CHAPTER I.

FUNDAMENTALS OF LAND VALUATIONS

DEFINITION OF TERMS
Main Reference:
Manual on Real Property Appraisal
and Assessment Operations (MRPAAO)
DEFINITION OF TERMS
 LAND –An immovable and
indestructible three dimensional areas
consisting of a portion of the earth’s
surface the space above and below the
surface and everything growing on or
permanently affixed to the land (Black
law dictionary 7th edition)
LAND (CONTINUATION…)
 Lands of the public domain
are classified into agricultural, forest
or timber, mineral lands and national
parks. Agricultural lands of the public
domain may be further classified by law
according to the uses to which they may
be devoted.
 Alienable lands of the public domain
shall be limited to agricultural lands
(Section 3 of the Philippine Constitution).
DEFINITION OF TERMS
 Value - the relationship between a
thing desired and a potential
purchaser. It also refers to the
present worth of future benefits
arising out of ownership of property;
a value exists when an item of
property has utility, is relatively
scarce, arouses the desire of
potential buyer to buy and is backed
by the purchasing power;
DEFINITION OF TERMS
 Land value is the value of a piece of
property including both the value of the
land itself as well as any improvements
that have been made to it (Investopedia)
 Land value is the worth of a piece of
property, which includes both the value of
the land itself and any enhancements
made to it (Cleartax website)
DEFINITION OF TERMS
Land Valuation or Real estate
appraisal or property valuation
- is the process of developing an
opinion of value for real property -
usually market value.
DEFINITION OF TERMS
 Fair Market Value/Market Value
 is the price at which a property
may be sold by a seller who is not
compelled to sell and bought by a
buyer who is not compelled to buy;
DEFINITION OF TERMS
 Fair Market Value/Market Value
is the estimated amount for which a
property should exchange on the date
of valuation between a willing buyer
and a willing seller in arm’s length
transaction (a transaction between
independent, unrelated parties
involving no irregularity) after proper
marketing wherein the parties had
each acted knowledgeably, prudently,
and without compulsion;
DEFINITION OF TERMS
 Arm’s Length Transaction - a
transaction freely arrived at in the
open market, unaffected by
abnormal pressure or by the absence
of normal competitive negotiation as
might be true in the case of a
transaction between related parties;
DEFINITION OF TERMS
 Agricultural Land- is land devoted
principally to 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,
timberland, residential, commercial or
industrial land;
DEFINITION OF TERMS
 Horticultural Land - is land
devoted to or cultivated for planting
of vegetables, flowers and other
ornamental plants;
 Orchard - is land specifically
devoted to various fruit trees and
plants;
DEFINITION OF TERMS
 Industrial Land - is land devoted
principally to industrial activity as
capital investment and is not
classified as agricultural,
commercial, timber, mineral or
residential land;
 Residential Land - is land
principally devoted to habitation;
DEFINITION OF TERMS
 Mineral Lands - are lands in which
minerals, metallic or non-metallic,
exist in sufficient quantity or grade
to justify the necessary expenditures
to extract and utilize such materials;
 Timberland — is land identified as
forest or reserved area by the
government, which may or may not
be granted to a concessionaire,
licensee, lessee or permitee.
DEFINITION OF TERMS
 Mangrove Land - is a term applied to
the type of forest occurring on tidal flat
along the seacoast, extending along
stream where the water is brackish;
 Marsh Land - a tract of low-lying land
usually under water;
 Foreshore Land - a strip of land
along the seashore, the use of which
may or may not be granted by the
government to private persons or
corporations;
DEFINITION OF TERMS
 Land Use - refers to the manner of
utilization of land, including its
allocation, development and
management;
 Comprehensive Land Use Plan -
refers to a document accompanied by
maps and all the taxable improvements
on such lands, a current and fair market
value, and assessment level to be able to
arrive at an assessed value for each land
and each improvement.
DEFINITION OF TERMS
 Land Use Conversion - refers to the
act or process of changing the current
use of a piece of agricultural land into
some other uses as approved by the
Department of Agrarian Reform (DAR);
DEFINITION OF TERMS
 Reclassification of Agricultural
Lands - refers to the act of specifying
how agricultural lands shall be utilized
for non-agricultural uses such as
residential, commercial or industrial,
as embodied in the land use plan,
subject to the requirements and
procedures for land use conversion. It
also includes the reversion of non-
agricultural lands to agricultural use.
PROBLEM:
What is the difference between “Value” and
“Price”? Support your answer with an example.
Chapter I.
Fundamentals of Land Valuations

