UPDATES On Philippine Valuation Standards PDF

Exposure Workshop on the Draft
Updated Philippine Valuation Standards

(PVS)
Workshop Agenda – in Brief
1st Day 2nd Day

• Introduction and opening remarks • Working Group discussions
 Overview of Valuation Standards • Reports from Working Groups
 General and Asset Standards  Open Forum
 Next Steps and Closing Remarks
Real Estate Valuation: The Need for Standards
The PVS Objectives - 2009
• To raise the quality of public and private sector valuations and reporting of
valuations;
• To provide consistency and understanding between providers and users of
valuations at national and international levels;
• To promote transparency and reliability of valuations for disposal of government
assets, financial reporting, secured lending, transfers of ownership and litigation and
taxation;
• To reduce financial risk for users of valuations.
• Valuers supply global clients: Banks, Investment Funds,
Corporate Entities
• Clients need consistency of service wherever they

operate worldwide
• Real Estate is a global industry
• National boundaries result in different legal

requirements- but basic “rules of engagement” are
generally the same worldwide.
Why have Valuation Standards?
• Consistency, objectivity and transparency are fundamental to building
and sustaining public confidence and trust in valuation;
• In turn their achievement depends crucially on possessing and deploying

the appropriate skills, knowledge, experience and ethical behaviour, both
to form sound judgments and to report opinions of value clearly and
unambiguously to clients and other valuation users.
History
 RICS Asset Valuation Practice and Guidance Notes 1976
 Currently the ‘Red Book’ 2014 – RICS Valuation – Professional
Standards
 Mallinson report – RICS 1994; and Carsberg Report RICS 2002
 IVSC published first definitions and standards in early 1990s
 In 2000 first comprehensive book of standards published – six
subsequent editions to 2017
 European Valuation Standards – EVS 2016
IVS - Valuation Standards
Globally recognised high level valuation principles and definitions are now
embodied in the International Valuation Standards (IVS) published by the
International Valuation Standards Council (IVSC).
The IVS have the following characteristics –

• Developed collaboratively – shared ownership
• High level – principle based
• Independent experts used
• Transparent consultation process
• Enacted locally, through or alongside national standards
• Provide consistency, comparability and common language
IVS
 Adopted as national standards in many countries (e.g. Australia, New Zealand,
Romania, South Africa, Turkey)
 Some countries have adopted as national standards with amendments to meet
requirements of national legislation. Philippines
 Professional organisations adopting IVS:
 Appraisal Institute (US)
 RICS (GLOBAL)
 South African Institute of Valuers
 Plus many more!!!
Valuation Standards….1
For clients and other valuation users professional valuation standards ensure:
• consistency in approach, aiding understanding of the valuation process and hence of the
value reported;
• credible and consistent valuation opinions by suitably trained appraisers/valuers with
appropriate qualification and adequate experience for the task;
• independence, objectivity and transparency in the appraisers/valuer’s approach;
• clarity regarding terms of engagement, including matters to be addressed and disclosures
to be made;
• clarity regarding the basis of value, including any assumptions or material considerations
to be taken into account; and
• clarity in reporting, including proper and adequate disclosure of relevant matters where
valuations may be relied on by a third party.
Valuation Standards….2
But acceptance alone is not enough – effective implementation is the key. If

confidence and public trust in the valuation process is to be achieved, standards
must not only be uniformly interpreted and consistently applied but also actively
monitored and enforced.
Why We Are Here Today?
• To continue the process of updating the Philippine Valuation Standards (PVS)
• Previous exposure meeting was held on 10th April 2017 in Manila
• Draft PVS2017 was published on the BLGF website (www.blgf.gov.ph/vggt-pvs)
• Initial consultation provided some very useful feedback and suggestions
• The BLGF is currently holding three 2-day workshops; 2 in Manila and one in
Davao City to gain widespread consultation
• The consultation process is fundamental to the revision of the PVS. The

objective is to gather from those with an interest in valuation their
comments/suggestions. Everyone would agree that valuation standards are
essential and the Philippines is following in the steps of many other countries
in having a set of standards.
PVS – General Standards
The IVS General Standards 2017
General Contents/Inclusions Proposed Revisions
Standards
IVS 101 10 Introduction
Scope of
Work
Definition of scope of work This is also referred to as “terms
of reference” or TOR.
Application of the standards to Qualification of appraisals being

valuation assignments, done by the local assessors
including in-house appraisals,
third party appraisals, and
review appraisals
20 General
Requirements
All valuation advice and the Application to assessors’ work
work undertaken in its
preparation must be appropriate
for the intended purpose.
General Contents Proposed
Standards Revisions
IVS 101 A valuer must ensure that the intended
Scope of Work recipient(s) of the valuation advice
understand(s) what is to be provided and
any limitations on its use before it is
finalized and reported.
Communicating the scope of work to its
client prior to completion of the
assignment
Wherever possible, the scope of work
should be established and agreed
between parties to a valuation
assignment prior to the valuer beginning
work.
Standards Revisions
IVS 101 A written scope of work may not be
Scope of Work necessary, however, a written scope of
work should be prepared.
Some aspects of the scope of work may

be addressed in documents such as
standing engagement instructions,
master services agreements or a
company’s internal policies and
procedures.

