Real and Personal

Property Appraisal
Allan Cris Ricafort
2 Apr 2022
2nd sem, AY 2021-2022
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APPRAISAL

VALUE – fundamental purpose of

appraisal
APPRAISAL PROCESS – an orderly program
by which the problem is defined, the work
needed to solve the problem is planned,
and the date involved is acquired,
classified, analyzed and interpreted into
an estimate of value.
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APPRAISAL

PROFESSIONAL APPRAISAL – an estimate of

opinion of value, usually transmitted in
writing, of an adequately described
property as of a specified date, is
supported by a presentation and analysis
of factual and relevant data

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APPRAISAL VALUES

MARKET VALUE – the highest price estimated

in terms of money which a property will bring
if exposed for sale in the open market.
INSURABLE VALUE – the value of property,
inventory, equipment, and business income
covered in an insurance policy.
GOING-CONCERN VALUE – the value of a
company as an ongoing entity.
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APPRAISAL VALUES

LIQUIDATION VALUE–the total worth of a

company’s physical assets when it goes out
of business or if it were to go out of business.
ASSESSED VALUE–the peso value assigned to
a property to measure applicable taxes.

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APPRAISAL FUNCTIONS

1. In connection with the transfer of ownership

2. In connection with the financing and credit
3. To establish just compensation in
condemnation proceedings
4. To establish a basis for taxes
5. Others, like repossession or foreclosure of
collaterals

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APPROACH TO VALUE

Method based on factual data by which an

indication of value is evolved.

Basic approaches to value

1. Cost Approach
2. Income Approach
3. Market Data or Sales Comparison
Approach
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COST APPROACH
A valuation method based on the principle that
no prudent purchaser will pay more than what it
will cost him to acquire an equally desirable
substitute site, and to build a similar
improvement of equal desirability and utility.
Cost value – The value of land derived by sales
comparison plus the current cost of reproduction
or replacement of a property, less depreciation
from all causes.
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COST APPROACH

o Reproduction cost – used if an exact

replica of the original property is produced
o Replacement cost – used if a property is
rebuilt with comparable utility but using
current design and construction methods
and materials.
o Accrued depreciation – the reduction in
actual value of property over a period of
time as a result of wear and tear.
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COST APPROACH

PROCESS:
1. Estimate and justify the value of the land
2. Estimate the reproduction cost of the building
and other improvements
3. Estimate the loss in value from depreciation
4. Deduct depreciation from replacement cost of
estimate
5. Sum up value estimates to arrive at an indication
of “cost value”
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COST APPROACH

Sets the upper limit of value.

Weakness of this approach lies in the
difficulty of estimating accrued
depreciation accurately.

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INCOME APPROACH

A method of evaluation based on the principle

that value tends to be set by the present worth
of the rights to future net benefits that may be
derived from ownership.
Economic or investment value – the value which
the property’s net earning power will support
based upon a capitalization of net income

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INCOME APPROACH

PROCESS:
1. Analyze the gross income as to quantity, quality
and durability.
2. Prepare a forecast of gross income
3. Analyze past and current operating costs
4. Prepare a forecast of operating costs
5. Compute net income
6. Select or justify a capitalization rate

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INCOME APPROACH

PROCESS:
7. Analyze probable future behavior of
income stream
8. Select the appropriate method of
capitalization
9. Carry through the capitalization
computations to arrive at an indication of
“economic or investment value”
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INCOME APPROACH

Sets the lower limit of value.

Weakness of this approach lies in the
proper selection of the capitalization rate.

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MARKET DATA OR SALES
COMPARISON APPROACH
This method of valuation is based on the principle
that no property is worth more at a given date
than the amount of money necessary to purchase
a similar property of like kind with equal utility and
desirability.
Comparative or exchange value – the value
indicated by actual sales of comparable
properties in the market.

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MARKET DATA OR SALES
COMPARISON APPROACH
PROCESS:
1. Survey the area to locate comparable properties
2. Gather and validate pertinent information about each
comparable property
3. Analyze sales and leases with regard to –
a. Date of Sale
b. Length of time property was offered
c. Advertising and sales effort involved
d. Terms of sales
e. Motives of buyer and seller
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MARKET DATA OR SALES
COMPARISON APPROACH
4. Compare subject property in detail with comparable
properties, applying plus and minus adjustments to
arrive at an indication of “comparative value”

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MARKET DATA OR SALES
COMPARISON APPROACH

Weakness of this approach lies in the

difficulty of ascertaining the
circumstances surrounding each
comparable sale, and the availability of
truly comparable sales.