Fundamentals of Real Estate

(Concept of Ownership)
Reference:
Appraisal Review Manual, 2015,
by W.L. Segovia
Concepts of Property Ownership
• Property - maybe real estate (land, buildings..) or
real property (includes real estate as well as
intangible properties).
• Property is also classified as “tangible” (land,
buildings, cars..) or “intangible” (patent,
contract, franchise..)
• Real Estate - refers to land and improvements
thereon. “Estate” means the degree of an
owner’s interest in land.
Concepts of Property Ownership
• Ownership - the rights covered by the “bundle
of rights”; right to possess, right to use and
enjoy, right to the fruits (natural fruits, civil,
industrial fruits); right to dispose (sell, donate,
assign, exchange); right to recover; right to
exclude others..
• Fruits:
• Natural- spontaneous products of soil;
• Civil - rental income;
• Industrial -produced by cultivation or labor.
Basic types of estate:
1. Freehold - ownership is backed by title; includes
a) “Fee simple” - absolute unrestricted estate in
perpetuity;
b) “Fee tail” - designed to pass title to heirs;
c) “Life estate” - ownership only as long as grantee
is alive.
2. Less than Freehold - limited possession;
a) “Estate for years” - a lease (99 years max under
Civil Code);
b) “Tenancy” - leases or rentals; period may be
specified or if not, the lessor may terminate at
will.
Kinds of Ownership:
1) Sole ownership;
2) Joint ownership or co-ownership;
Rights of co-owners under Civil Code: A co-
owner may sell his rights over an undivided
portion; can not sell those of others. A co-
owner may demand partition. Right to
repurchase, pre-emption and redemption
applies only to the extent of shares owned.
3) Condominium
Ownership of land means…
• Ownership of land - includes ownership of portions
beneath the surface and above the surface, subject to
servitudes, special laws, or contract.
• Hidden treasure - defined as any hidden or unknown
deposit of money, jewelry, precious objects whose
lawful ownership is not shown; hidden treasure
belongs to the land owner. But the finder of hidden
treasure (not the land owner) is entitled to 50% unless
he is a trespasser; the State may acquire at a just price
those of interest to science or arts;
• Right of accession - means land owner also owns
everything produced/incorporated, or attached thereon.
Rules affecting land owners
adjoining rivers:
• They will own soil deposited as accretion but the
original owner has 2 years to reclaim it;
• They can not own land left dry or will not lose
land inundated by flood water. River beds that
have dried up can be acquired by those whose
own lands are occupied by the new bed in
proportion to area lost. Land owners adjoining
the old bed may acquire the same.
• When a river opens a new bed by natural action,
the bed shall become a public dominion.
Legal restrictions on
ownership:
• Eminent Domain - power to take private
property for public use upon just compensation;
• Escheat - reversion of property to the State due
to intestate death of an owner with no heir.
• Police Power of the State
• Taxation - power of the State to impose and
collect tax on real estate properties.
• Zoning laws - regulations of the LGU governing
land use.
Voluntary or contractual
restrictions:
• Lease Contract - temporary surrender of the rights
to possess, use and enjoy to lessee;
• Easement - a right of way given to an owner of an
adjoining land to pass or have access;
• Servient estate - the property owner giving the
right of way
• Dominant estate - the entity enjoying the right of
way.
• Usufruct - transfer to another person of the right to
enjoy the fruits of the property.
• Use Restrictions - restrictions imposed as part of the
contract to sell.
 Documents of Ownership
• Title — a generic word which means “proof of
ownership”; includes the “muniments (document or
record)” of ownership such as tax declaration, realty
tax payments, deed of sale, and the Original
Certificate of Title or the Transfer Certificate of Title.
Philippine titling system is based on the Torrens
system developed in Australia.
• Quieting of title - means an action brought to court
to remove a cloud-er. question as to ownership of
property; a plaintiff must have documents but need
not be in possession to bring this action.
 Modes of Acquiring Title
• Private transfer: by sale, assignment, donation, or
exchange.
• Public grants: acquisition of alienable agricultural land.
• Free patents and homestead patents given by DENR;
• Emancipation patents (now CLOA - Certificate of Land
Ownership) - originally established by PD 27,
continued by RA 6657 (CARP 1988) and various
extensions;
• Reclamation - under Public Estates Authority;
government still owns reclaimed land but may pay
reclaimers in terms of portions of the land reclaimed.
Modes of Acquiring Title
• Public grants (cont..)
• Adverse possession or prescription - applies to
alienable agricultural land, continuously occupied by
a citizen;
• Ordinary prescription - 10 years possession in good
faith, with just title (muniments); Extraordinary
prescription - 30 years continuous possession (bad
faith)
• Accretion due to alluvium, changes in the natural
riverbed.
Modes of Acquiring Title
• Succession: acquisition of ownership from an
owner who has died.
• Involuntary Events: Expropriation (eminent
domain), execution by the sheriff to satisfy
judgment, foreclosure of mortgaged property.
 Property Rights under Philippine
Law - 1987 Constitution:
• Article IV, Section 1. The following are citizens of
the Philippines:
• Those who are citizens of the Philippines at the
time of the adoption of this Constitution;
• Those whose fathers or mothers are citizens of
the Philippines;
• Those born before January 17,1973, of Filipino
mothers, who elect Philippine citizenship upon
reaching the age of majority; and
• Those who are naturalized in accordance with
law.
Property Rights under Philippine
Law - 1987 Constitution:
• Article IV, Section 2. Natural-born
citizens are those who are citizens of
the Philippines from birth without
having to perform any act to acquire or
perfect their Philippine citizenship.
Those who elect Philippine citizenship
in accordance with paragraph (3),
Section 1 hereof shall be deemed
natural-born citizens.
Filipino citizens can acquire
a) Alienable lands of the public domain - own up to
12 hectares; lease up to 500 hectares;
• Public domain is classified as agricultural, forest (or
timber), mineral and national parks. Only
agricultural is alienable.
• Modes of acquiring title to alienable lands of the
public domain - by sale, homestead patent, sales
patent, free patent or through uninterrupted
possession for a period of time under a claim of title.
b) Private real estate property - no limitation.
Former natural born Filipino
citizens may acquire land
• (Section 7, Article XII of 1987 Constitution) subject
to special laws:
• BP 185: for residential purpose - 1,000 sqm urban
or 1 hectare rural;
• RA 7042 as amended by RA 8179 - for business
purpose - 5,000 sqm urban or 3 hectares rural.
Former Filipinos can regain citizenship under RA
9225: Dual Citizenship Law of 2003 - natural born
citizens of the Philippines who were naturalized as
citizens of another country may re-acquire
Philippine citizenship by swearing allegiance to the
Philippine.
Rights and restrictions of private
corporations.
• Private Corporations or associations organized
under the laws of the Philippines with 60%
capital owned by Filipinos are entitled to acquire
and own private lands but not in excess of 1,024
ha. If leasing, not to exceed 2,000 ha. They may
hold alienable agricultural lands of the public
domain only by lease for a period not to exceed
25 years renewable for not more than 25 years
and not to exceed 1,000 hectares.
Foreigners - can not acquire real
property in the Philippines except by..
• Hereditary succession;
• Acquisition of real property under the 1935
Philippine Constitution;
• Purchase of not more than 40% of the units
in a condominium project in the
Philippines.
Foreigners can lease land 25 years renewable
25 (PD 471) ; or if an investor, 50 years
renewable 25 (R.A. 7652).
Question…
 Legal Foundations of
Land Valuation
(Real Estate Appraisal)
REAL ESTATE LAWS AND ORDERS
 Date Code Short Title