Standards Revisions
IVS 101 30 Changes to Whilst the scope of work may be
Scope of scope of work established at the outset, it may be
Work established over time throughout the
course of the assignment and any
changes made over time must be
communicated to the client before the
assignment is completed and the
valuation report is issued.
Standards Revisions
IVS 102 10 General Principle To be compliant with IVS, valuation
Investigations assignments, including valuation
and Compliance reviews, must be conducted in
accordance with all of the principles
set out in IVS that are appropriate for
the purpose and the terms and
conditions set out in the scope of work.
Standards Revisions
IVS 102 20 Investigations Investigations made during the course of a
Investigations and valuation assignment must be appropriate
Compliance for the purpose of the valuation
assignment and the basis (es) of value.
References to a valuation or valuation
assignment in this standard include a
valuation review.
Sufficient evidence must be assembled by
means such as inspection, inquiry,
computation and analysis to ensure that
the valuation is properly supported.
In considering the credibility and reliability
of information provided valuers should
consider matters such as: purpose,
significance of information, expertise of the
source, etc.
Standards Revisions
IVS 102 30 Valuation A record must be kept of the work
Investigations and Record performed during the valuation process
Compliance and the basis for the work on which the
conclusions were reached for a
reasonable period after completion of the
assignment, having regard to any
reasonable period after completion of the
assignment, having regard to any relevant
statutory, legal or regulatory requirements
General Standards Contents Proposed
Revisions
IVS 102 40 Compliance As noted in the IVS Framework, when
Investigations and with the statutory, legal, regulatory or other
Compliance Standards authoritative requirements must be followed
that differ from some of the requirements
within IVS, a valuer must follow the statutory,
legal, regulatory or other authoritative
requirements (called a “departure”). Such a
valuation has still been performed in overall
compliance with IVS.
Most other sets of requirements, such as
those written by Valuation Professional
Organizations, other professional bodies, or
firms’ internal policies and procedures, will not
contradict IVS and, instead, typically impose
additional requirements on valuers.
Standards Revisions
IVS 103 10 Introduction It is essential that the valuation report
Reporting communicates the information
necessary for proper understanding of
the valuation or valuation review. A
report must provide the intended users
with a clear understanding of the
valuation.
Standards Revisions
IVS 103 20 General It is essential that the valuation report
Reporting Requirements communicates the information
necessary for proper understanding of
the valuation or valuation review. A
report must provide the intended users
with a clear understanding of the
valuation.
The report should also be sufficient for
an appropriately experienced valuation
professional with no prior involvement
with the valuation engagement to
review the report
Standards Revisions
IVS 103 30 Valuation Where the report is the result of an
Reporting Reports assignment involving the valuation of an
asset or assets, the report must convey the
following, at a minimum: the scope of the
work performed, the approach or
approaches adopted, the method or
methods applied, the key inputs used, the
assumptions made, the conclusion(s) of
value and principal reasons for any
conclusions reached, and the date of the
report (which may differ from the valuation
date).
Standards Revisions
IVS 103 40 Valuation Where the report is the result of a valuation
Reporting Review review, the report must convey the
Reports following, at a minimum”: The scope of the
review performed, scope of work to the
extent each is applicable to the
assignment, the valuation report being
reviewed and the inputs and assumptions
upon which that valuation was based, the
reviewer’s conclusions about the work
under review, including supporting
reasons, and The date of the report (which
may differ from the valuation date).
Standards Revisions
IVS 104 10 Introduction Bases of value (sometimes called standards of
Bases of value) describe the fundamental premises on
Value which the reported values will be based. It is
critical that the basis (or bases) of value be
appropriate to the terms and purpose of the
valuation assignment, as a basis of value may
influence or dictate a valuer’s selection of
methods, inputs and assumptions, and the
ultimate opinion of value.
Standards Revisions
IVS 104 20 Bases of Value In addition to the IVS-defined bases of value
Bases of listed below, the IVS have also provided a non-
Value exhaustive list of other non-IVS-defined bases of
value prescribed by individual jurisdictional law
or those recognized and adopted by
international agreement: IVS-defined bases of
value: Market Value (section 30), Market Rent
(section 40), Equitable Value (section 50),
Investment Value (section 60), Synergistic Value
(section 70), and Liquidation Value (section 80).
Other bases of value (non-exhaustive list): Fair
Value (International Financial Reporting
Standards) (section 90), Fair Market Value
(Organization for Economic Co-operation and
Development) (section 100), Fair Market Value
(United States Internal Revenue Service)
Standards Revisions
IVS 104 30 IVS-Defined Basis Market Value is the estimated amount for
Bases of of Value- Market which an asset or liability should exchange on
Value Value the valuation date between a willing buyer
and a willing seller in an arm’s length
transaction, after proper marketing and where
the parties had each acted knowledgeably,
prudently and without compulsion.
40 IVS-Defined Basis Market Rent is the estimated amount for
of Value – Market which an interest in real property should be
Rent leased on the valuation date between a
willing lessor and a willing lessee on
appropriate lessee terms in an arm’s length
transaction, after proper marketing and where
the parties had each acted knowledgeably,
prudently and without compulsion.
Standards Revisions
IVS 104 50 IVS-Defined Basis Equitable Value is the estimated price for the
Bases of of Value – Equitable transfer of an asset or liability between
Value Value identified knowledgeable and willing parties
that reflects the respective interests of those
parties.
60 IVS-Defined Basis Investment Value is the value of an asset to a