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OUTLINE OF
APPRAISAL PROCESS
1. Determine the purpose and scope of the
appraisal, clarifying the nature of the value to be
estimated, Define the value. Fix appraisal date.
2. Determine the nature of the interest or property
rights on the property to be appraised.
3. Identify the property by description.
4. Determine the “highest and best use” to which
the property may be put.

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OUTLINE OF
APPRAISAL PROCESS
5. Classify the type of property. The type will
generally determine the applicable
approach or approaches to value.
6. Outline the data applicable to the problem,
inspect the property and gather the
needed information.
7. Relate the date to the approaches to value,
and calculate value by each approach.

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OUTLINE OF
APPRAISAL PROCESS
8. Reconciliation of Value Indications
o Note to range or bracket set by the indicated values
developed by the three approaches
o Attempt to narrow the range or bracket by a thorough
review of work done in each of the approaches.
o Note which one of the three preliminary value estimates is
more reliable and should have more weight.
9. Decide on the final conclusion of value by applying
judgement.
10. Prepare the appraisal report

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APPRAISAL OF MACHINERY
AND EQUIPMENT
 MACHINERY – any means by which something is kept in
action or a desired result is obtained.
 MACHINERY AND EQUIPMENT – facility available for
production, including installations and service facilities
appurtenant, together with all other equipment
designed for, or necessary to, its manufacturing and
industrial purposes regardless of method of installations
and not excluding those items of furniture and fixtures
necessary for the administration and proper operation of
the enterprise.
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DEPRECIATION

accrued depreciation includes any and all

loss of value however caused.

In estimating depreciation, consideration should be given to:

o Condition – current physical conditions is a
measure of future like expectancy.
o Age – an indication of exhaustion of
serviceable life from cause not readily
observable during inspection.
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APPRAISAL OF MACHINERY
AND EQUIPMENT
In estimating depreciation, consideration should be given to:
o Conditions of Operation – dust, moisture, fumes
exposure to elements, etc., are conditions that
affect future life expectancy.
o Inadequacy – inability of property to deliver the
service required due to lack of capacity
o Obsolescence – loss in value resulting from
improved models better adapted to work
required, more economical of operation or
having greater capacity.
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APPRAISAL OF MACHINERY
AND EQUIPMENT
Methodology or Procedure in Machinery
and Equipment Appraisal:
1. Field investigation; and
2. Pricing

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FIELD INVESTIGATION

Consisting of a detailed physical investigation

and examination of the property.
The purpose of which are:
1. To establish the quantities of the various
items of property
2. To determine the age and condition of
each item of property
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FIELD INVESTIGATION

Consisting of a detailed physical investigation

and examination of the property.
The purpose of which are:
3. To determine the technical specifications
of the property to such an extent as is
adequate for the complete identification
of various elements of costs
4. To facilitate reconciliation with company
records.
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FIELD INVESTIGATION

The appraiser examines logbooks and

other maintenance records, interviews
operators and/ or maintenance
personnel, to gather information which
could help develop depreciation
estimates.

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PRICING

SOURCES OF PRICING INFORMATION

1. The client’s records
2. The manufacturer or supplier
3. Letters of inquiry written on client’s
letterhead
4. Catalogues, sales and offerings in
newspapers and magazines
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PRICING

Factors to be considered when developing

price basis:
1. Price of manufactured equipment
2. If imported, prevailing rate of foreign
exchange and the effect of realignment of
world currencies, if any, and all expenditures
normally incurred in importation

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PRICING

Factors to be considered when developing

price basis:
3. Cost of handling and transportation to
the site
4. Cost of installation

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PRICING

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PRICING

COST OF REPRODUCTION NEW (CRN) – the

estimated amount of money to acquire like
kind of an asset or group of assets, taking into
consideration current prices of materials,
manufactured equipment, labor, contractors
overhead, profit and fees and all other
attendant cost associated with its acquisition
and installation in place.

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PRICING

 OBSERVED DEPRECIATION – the actual or accrued

depreciation, giving consideration to the
deterioration, maintenance, conditions under
which used, and remaining serviceable life in
comparison with a new unit of like kind.
 SOUND VALUE – the estimated amount of money
required to acquire the same or similar property as
of a certain date less depreciation due to all
causes.

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End of this Module.

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