Basic Laws
1987 Constitution Latest constitution under Pres.
Cory Aquino

6/18/1949 RA 386 Civil Code of the Philippines

3/16/1982 BP 185 Implementing Ail XIV Sec 15 of the Former Filipinos can own
Constitution residential land

7/6/1987 E.O. 209 Family Code of the Philippines Effectivity Aug. 4,1988

12/13/1989 RA 6809 Lowering age of majority to 18 (From 21 to 18)

10/10/1991 RA 7160 Local Government Code of 1991 Authored by Aquilino Pimentel

3/28/1996 RA 8179 Amending RA 7042 Former Filipinos can own land for
business

12/11/1997 RA 8424 Tax Reform Act of 1997 Amended NIRC PD 1158,1994,

EO 273

8/29/2003 RA. 9225 Citizenship Retention & "Dual citizenship for Filipinos"
Reacquisition Act
 Land Management and
Registration

2/1/1903 Act 496 Land Registration Act Torrens, Court of Land

Registration
10/7/1903 Act 926 1st Public Land Act Homestead 16 ha.

2/11/1913 Act 2259 Cadastral Act Government surveys

11/7/1936 CA 141 2ntl Public Land Act Judicial confirmation of titles

6/18/1952 RA 730 Sale of Public Lands without Up to 1,000 sqm residential

auction purpose
2/16/1976 PD 892 Discontinuing Spanish titles Spanish titles declared
unregistered land
6/11/1978 PD 1529 Property Registration Decree Current applicable law on land
management
6/10/1987 EO 192 Re-organized DENR (From DENR)

7/17/1989 RA 6732 Administrative Reconstitution RCT's made if more than 10%

lost
11/7/2000 RA 8974 Expropriation Act For government R/W projects

3/9/2010 RA 10023 Free Patent Act Titling for 10-yr occupant, 200-
1000 sqm
 Agrarian Reform

9/8/1963 RA 3844 Agrarian Land Reform Code Abolished share tenancy

10/21/1972 PD 27 Emancipation of Tenants Rice and com

6/15/1988 RA 6657 CARL (CARP) All agri land covered

12/22/1997 RA 8435 Agricultural & Fisheries Modernized agri and fisheries

Modernization

2/23/1998 RA 8532 Extension 1 Extended CARP for 10 years

until 2009

8/7/2009 RA 9700 CARPER Extended CAR for 5 years

until 2014
 Urban Land Reform and Real
Estate

Creating the Human A new agency for

5/13/1976 P.D. 933
Settlements Commission planning urban areas

Government acquisition
6/11/1978 PD 1517 Urban Land Reform
of urban land

3/24/1992 RA 7279 UDHA of 1992 (Lina) Law on squatters

Land for socialized

3/18/2007 R.A.9397 Amending RA 7279
housing - no bidding
 Regulatory and Design Codes /

Concept and rales for

6/18/1966 RA 4726 The Condominium Act
condos

Realty Installment Buyer Act Grace period for

8/26/1972 RA 6552
(Maceda) installment buyers

Subd and Condo Buyers Registration, design

7/12/1976 PD 957
Protective Decree guidelines

Design code used by

2/19/1977 PD 1096 National Building Code
architects

Defining Open Space in Defining required open

10/14/1977 PD 1216
Residential Subdivisions space.