of Value – particular owner or prospective owner for
Investment individual investment or operational
Value/Worth objectives.
Standards Revisions
IVS 104 70 IVS-Defined Basis Synergistic Value is the result of a
Bases of of Value – combination of two or more assets or
Value Synergistic Value interests where the combined value is more
than the sum of the separate values. If the
synergies are only available to one specific
buyer then reflect particular attributes of an
asset that are only of value to a specific
purchaser. The added value above the
aggregate of the respective interests is often
referred to as “marriage value”.
Standards Revisions
IVS 104 80 IVS-defined Basis Liquidation Value is the amount that would be
Bases of of Value – realized when an asset or group of assets
Value Liquidation Value are sold on a piecemeal basis. Liquidation
Value should take into account the costs of
getting the assets into saleable condition as
well as those of the disposal activity.
Liquidation Value can be determined two
different premises of value: a)An orderly
transaction with a typical marketing period
(see section 160), or b) A forced transaction
with a shortened marketing period (see
section 170).
Standards Revisions
IVS 104 90 Other Basis of Value IFRS 13 defines Fair Value as the price that
Bases of – Fair Value would receive to sell an asset or paid to
Value (International transfer a liability in an orderly transaction
Financial Reporting between market participants at the
Standards) measurement date.
100 Other Basis of Value The OECD defines Fair Market Value as the
– Fair Market Value price a willing buyer would pay a willing seller
(Organization for in a transaction on the open market.
Economic Co-
operation and
Development
(OECD))
General Proposed
Standards Revisions
IVS 104 110 Other Basis of Value – Fair Market Value (United States Internal
Bases of Revenue Service)
Value
120 Other Basis of Value – Fair Value (Legal/Statutory) in different

jurisdictions
General Contents Proposed Revisions
Standards
IVS 104 120.1 Many national, state and local In the Philippines, Republic
Bases of agencies use Fair Value as a Act 7160 or the Local
Value basis of value in a legal context. Government Code of 1991,
The definitions can vary exhaustively uses the term
significantly and may be the Fair Market Value in relation
result of legislative action or to real property for taxation
those established by courts in purposes and expropriation
prior cases. cases. "Fair Market Value" is
defined as 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;
Standards Revisions
IVS 104 130 Premise of A Premise of Value or Assumed Use
Bases of Value/Assumed describes the circumstances of how
Value Use an asset or liability is used. Different
bases of value may require a
particular Premise of Value or allow
the consideration of multiple
Premises of Value. Some common
Premises of Value are: a) Highest
and best use, b) Current
use/existing use,
c) Orderly liquidation, and d) Forced
sale.
Standards Revisions
IVS 104 140 Premise of Value Highest and best use is the use,
Bases of – Highest and from a participant perspective, that
Value Best Use would produce the highest value for
an asset. Although the concept is
most frequently applied to non-
financial assets do not have
alternative uses, there may be
circumstances where the highest
and best use of financial assets
needs to be considered.
Standards Revisions
IVS 104 150 Premise of Value Current use/existing use is the
Bases of – Current current way an asset, liability, or
Value Use/Existing Use group of assets and/or liabilities is
used. The current use may be, but
is not necessarily, also the highest
and best use.
160 Premise of Value An orderly liquidation describes the

– Orderly value of a group of assets that
Liquidation could be realized in a liquidation
sale, given a reasonable period of
time to find a purchaser (or
purchasers), with the seller being
compelled to sell on an as-is,
where-is basis.
Standards Revisions
IVS 104 170 Premise of Value The term “forced sale” is often used
Bases of – Forced Sale in circumstances where a seller is
Value under compulsion to sell and that,
as a consequence, a proper
marketing period is not possible
and buyers may not be able to
undertake adequate due diligence.
180 Entity-Specific For most bases of value, the factors
Factors that are specific to a particular
buyer or seller and not available to
participants generally are excluded
from the inputs used in a market-
based valuation. Examples of
entity-specific factors that may not
be available to participants include
Standards Revisions
IVS 104 190 Synergies “Synergies” refers to the benefits associated
Bases of with combining assets.
Value
200 Assumptions and In addition to stating the basis of value, it is
Special often necessary to make an assumption or
Assumptions multiple assumptions to clarify either the state
of the asset in the hypothetical exchange or
the circumstances under which the asset is
assumed to be exchanged
210 Transaction Costs Most bases of value represent the estimated

exchange price of an asset without regard to
the seller’s costs of sale or the buyer’s costs
of purchase and without adjustment for any
taxes payable by either party as a direct
result of the transaction
Standards Revisions
IVS 105 10 Introduction Consideration must be given to the
Valuation relevant and appropriate valuation
Approache approaches. The three approaches
s and used in valuation. They are all based
Methods on the economic principles of price
equilibrium, anticipation of benefits or
substitution. The principal valuation
approaches are: Market approach,
Income Approach and Cost Approach
20 Market Approach The market approach provides an

indication of value by comparing the
asset with identical or comparable
(that is similar) assets for which price
information is available
Standards Revisions
IVS 105 30 Market Approach Comparable Transactions Method
Valuation Methods
Approaches
and
Methods
Guideline publicly-traded comparable
method
40 Income Approach The income approach provides an

indication of value by converting future
cash flow to a single current value.
Under the income approach, the value
of an asset is determined by reference
to the value of income, cash flow or
cost savings generated by the asset.
Standards Revisions
IVS 105 50 Income Although there are many ways to
Valuation Approach implement the income approach, methods
Approaches Methods under the income approach are effectively
and Methods based on discounting future amounts of
cash flow to present value. They are
variations of the Discounted Cash Flow
(DCF) method and the concepts below
apply in part or in full to all income
approach methods
Discounted Cash Flow (DCF) Method
Type of Cash Flow
Explicit Forecast Period

