior lot, which is without road frontage, verify the updated plan with the following offices: Land Registration Authority, Bureau of Lands, Assessor’s Office Mapping Section and Department of Public Works and Highways.
4. Preliminary analysis and data selection and collection (ocular inspection)
- § Use the compass to check the direction of the property pointed by the owner against technical plotting.
- § Check the actual shape and measurements of frontage and depth of the property against the technical plotting.
- § Observe the development in the area and the effect of the four forces which create value: social forces, economic forces, political forces and physical forces.
5. Analysis of the highest and best use
- § After observation of the development in the area, the appraiser must determine the use which at the time of appraisal is most likely to produce the greatest net return.
6. Application of the three approaches
- § market data or sales comparison approach
- § cost approach
- § income approach
7. Reconciliation of value indicators
8. Determination of Final value and written report
What is the summary of the appraisal process?
1. Reason for appraisal
- § advising prospective purchasers of real estate
- § advising prospective sellers of real estate
- § collateral for mortgages
- § ad valorem taxation
- § inheritance (estate) taxation
- § insurance
- § eminent
- § litigation
2. Identify the Problem
- § real estate to be appraised
- § property rights to be appraised
- § purpose of the appraisal
- § function (use) of the appraisal
- § type of value
- § effective date of appraisal
- § type of value
- § effective date of appraisal
- § special limiting conditions
3. Plan the appraisal
- § prepare the general and specific data
- § determine the “highest and best use”
- § do the basic approaches (coast, market, income approach)
- § reconcile and value conclusion
4. Prepare the report
- certification or letter report
- narrative report
- forum report
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BONUS
Did you know that there is anomaly when the broker and the appraiser is one and the same person in a transaction? Read more ...
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