4/2/1978 PD 1344 Empowering NHA to issue writs -^

 Environmental Impact
6/11/1978 PD 1586 EIS, ECC, CNC Regulating
Statement System Philippine
6/23/1999 RA 8749 discharges of water Regulating
Clean Air Act Philippine
3/22/2004 RA 9275 emissions
Clean Water Act

6/3/1981 EO 648 Reorganized the HSRC Renamed to HLURB

Standards for Economic and Lowered design standards for

6/11/1982 BP 220
Socialized Housing low-cost

HLURB as housing
6/8/1986 EO 90 Expanding scope of HLURB
regulatory agency

Devolving HLURB powers to LGUs to issue development

3/23/1993 EO 71
LGUs permits
 Requiring LGUs to issue
3/25/1993 EO 72 Preparation of CLUP of LGUs
zoning ordinances

Priorities for land

9/8/1993 EO 124
conversion

2/23/1995 RA 7899 Amending RA 7279

3/7/2000 RA 8763 Home Guaranty Corporation

PD 1096 Revised National Building

4/14/2005 IRR of NBCP
IRR Code LRR

12/17/2009 RA 9856 REIT Law Real Estate Investment Trust

12/12/2008 RA 9514 Revised Fire Code Amended PD 1185 of 1977

 Real Estate Related

5/24/1974 PD 471 Lease to aliens 25 years+25

Former Fil - 5,000sqm or

6/13/1991 RA 7042 Foreign Investment Act
3ha

5/31/1993 RA 7652 Investors Lease Act 50 years+25

Making Pag-IBIG
7/17/1994 RA 7742 Amending RA 1752
mandatory

Authority and powers of

12/5/2000 RA 8981 PRC Modernization Act
PRC

Loan Restructuring and

10/13/2008 RA 9507
Condonation Act of 2008
Real Estate Service Act (RESA Professionalizing real
6/29/2009 RA 9646
Law) estate service
Amended RA 9341, Rent
7/14/2009 RA 9653 Rent Control Act of 2009
Control of 2005

1/7/2010 RA 9904 Magna carta for homeowners Regulating HO As

RESA Law Implementing Rules

7/26/2010 RESAIRR
& Regulations
Legal Requirements for Real
Estate Service
(R.A. 9646 - “Real Estate Service
Act of the Philippines” - June 30,
2009)

REAL ESTATE SERVICE PRACTITIONERS

- registered, licensed natural persons
who, for a fee, compensation or other
valuable consideration,
 REAL ESTATE SERVICE
PRACTITIONERS
 Real estate consultant - renders professional advice and judgment on: (i) the
acquisition, enhancement, preservation, utilization or disposition of lands or
improvements thereon; and (ii) the conception, planning, management and
development of real estate projects.
 Real estate appraiser— performs or renders, services in estimating real
estate values, such services of which shall be finally rendered by the
preparation of the report in acceptable written form.
 Real estate assessor — works in a n LGU to perform appraisal and
assessment of real properties, including plants, equipment, and
machinery, essentially for taxation purposes.
 Real estate broker - an agent of a party in a real estate transaction to offer,
advertise, solicit, list, promote, mediate, negotiate the sale, purchase,
exchange, mortgage, lease or joint venture, or other similar transactions on real
estate or any interest therein.
 Real estate salesperson - a duly accredited person who performs service for, and
in behalf of a licensed real estate broker for or in expectation of a share in the
commission, professional fee, compensation or other valuable consideration.
 Lecture I-4

Standards for Appraisers

(Land Valuation)

Philippine Valuation Standards of 2009

 Introduction
 The profession of real estate appraisers in the
Philippines is still in its infancy relative to other
developed countries. Thus far, there is only one
standard of practice that was instituted here and
this is the Philippine Valuation Standards of
2009 which was issued by the Department of
Finance as an adaptation from the 2008
International Valuation Standards (IVS). The IVS has
since then undergone many mutations and
changes but the PVS remains the same.
 Objectives and Purpose of the
Phil. Valuation Standards (PVS)
The PVS established the main objectives for the valuation standards,
which were:
 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, litigation and taxation; and
 To reduce financial risk for users of valuations.