Standards Revisions
IVS 105 Cash Flow Forecasts
Valuation
Approaches
and
Methods
Terminal Value
Gordon Growth Model/Constant Growth
Model
Market Approach/Exit Value
Salvage Value/Disposal Cost

Discount Rate
Standards Revisions
IVS 105 60 Cost Approach The cost approach provides an indication
Valuation of value using the economic principle that
Approaches a buyer will pay no more for an asset than
and the cost to obtain an asset of equal utility,
Methods whether by purchase or by construction,
unless undue time, inconvenience, risk or
other factors are involved. The approach
provides an indication of value by
calculating the current replacement or
reproduction cost of an asset and making
deductions for physical deterioration and
all other relevant forms of obsolescence.
Standards Revisions
IVS 105 70 Cost Approach
Valuation Methods
Approaches
and Methods
Replacement Cost Method
Reproduction Cost Method
Summation Method
Cost Considerations

Standards Revisions
IVS 105 80 Depreciation/ In the context of the cost approach,

Valuation Obsolescence “depreciation” refers to adjustments made
Approache to the estimated cost of creating an asset
s and of equal utility to reflect the impact on
Methods value of any obsolescence affecting the
subject asset.
Thank You!
PVS – Asset Standards
The IVS Asset Standards 2017
Asset Standards Overview/ Introduction Bases of Value
IVS 200 Business and Business – commercial, industrial, service or investment IVS 104
Business Interests activity
IVS 210 Intangible Non-monetary asset that grant rights and/or economic IVS 104
Assets benefits
IVS 300 Plant and Tangible assets used in manufacturing/production or supply IVS 104
Equipment of goods or services for rental or administrative purposes
IVS 400 Real Property Real property interest is a right of ownership, control, use or IVS 104
Interests occupation of land and buildings
IVS 410 Development Development properties are interests where redevelopment IVS 104
Property is required to achieve highest and best use, or
improvements are planned/in progress at the valuation date
IVS 500 Financial Financial instrument – a contract that creates rights or IVS 104
instruments obligations between specified parties to receive or pay cash
or other financial consideration
Asset Overview/Introduction Valuation Approaches Special Considerations
Standards and Methods
IVS 200 •Business – commercial, Market Approach Ownership Rights – articles of association,
Business and industrial, service or •Sources of data: memorandum clauses, articles of
Business investment activity. a. Public stock markets incorporation, bylaws, partnership
Interests •Forms – corporations, b. Acquisition market agreements and shareholder agreements.
partnerships, joint c. Prior transactions in Business Information – owner-specific
Bases of value ventures, sole shares or offers synergies or participant perspective;
IVS 104 proprietorships. Income Approach business history
•Levels of value •Type of income or cash Economic and Industry – political outlook,
a. Enterprise value – flow: government policy, exchange rates,
equity value plus debt a. Pre-tax inflation, interest rates and market activity
minus cash; b. Post-tax •Factors – location, nature, market,
b. Total invested capital Type of cash flow with currency, suppliers and taxes
value – total assets respect to type of Operating and Non-Operating Assets –
less current liabilities interest being valued income producing vs. redundant or excess
and cash; a. Enterprise value – at valuation date; unrecorded assets
before debt servicing (intangibles, depreciated machinery and
b. Equity value – after equipment, legal liabilities/lawsuits)
debt servicing
Philippine Setting
IVS 200 c. Operating value – Cost Approach Capital Structure – debt and equity
Business and total value of •Applications: •Waterfall method – equity value equals
Business operations, excluding a. Start-up business enterprise value less book value
Interests non-operating assets b. Investment or holding •Where the value of the debt differs from
and liabilities; business its book value;
Bases of value d. Equity value – c. Value of assets in a. Value the debt directly
IVS 104 business value to liquidation exceeds b. Probability-weighted expected return or
shareholders going concern value option-pricing model – method that
•Purposes of valuation – allocates value to debt and any equity
acquisitions, mergers, securities.
sales of business,
taxation, litigation,
insolvency proceedings
and financial reporting.
Philippine
Setting
Asset Overview/Introduction Valuation Approaches and Methods Special
Standards Considerations
IVS 210 Non-monetary assets that Market Approach Discount Rates/Rates
Intangible grants rights and/or •Criteria: of Return
Assets economic benefits. a. Information on arm’s-length transactions is •Professional
•Characteristics – available judgement
Bases of ownership, function, b. Information to allow for adjustments on significant •Risk assessment
value market position and image. differences between subject intangible and those a. Higher risk than
IVS 104 •Types – marketing-related, involved in the transactions tangibles
customer-related, artistic- •Examples: b. Highly specialized
related, contract-related a. Broadcast spectrum c. Single vs. Groups
and technology-based. b. Internet domain names of assets
•Customer data, customer c. Taxi medallions d. Non-routine vs.
contracts and customer Guideline transaction method – the only market routine functions
relationships. approach applicable to intangible assets. e. Life of the asset
Guideline public company method (rare) – publicly f. Estimable cash
traded security similar to the subject intangible flow streams
asset; e.g. Contingent value rights (CVRs)
Philippine
Setting
IVS 210 •Goodwill – future Income Approach •Discount rate
Intangible economic benefit; the Value is determined by reference to the present benchmarks