In short, the PVS established that users of valuations carried out in

compliance with the standards should be able to rely on them, as
having been carried out by competent professionals who subscribe to
high standards of ethical conduct and international best practices.
 PVS STANDARDS (3)
 PVS1 - Market Value Basis of Valuation
◦ Core standard providing accepted definition of Market
Value. (Local government code definition of FMV slightly
different.)
 PVS2 - Bases Other than Market Value
◦ Defines three non-market bases: 1) Specific entity enjoys
(investment value); 2) Value agreed between two parties
(fair value, special value, marriage value, going concern value,
liquidation value); 3)Value from statute or contract. Basic
guide for all valuers.
 PVS3 - Valuation Reporting
◦ Minimum requirements for valuation reports; mostly
applicable for non-tax valuation. (Not used bv assessors
because reporting formats are prescribed bv MRPAAO.)
 PVS APPLICATIONS (3)
 PVS Application 1 - Valuation for Financial Reporting
◦ Extracts from International Accounting Standards (IAS) and
International Financial Reporting Standards (IFRS); definitions and
categories of assets for accounting purposes. (Not applicable for
assessors.)
 PVS Application 2 - Valuation for Secured Lending Purposes
Emphasizes use of market value for lending by banks.
◦ (Not applicable for assessors.)
 PVS Application 3 - Valuation of Public Sector Assets for
Financial Reportings
◦ Valuing assets owned by government or quasi-government. Linked
to International Public Sector Accounting Standards (IPSAS).
Describes valuation at "historic costs” or valuation' at "fair value.”
Right now, the Philippine government measures public assets at
historic costs.
◦ Not applicable for assessors.)
 PVS GUIDANCE NOTES (15):
 GN1 - Real Property Valuation:
◦ definitions of real property.
 GN2 - Valuation of Lease Interests
◦ definitions of leasehold interests.
◦ (not directly applicable to assessors)
 GN3 - Valuation of Plant, Machinery and
Equipment:
◦ useful materials for individual valuation of plant, machinery and
equipment, (not directly applicable to assessors)
 GN4 - Valuation of Intangible Assets:
◦ valuation of goodwill, intellectual property rights.
◦ (not directly applicable to assessors)
 GN5 - Valuation of Personal Property
◦ -(not directly applicable to government assessors)
 PVS GUIDANCE NOTES (15):
 GN6 - Business Valuation:
◦ valuation of business for purpose of shareholdings, acquisitions, disposals;
property assets as a going concern and overall value.
◦ (not directly applicable to assessors)
 GN7 - Consideration of Hazardous and Toxic Substances in
Valuation:
◦ relevant to land-fill sites, areas affected by industrial pollution, power
transmission lines..
 GN8 - Cost Approach for Financial Reporting
◦ (Depreciated Replacement Cost): DRC valuations, definitions
of obsolescence, other concepts.
 GN9 - Discounted Cash Flow Analysis for Market Valuations
and Investment Analyses:
◦ (DCF method not normally used by assessors);
 GN10 - Valuation of Agricultural Properties:
◦ guidance on categorizing non-realty elements in farms, (not directly
applicable to assessors)
 PVS GUIDANCE NOTES (15):
 GN11 - Reviewing Valuations:
◦ types of reviews: admin (compliance), desk, field, technical and valuation
reviews, (useful guide for assessors)
 GN12 - Valuation of Trade-related Properties:
◦ relates to hotels, gas stations, restaurants. (useful reference for assessors)
 GN13 - Mass Appraisal for Property Taxation:
◦ (government assessors use the DOF MRPAAO);
 GN14 - Valuation of Properties in the Extractive Industries (useful
reference for assessors)
◦ differentiates mineral extraction and petro-chemical industry;
◦ differentiates: 1) exploration; 2) resource; 3) development; 4) production
properties; stresses specialist nature of reserves, etc.
 GN15 - Valuation of Historic Property (useful reference for assessors)
◦ valuing heritage properties, including special considerations such as legal
restrictions, encumbrances, intrinsic value of historic features, construction
methods, higher cost of maintenance, cost of reproducing a replica or a
modem equivalent.
 Ethics for Appraisers/Valuers
(Land Valuation)
References:
Manual on Real Property Appraisal and Assessment
(MRPAAO)
Philippine Valuation Standards
(1st Edition)

Lecture I-5
 National Code of Ethics for the
Realty Service Practice

 The Code is a general code for all the three real estate
service practitioners (Consultant, Appraiser and
Broker)
 A close reading of the Code will show it was written
primarily with real estate brokers in mind.
 Appraisers are mentioned only in two paragraphs ( j
and k) - in the ARTICLE III - RULE OF CONDUCT AND
PRACTICE, Section 3, of the Code
 National Code of Ethics for the Realty
Service Practice
Article III , Section 3, Paragraph j & k
(j) As a real estate appraiser, he should not render an
opinion without a careful and thorough analysis and
interpretation of all factors affecting the value of the
property. His counsel and advice constitutes a professional
service for which he should make a fair and reasonable
charge.

(k) As an appraiser, he should not undertake to make an

appraisal or render an opinion that is outside the field of his
experience and competence unless he obtains the assistance
of another practitioner familiar with such type of property or
unless the facts are fully disclosed by the client.
MRPAAO Chapter 1, SECTION 3. - Code of
Ethics and Professional Conduct