Assets residual amount value of income, cash flows or cost savings a. Risk-free rates
remaining after the attributable to the intangible asset. b. Borrowing rates
Bases of values of tangible, a. Technology c. Equity rates
value intangible and monetary b. Customer-related intangibles (e.g. backlog, d. Weighted
IVS 104 assets, adjusted for contracts, relationships) average cost of
actual or potential c. Trade names/trademarks/brands capital (WACC)
liabilities has been d. Operating licenses (e.g. franchise e. Internal rate of
deducted from business agreements, gaming licenses, broadcast return (IRR)
value; transferrable spectrum) f. Weighted
goodwill or non- e. Non-competition agreements average return
transferrable/personal on assets
goodwill. (WARA)
Philippine
Setting
IVS 210 •Intangible Asset (IFRS •Income Approach Methods Economic Lives
Intangible or US GAAP) a. Excess Earnings Method – present value of cash flow •Legal, technological,
Assets a. Separable from the intangible asset functional and
b. Arises from b. Relief-from-Royalty Method – DCF from savings through economic factors
Bases of contractual or other owning, instead of licensing the intangible asset from a •Pattern of use or
value legal rights third party replacement
IVS 104 c. Elements – c. Premium Profit Method or With-and- Without Method •Attrition
company-specific – indicates the value of an intangible asset by a. Constant rate of
synergies, expansion comparing its use and non-use loss
opportunities, d. Greenfield Method – cash flow is assumed to come b. Variable rate of
assembled from the intangible only loss
workforce benefit, e. Distributor Method – disaggregated method used to c. Revenue based or
future benefits, value customer-related intangible assets; a variation of customer count
assemblage/going the multi-period excess earnings method d. Customer
concern value segregation
e. Period used
Philippine
Setting
Asset Overview/Introd Valuation Approaches and Methods Special
Standards uction Considerations
IVS 210 Purposes: Cost Approach Tax Amortization
Intangible a. Financial Value is determined using replacement cost. Benefits (TAB) – to
Assets reporting a. Acquired third-party software reduce tax burden
b. Tax reporting b. Internally developed/internally used, non- and increase cash
Bases of c. Valuation marketable software flow
value analysis in c. Assembled workforce
IVS 104 litigations Considerations using replacement cost:
d. Statutory or a. Direct and indirect costs
legal events b. Economic obsolescence
e. General c. Profit mark-up
consulting, d. Opportunity costs
collateral
lending and
transactional
support
engagements
Philippine
Setting
Asset Overview/Introduction Valuation Approaches and Special
Standards Methods Considerations
IVS 300 •Tangible assets (sometimes categorized as Market Approach Financing
Plant and personal property) used in Commonly used for Arrangements
Equipment manufacturing/production or supply of goods or homogenous classes (e.g. •Assets subject to a
services; for rental; or for administrative motor vehicles, office leasing or financing
Bases of purposes. equipment or industrial arrangement
value •Lease of machinery and equipment (right to machinery) •Assets subject to
IVS 104 use) – different life span than service life span Income Approach operating leases
Sections (considers both preventive and predictive Used where specific cash
140 – 170 maintenance). flows can be identified (e.g. a
are crucial •“In use” – group of assets cascading into sub- processing plant is operating
systems. to produce a marketable
•Intangible assets (e.g. Intellectual property product)
rights, operating software, technical data, Exclude elements of value
production records, patents) – have impact on relating to intangible assets,
the value of plant and equipment assets. goodwill and other
•Range of factors in the valuation of plant and contributory assets.
equipment:
a. Asset-related
b. Environment-related
c. Economic-related
IVS 300 •Obsolescence Cost Approach
Plant and •Identification of the asset or liability: For individual assets that
Equipment a. Permanently attached to the land are specialized or special-
b. Part of an integrated production line use facilities.
Bases of c. Component of the real property [e.g. Actual cost considerations:
value Heating, Ventilation and Air Conditioning a. Timing of the historical
IVS 104 (HVAC) System] expenditures.
Sections •Plant and equipment connected with the b. Basis of value
140 – 170 supply or provision of services – are often c. Specific costs
are crucial integrated with the building and, once d. Non-market components
installed, are not separable from it; forms After establishing
part of the real property interest. replacement cost, deduct
obsolescence.
Philippine
Setting
IVS 300 •Assumptions (examples): Cost-to-Capacity Method
Plant and a. Valued as a whole, in place and as part of a. To estimate the
Equipment an operating business replacement cost with
b. Valued as a whole, in place but not yet in one capacity where the
Bases of production replacement costs with a
value c. Valued as a whole, in place but the different capacity are
IVS 104 business is closed known.
Sections d. Valued as a whole, in place but is a b. To estimate the
140 – 170 forced sale value replacement cost for a
are crucial e. Valued as individual items for removal modern equivalent asset
from current location. with capacity that
•Purposes – financial reporting, leasing, matches foreseeable
secured lending, disposal, taxation, demand where the
litigation and insolvency proceedings. subject asset has excess
capacity.
Used as a check method
Philippine
Setting
Asset Overview/Introduction Valuation Approaches and Special Considerations
Standards Methods
IVS 400 •Property interests are defined by state or the Market Approach Hierarchy of Interests
Real law of individual jurisdictions, regulated by Adopt generally accepted and The different types of
Property national or local legislation (legal framework). appropriate units of comparison, real property interests
Interests •Real property interest is a right of ownership, such as: are not mutually
control, use or occupation of land and a. Price per square meter/hectare exclusive.
Bases of buildings. b. Price per room Examples:
value •Types of interest: c. Price per unit of output (e.g. A superior interest
IVS 104 a. Superior interest – absolute right of crop yield) may be subject to one
(see para possession and control of the land and any Specific Differences (subject vs or more subordinate
30.3 for buildings upon it in perpetuity, subject only comparables): interests.
HABU) to any subordinate interest and any a. Type of interest The owner of the
statutory or other legally enforceable b. Location absolute interest may
constraints. c. Quality of the land or building grant a lease interest in
b. Subordinate interest – rights of exclusive specs respect to part or all of
possession and control of a defined area of d. Permitted use and zoning his interest.
land or buildings for a defined period. e. Circumstances under which the
c. Right to use land or buildings but without a price was determined
right of exclusive possession or control.
Philippine Setting
IVS 400 •Intangible assets fall outside the g. Effective date of the price Head lease
Real classification of real property assets, but evidence and valuation interest are lease
Property may have material impact on its value date interests granted
Interests (e.g. hotel brand ) h. Market conditions directly by the
•Identity of the asset: Income Approach owner of the
Bases of a. Description of the real property Based upon actual or absolute interest.
value interest estimated income. Sub-lease interest
IVS 104 b. Identification of any superior or Income-generating ability; may be granted by
(see para subordinate interests that affects the actual or potential cash flows the holder of a head
30.3 for interest to be valued. (profits method) lease interest.
HABU) Cash flow for a defined future
period is adjusted to a present
value using a discount rate.
Philippine Setting
Standards Methods
IVS 400 IVS 101 Scope of Work and IVS 102 Capital value is the sum of Characteristics:
Real Investigations and Compliance: present day values for individual a. Subordinate
Property a. Evidence required to verify the real periods. interests of an
Interests property interest and any relevant related The discount rate is the time cost absolute interest
interest. of money and the risks/rewards include leases,
Bases of b. Extent of inspection. of the income stream. restrictions by
value c. Responsibility for information on the site Developing yield or discount rate previous owner or
IVS 104 and building areas. with respect to objective: by statute.
(see para d. Responsibility for confirming the a. Owner’s investment criteria – b. Lease interest will
30.3 for specification and condition of any building. rate of return or weighted be for a defined
HABU) e. Extent of investigation into the nature, average cost of capital period.
specification and adequacy of services. b. Market value – analysis of c. Right of use may be
f. Existence of any information on ground and returns implicit in market held in perpetuity or
foundation conditions transactions for a defined period.
g. Responsibility for the identification of
actual or potential environmental risks.
h. Legal permissions or restrictions on the use
of the property.
Philippine
Setting
IVS 400 •Typical Assumptions: Cost Approach Rent
Real a. Physical change (e.g. A proposed Depreciated replacement cost •Market rent (IVS
Property building is valued as if complete on (DRC) method 104, Sec. 40)
Interests valuation date) Used when there either there •Contract rent – the
b. Change in status (e.g. A vacant building is no evidence of similar rent payable under
Bases of was leased or a leased building transaction prices or no the terms of an
value became vacant) identifiable actual or notional actual lease.
IVS 104 c. Other existing interests were not income stream.
(see para accounted for. Used as a secondary or
30.3 for d. The property is free from corroborating approach.
HABU) contamination or other environmental Adjust for obsolescence –
risks. physical condition,
•Purposes: secured lending, sales and functionality and economic
purchases, taxation, litigation, utility.
compensation, insolvency proceedings
and financial reporting.
Philippine
Setting
IVS 410 Development properties are Market Approach Residual Method
Development interests where Applicable to •Completed Property Value
Property redevelopment is required to homogenous Special assumptions on estimated value on
achieve highest and best use, development property completion:
Bases of or improvements are frequently exchanged a. Current values
value planned/in progress at the in the market. b. Projected values
IVS 104 valuation date. Have limitations for
a. Construction of buildings larger or complex
b. Undeveloped land provided development property
with infrastructure or smaller properties
c. Redevelopment of with heterogeneous
previously developed land improvements.
d. Improvement or alteration Even more problematic
of existing buildings or for partially completed
structures development property.
Philippine
Setting
IVS 410 e. Land allocated for Income Approach Reflect pre-sale or pre-lease agreements on the
Developm development in a statutory Use of cash flow model valuation of the completed project.
ent plan. to establish the Make value adjustments if the terms are not
Property f. Land allocated for a higher residual value. reflective of the market.
value uses or higher density in Cost Approach •Construction Costs
Bases of a statutory plan Used to establish the Include preparatory work required.
value Purposes: development cost as a Contracts in place.
IVS 104 a. When establishing whether key component of the •Consultants’ Fees
proposed projects are residual approach. •Marketing Costs