A. To promote and preserve the public trust

inherent in the assessment service, assessor and all
assessment personnel must observe the highest
standard of professional conduct ethics. Assessors
and their staff should at all times maintain high
standard of honesty and integrity and conduct their
activities in a manner not detrimental to the
government, the public and to their profession.
 MRPAAO Chapter 1, SECTION 3. - Code of
Ethics and Professional Conduct
1. It is unethical for assessors and all assessment personnel to
conduct their professional duties in a manner that could
reasonably preclude the appearance of impropriety;
2. It is unethical for assessors and their staff knowingly to fail
in the performance of their duties according to applicable
laws or in the uniform application of such laws and
regulations;
3. It is unethical to engage in misconduct of any kind that leads
to a conviction for a crime involving fraud, false statement
or moral turpitude.
4. It is unethical to perform any appraisal or assessment not in
compliance with assessment laws and regulations;
5. Assessors shall ensure that any of their staff, persons or
subordinates adhere to this Code of Conduct;
 Philippine Valuation Standards
(1st Edition)

Code of Conduct ………

……… 4.0 Ethics
Valuers should at all times maintain a high
standard of honesty and integrity and conduct their
activities in a manner not detrimental to their clients,
the public, their profession, or their respective national
professional valuation body.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….
4.1 Integrity
 4.1.1 A Valuer must not act in a manner that is misleading or
fraudulent.
 4.1.2 A Valuer must not knowingly develop and
communicate a report that contains false, inaccurate, or
biased opinions and analysis.
 4.1.3 A Valuer must not contribute to, or participate in, a
valuation service that other reasonable Valuers would not
regard to be ethical or justified.
 4.1.4 A Valuer must act legally and comply with the laws and
regulations of the country in which he or she practices or
where an assignment is undertaken.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….
 4.1.5 A Valuer must not claim, or knowingly let pass,
erroneous interpretation of professional qualifications that
he or she does not possess.
 4.1.6 A Valuer should not knowingly use false, misleading or
exaggerated claims or advertising in an effort to secure
assignments.
 4.1.7 A Valuer shall ensure that any staff person or
subordinate assisting with the assignment adhere to this
Code of Conduct.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….

4.2 Conflicts of Interest

 4.2.1 A Valuer must not act for two or more parties in the
same matter, except with the written consent of those
concerned.
 4.2.2 A Valuer must take all reasonable precautions to ensure
that no conflicts of duty arise between the interests of his or
her clients and those of other clients, the Valuer, his or her
firm, relatives, friends, or associates. Potential conflicts
should be disclosed in writing before accepting instructions.
Any such conflicts of which the Valuer subsequently
becomes aware must be disclosed immediately. If such
conflicts come to the attention of the Valuer after
completion of the valuation, disclosure must be made within
a reasonable time.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….

4.3 Confidentiality
 4.3.1 A Valuer must at all times deal with client‘s
affairs with proper discretion and confidentiality.
 4.3.2 A Valuer must not disclose sensitive factual
data obtained from a client, or the results of an
assignment prepared for a client, to anyone other
than those specifically authorized by the client
except when legally required to do so as in
situations where a Valuer must comply with
certain quasi-judicial proceedings within the
recognized national professional valuation body
of which the Valuer is a member.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….

4.4 Impartiality
 4.4.1 A Valuer must perform an assignment with the
strictest independence, objectivity, and impartiality,
and without accommodation of personal interests.
 4.4.2 A Valuer must not accept an assignment that
includes the reporting of predetermined opinions
and conclusions.
 4.4.3 Fees connected with an assignment must not
depend on the predetermined outcome of any
valuation or other independent, objective advice
contained in the valuation report.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….

4.4 Impartiality
 4.4.4 Whether the Valuer‘s fee is or is not contingent upon
any aspect of the report must be disclosed.
 4.4.5 A Valuer must not rely upon critical information
supplied by a client, or any other party, without
appropriate qualification or confirmation from an
independent source unless the nature and extent of such
reliance is specified as a limiting condition.
 4.4.6 A Valuer should not accept an assignment to report
on assumed hypothetical conditions that are unlikely to be
realized in any reasonable timescale.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….

 4.4.7 Hypothetical conditions that are a

reasonable possibility may be reported on
provided they are accompanied by some
discussion both of the prospects of realizing the
hypothesis and a consideration of value that
reflects the true situation prevailing, e.g., a
situation where a client wants to know what the
value of land will be pending detoxification.
 Philippine Valuation Standards
(1st Edition)
Code of Conduct ……….

 4.4.8 A Valuer should not use or rely on

unsupported conclusions based on prejudice of any
kind or report conclusions reflecting an opinion
that such prejudice is necessary to maintain or
maximise value.
 4.4.9 In reviewing another Valuer‘s report, a Valuer
shall exhibit impartial judgment and justify his or
her reasons for agreeing or disagreeing with the
conclusion of the report.
 Lecture I-6

THEORIES & PRINCIPLES OF

APPRAISAL/VALUATION

References:
Manual on Real Property Appraisal and Assessment (MRPAAO)
2008 International Valuation Standards (IVS)
Real Estate Service Act (RESA Law)
Real Estate Appraiser/Assessor
In the Philippines, the professions involved in real property
valuation are specified under R.A. 9646 (otherwise known
as the RESA Law), and defined as follows -
• Real estate appraiser— performs or renders, services in
estimating real estate values. such services of which shall
be finally rendered by the preparation of the report in
acceptable written form.
• Real estate assessor — works in an LGU to perform
appraisal and assessment of real properties, including
plants, equipment, and machinery, essentially for taxation
purposes.
Real Estate vs. Real Property
• It would seem therefore that the practice of
appraisal in our country means valuing “real
estate.” However, “real estate” is merely the
physical manifestation of something owned or
possessed. The real element that is being valued
by a real estate appraiser or assessor is not the
real estate but the real property.
Real Estate vs. Real Property
• The term “Real Property” is defined by the IVSC
as follows - “All rights, interests and benefits
related to the ownership of real estate.” Seen in
this context, real property includes not only the
tangible elements such as real estate but also
intangible forms of real property such as
leasehold rights, franchise contracts, easements,
inheritance, etc.
Real Estate vs. Real Property
• The IVSC defines “Real Estate” as follows: -
“Land and all things that are a natural part of the
land, e.g. trees and minerals, things that have
been attached to the land, e.g. buildings and site
improvements, all permanent building
attachments, e.g. mechanical and electrical plant
providing services to a building, that are both
below and above the ground.”
The 'Bundle Of Rights'
• The “Bundle of Rights” is a long-standing concept of
ownership in real estate. It is a set of legal rights afforded
to the real estate title holder.
• The bundle of rights can include the:
• right of possession (the property is owned by the title holder), the
right of use (the owner controls the property's use),
• the right of exclusion (the holder can deny people access to the
property),
• the right of disposition (the holder can buy or sell the property),
• the right of enjoyment (the holder can use the property in any legal
manner), and
• the right to recover its fruits.
Distinction between
“valuation” and “appraisal”
VALUATION
• The estimate of a property's true market value would be
called a valuation to distinguish it from the assessed
(appraised) value;