financially feasible. A means of indicating •Timetable
b. As part of general consulting the value of •Finance Costs
and transactional support development property •Development Profit
engagements for acquisition for which there is no •Discount Rate
and loan security. active market on
completion.
Philippine
Setting
Standards Methods
IVS 410 c. For tax reporting Residual Method Existing Asset (specialists reports)
Development purposes (ad valorem Indicates the residual a. Market for the proposed
Property taxation analyses) amount after deducting all development
d. For litigation known or anticipated costs b. Highest and best use
Bases of value requiring valuation required to complete the c. Non-financial obligations
IVS 104 analysis (shareholder development. d. Legal permissions or zoning
disputes and damage Consider the reliability of e. Limitations, encumbrances or
calculations) information on: conditions
e. For financial reporting a. Any proposed building f. Rights of access
purposes (accounting or structure g. Geotechnical conditions
for business b. Construction and other h. Necessary services
combinations, asset costs i. Off-site infrastructure
acquisition and sales, j. Archaeological constraints
and impairment
analysis)
f. For other statutory or
legal events
(compulsory
IVS 410 Residual Value – very sensitive to Basic elements: k. Sustainability (green buildings)
Development changes in assumptions or a. Completed property l. Economic conditions and trends
Property projections concerning the value m. Supply and demand
income or revenue to be derived b. Construction costs n. Funding cost
Bases of from the completed project. The c. Consultants fees o. Time
value valuer must highlight the d. Marketing costs p. Other risks
IVS 104 potentially disproportionate e. Timetable Financial Reporting
effect of possible changes in f. Finance costs Accounting treatment vary depending on
either the construction costs or g. Development profit whether it is being held;
end value on the profitability of h. Discount rate a. For sale
the project and the value of the b. For owner occupation
partially completed property. c. As investment property
A sensitivity analysis may be Assumption: the entity is a going concern.
useful for this purpose provided Secured Lending
it is accompanied by a suitable Market value, contractual obligations, risk, pre-
explanation. sales, pre-leases
Philippine
Setting
IVS 500 Financial instrument – a Market Approach Valuation Inputs
Financial contract that creates rights or The price obtained Broker quotations, consensus pricing services,
Instruments obligations between specified from trading on a prices of comparable instruments and market
parties to receive or pay cash or liquid exchange closest data pricing services.
Bases of other financial consideration; to the time or date of In assessing brokers quotations
value such as, derivatives or other valuation is the best a. Brokers make markets and provide bids in
IVS 104 contingent instruments, hybrid indication of market more popular instruments and may not
instruments, fixed income, value. Otherwise, use extend to less liquid instruments
structured products and equity relevant quoted or b. A broker is concerned with trading and not
instruments. It can also be consensus prices or valuation
created through the private transactions. c. There is an inherent conflict of interest where
combination of other financial Make adjustments to the broker is the counterparty
instruments in a portfolio to the price information if d. Brokers have an incentive to encourage
achieve a net financial income. the observed trading
instrument is dissimilar Consensus pricing reflect a pool of quotations
or the information is from different sources to overcome conflict of
not recent enough. interest with brokers.
Philippine
Setting
IVS 500 Purposes of valuing financial Income Approach Credit Risk Adjustments
Financial instruments: Use discounted cash Factors in measuring credit risk:
Instruments a. Acquisitions, mergers and flow (DCF) method. a. Own credit and counterparty risk
sales of businesses or parts Terms of a financial b. Differentiate credit risk of the instrument and
Bases of thereof instrument: of the issuer and/or counterparty
value b. Purchase and sale a. Timing of the cash c. Subordination
IVS 104 c. Financial reporting flows d. Leverage
d. Legal or regulatory b. Calculation of the e. Netting agreements
requirements cash flows f. Default protection
e. Internal risk and compliance c. Timing and Collateral – an asset to which the holder of an
procedures conditions in the instrument has recourse in the event of
f. Tax, and contract (put on call, default
g. Litigation prepayment,
Relevant market information: extension or
price of recent transactions of conversion options)
similar instruments, credit
ratings, yields, volatility, indices,
etc.
Philippine
Setting
IVS 500 d. Protection of the Liquidity and Market Activity
Financial right of the parties to Liquidity is a measure of how easily and easily it can be
Instruments the instrument transferred in return for cash or cash equivalent.
Discount rate (assess the Market activity is a measure of the volume of trading
Bases of return thru the ...) at any given time; a relative rather than an absolute
value a. Terms and conditions measure.
IVS 104 of the instrument Valuation Control and Objectivity
b. Credit risk Control environment:
c. Liquidity and a. Internal governance
marketability of the b. Control procedures
instrument Items to consider:
d. Risk of changes to the a. Establishing a governance group
regulatory or legal b. Systems for regulatory compliance
environment c. Protocol for the frequency and methods for
e. Tax status of the calibration and testing of valuation models
instrument d. Criteria for verification
Cost Approach e. Periodic validation of valuation models
Follow the guidance in IVS f. Identifying thresholds
105 Valuation Approaches g. Identifying procedures for inputs
and Methods, paras 70.1
– 70.14
Philippine
Setting
IVS 500 Financial instrument – a Market Approach Valuation Inputs
Financial contract that creates rights or The price obtained Broker quotations, consensus pricing services,
Instruments obligations between specified from trading on a prices of comparable instruments and market
parties to receive or pay cash or liquid exchange closest data pricing services.
Bases of other financial consideration; to the time or date of In assessing brokers quotations
value such as, derivatives or other valuation is the best a. Brokers make markets and provide bids in
IVS 104 contingent instruments, hybrid indication of market more popular instruments and may not
instruments, fixed income, value. Otherwise, use extend to less liquid instruments
structured products and equity relevant quoted or b. A broker is concerned with trading and not
instruments. It can also be consensus prices or valuation
created through the private transactions. c. There is an inherent conflict of interest where
combination of other financial Make adjustments to the broker is the counterparty
instruments in a portfolio to the price information if d. Brokers have an incentive to encourage
achieve a net financial income. the observed trading
instrument is dissimilar Consensus pricing reflect a pool of quotations
or the information is from different sources to overcome conflict of
not recent enough. interest with brokers.
Philippine
Setting
IVS 500 Purposes of valuing financial Income Approach Credit Risk Adjustments
Financial instruments: Use discounted cash Factors in measuring credit risk:
Instruments a. Acquisitions, mergers and flow (DCF) method. a. Own credit and counterparty risk
sales of businesses or parts Terms of a financial b. Differentiate credit risk of the instrument and
Bases of thereof instrument: of the issuer and/or counterparty
value b. Purchase and sale a. Timing of the cash c. Subordination
IVS 104 c. Financial reporting flows d. Leverage
d. Legal or regulatory b. Calculation of the e. Netting agreements
requirements cash flows f. Default protection
e. Internal risk and compliance c. Timing and Collateral – an asset to which the holder of an
procedures conditions in the instrument has recourse in the event of
f. Tax, and contract (put on call, default
g. Litigation prepayment,
Relevant market information: extension or
price of recent transactions of conversion options)
similar instruments, credit
ratings, yields, volatility,
indices, etc.
Philippine
Setting
IVS 500 Identification a. Protection of the Liquidity and Market Activity
Financial requirements: right of the parties Liquidity is a measure of how easily and
Instruments a. Class or classes of to the instrument easily it can be transferred in return for
instrument to be valued Discount rate (assess cash or cash equivalent.
Bases of b. By individual the return thru the ...) Market activity is a measure of the
value instruments or portfolio a. Terms and volume of trading at any given time; a
IVS 104 c. Unit of account conditions of the relative rather than an absolute measure.
On investigation and instrument Valuation Control and Objectivity
compliance consider the b. Credit risk Control environment:
following: c. Liquidity and a. Internal governance
a. Understand and marketability of the b. Control procedures
validate all market data instrument
used.
b. Select a model to
capture the contractual
terms and economics of
the financial
instrument.
Asset Overview/Introduction Valuation Special Considerations
Standards Approaches and
Methods
IVS 500 c. Adjust comparable d. Risk of changes Items to consider:
Financial prices of similar to the regulatory a. Establishing a governance group
Instruments financial instruments. or legal b. Systems for regulatory compliance
d. Multiple valuation environment c. Protocol for the frequency and methods
Bases of approaches are e. Tax status of the for calibration and testing of valuation
value preferred. instrument models
IVS 104 Level of disclosure (IVS Cost Approach d. Criteria for verification
103 Reporting) Follow the guidance e. Periodic validation of valuation models
a. Materiality in IVS 105 Valuation f. Identifying thresholds
b. Uncertainty Approaches and g. Identifying procedures for inputs
c. Complexity Methods, paras 70.1
d. Comparability – 70.14
e. Underlying instruments
Philippine
Setting
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Exposure Workshop on the Draft

Updated Philippine Valuation Standards

1st Day 2nd Day

• Clients need consistency of service wherever they

• Real Estate is a global industry

• National boundaries result in different legal

• In turn their achievement depends crucially on possessing and deploying

The IVS have the following characteristics –

But acceptance alone is not enough – effective implementation is the key. If

• Previous exposure meeting was held on 10th April 2017 in Manila

• Draft PVS2017 was published on the BLGF website (www.blgf.gov.ph/vggt-pvs)

• Initial consultation provided some very useful feedback and suggestions

• The consultation process is fundamental to the revision of the PVS. The

Application of the standards to Qualification of appraisals being

Some aspects of the scope of work may

General Contents Proposed

60 IVS-Defined Basis Investment Value is the value of an asset to a

120 Other Basis of Value – Fair Value (Legal/Statutory) in different

160 Premise of Value An orderly liquidation describes the

210 Transaction Costs Most bases of value represent the estimated

20 Market Approach The market approach provides an

40 Income Approach The income approach provides an

Discounted Cash Flow (DCF) Method

Type of Cash Flow

Explicit Forecast Period

Salvage Value/Disposal Cost

General Contents Proposed

IVS 105 80 Depreciation/ In the context of the cost approach,

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