APPRAISAL
• Each property is appraised by government (through
Assessors), and the property taxes are based on this
value; this determination is always referred to as an
"assessment" and the value is the "assessed value".
• the assessed value is not necessarily a very good
estimate of the current market value.
Concepts of Value
• The term “Value” means - what a thing is worth.
• Value is created by “utility,” - the capacity to
satisfy the needs and wants of human societies.
• Contributing to its value are a property’s uniqueness,
durability, potential, features of location, relatively
limited supply, and the specific usefulness of a given
site.
• The value of real property depends on the extent of the
holder’s rights or interests. In appraisal, it is necessary
to identify what rights, or what part of the total bundle,
are appraised, i.e., which property rights are to be
appraised.
Market Value
IVSC:
• Market Value - The estimated amount for which an asset
or liability should exchange on 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.
MRPAAO:
• Market Value - is the price agreed upon by the buyer and
seller in the open market in the usual and ordinary course
of legal trade and competition; the price and value of the
article established or shown by sale, public or private, in
the ordinary way of business; the fair value of property is
between one who desires to purchase and one who
desires to sell; the current price; the general or ordinary
price for which property may be sold in that locality.
Other Types of Value
“Non-market values” - because they do not reflect fair value
obtained from the free market.
• A thing is valued primarily for the benefit that an owner
inherently enjoys;
• For example: The value of a church as a place of solace and worship
can not be derived from market conditions. It is inherent in this type of
property.
• The reasonable price agreed is between two specific
parties only;
• For example: A price for a building is agreed upon between the
company and another company which are both subsidiaries of the
same holding or parent company. There being no arms- length
relationship, this value could be influenced by other special
considerations during negotiations.
• Value determined by statute or contract.
• Examples of this abound - zonal values prepared by the BIR are fixed
(Revenue Regulations made by the CIR/DOF) or fair market values
prepared by the LGU are fixed (SFMV enacted by ordinance).
Other Types of Value
Many types of values are derived from market
values and adjusted for special purposes such as;
• Asset exchange value - a value given to a
physical asset when it is to be exchanged for
other physical assets or financial instruments.
• Going Concern - A business enterprise that is
expected to continue operations for the
foreseeable future. Any future economic benefit
arising from a business, an interest in a business
or from the use of a group of assets which is not
separable.
Other Types of Value
• Liquidation Value - The net amount that would
be realized if a business is discontinued and its
assets are sold individually. The appropriate
bases of value and any appropriate additional
qualifying assumptions should also be stated.
• Residual Value -The anticipated value of an
asset at the expiration of its useful life.
• Reversionary Value - The estimated value of an
investment property at the end of a period during
which the rental income is either above or below
the market rent.
Other Types of Value
• Salvage Value - The value of an asset that has
reached the end of its economic life for the
purpose it was made. The asset may still have
value for an alternative use or for recycling.
• Special Value - An amount that reflects particular
attributes of an asset that are only of value to a
special purchaser.
• Synergistic Value - An additional element of
value created by the combination of two or more
interests where the value of the combined interest
is worth more than the sum of the original
interests.
Basic Factors of Value
Any real estate property has inherent value because of its
unique characteristics.
• Demand (desire and purchasing power) - satisfy buyer’s
desires within their purchasing power;
• Utility (product) - the product’s features that meet buyer’s
needs;
• Scarcity (supply) - less supply gives higher value;
• This is due to outside or external forces which
• Transferability (supply) - transfer of use, occupants,
ownership, or liquidity; easy to resell.
Forces Influencing Value
• Values in real estate are constantly changing, this is due
to outside or external forces which may be categorized
into four:
1) Physical or Environmental Forces
• a. Climate;
• b. Soil fertility;
• c. Mineral resources;
• d. Community factors - transportation, proximity of
schools, churches, parks and recreation areas;
• e. Flood control and soil conservation;
• f. Soil characteristics (subsoil)
Forces Influencing Value
2) Economic Forces
• a. Natural resources- quantity, quality, location, rate of
depletion;
• b. Commercial and industrial trends;
• c. Employment trends and wage levels;
• d. Availability of money and credit;
• e. Price level interest rates, tax burdens;
• f. Other factors affecting purchasing power
Forces Influencing Value
3) Governmental or Political Forces
• a. Zoning Laws;
• b. Building Codes;
• c. Police and fire regulations;
• d. Rent controls, special use permits, credit control;
• e. Government sponsored housing and guaranteed
mortgage loans;
• f. Monetary policies affecting free use of real estate
including taxation
Forces Influencing Value
4) Social Forces
• a. Population growth and decline;
• b. Shift in population density;
• c. Changes in family size;
• d. Attitudes toward education and social activities;
• e. Attitudes toward architectural design and utility;
• f. Other factors emerging from human social instincts,
ideas and yearning
Principles Relating to the Market Value
In order to better understand the theories of valuation, it is
vital to recognize basic principles that have been observed
at play in a free market economy. Valuers have defined
them as follows
1) Principle of Supply and Demand - value is determined
by the interaction of the forces of supply and demand in
the appropriate market as of the date of appraisal.
2) 2) Principle of Highest and Best Use (HABU)- it is the
use from among all reasonable, probable, and legal
uses that is found to be physically possible,
appropriately justified, and financially feasible and which
results in the maximum property value.
Principles Relating to the Market Value
3) Principle of Substitution - states that a
prudent purchaser would pay no more for a
property than the cost of acquiring an equally
desirable substitute in the market. Substitution
may take the form of: acquiring an existing
property with the same utility (basis for the market
approach), or producing a substitute property with
the same utility (basis for the cost approach), or
acquiring investment which will produce an income
stream of the same size with the same risk (basis
for the income approach)
Principles Relating to the Market Value
4) Principle of Contribution - the value of an
agent in production or a component of a property
depends on how much it contributes to the whole,
or how much its absence detracts from the value
of the whole.
5) Principle of Competition - holds that profit
tends to breed competition and excess profit tends
to ruinous competition.
Principles Relating to the Market Value
6) Principle of Increasing and Decreasing Returns -
when successive Increments of one or more factors in
production are added to a fixed amount of the factors, there
is a resulting enhancement in income up to a point of
maximum returns. Any incremental addition thereafter
results in a diminishment of income.
7) Principle of Balance - balance among the factors of
production is achie«d at the point of diminishing returns,
which is the point of maximum value.
Principles Relating to the Market Value
8) Principle of Change - change is
inevitable and constantly occurring
9) Principle of Anticipation - value is
created by the expectations of benefits to be
derived in the future. Value is dependent on
the future, not the past: Past experience is
useful for indications of future trends and
conditions that it may provide.
Principles Relating to the Market Value
10) Principle of Conformity - maximum value is
realized when a reasonable degree of
homogeneity and compatibility is present. Over
improvement, under improvement or misplaced
improvement may be reasonable for non-
conformity within a property or its environment.
This principle works in conjunction with:
• Progression - between dissimilar properties of the same type, the
value of the lesser property is enhanced by the presence of the
superior.
• Regression - between dissimilar properties of the same type, value
of superior property is affected adversely by the presence of the
inferior.
Principles Relating to the Market Value
11) Principle of Consistent Use - both land and
improvements are valued assuming the same
HABU.
12) Principle of Externalities - external forces
affect value: social, economic, physical
environment, and government;
13) Principle of Economies of scale - the greater
the volume, the less the incremental cost for
additional volume;
Principles Relating to the Market Value
14) Principle of Surplus productivity : 4 factors
of productivity paid in this order - Labor, capital,
entrepreneurship, land + improvements (residual
value)
15) Principle of Bite-Sizing - smaller portions,
can be priced higher per unit of measure, but may
be more affordable to Pinoy buyers. Pinoy buyers
tend to buy in “tingi” or small portions, especially
with respect to real estate.
Valuation Methodology/Approach
• There are three commonly used approaches in
valuation -
• Market Data Approach (also called the “Sales
Comparison” approach) ;
• Cost Approach _ develop a reproduction cost
new (RCN) or cost of replacement (COR).; and
• Income Approach (prospective economic
benefits ownership).
Valuation Methodology/Approach
Reconciliation of the Three Approaches to Value
• Reconciliation is the final step in estimating value. It is the
process of relating the data gathered, developing the
three standard approaches to value, analyzing and
weighing the strengths and weaknesses of each
approach, and determining which approach is best
supported. Ultimately, the most relied upon approach will
be the most dependable.