Category Archives: Manila Appraisal

Big turnout at Complex property valuation seminar in Cebu

Appraiser Agosto, lectures on Complex Property Valuation-Valuation Masterclass II. The seminar workshop, held in Castlepeak Hotel in Cebu City,  was organized by PAREB Cebu Real Estate Board.

The seminar participants reached to more than 80 real estate practitioners, including real estate appraiser and brokers not only from Cebu but also from Negros, Cagayan de Oro and Leyte.”I was stunned by the turnout of participants”, Gus told the organizers of the seminar. “It just showed that practitioners values the seminar”.

In the 2-day lecture, participants learned from different case studies actual application of solving appraisal problems using discounted cash flow method, opportunity cost, replacement value and market studies on township development.

“Thank you for sharing your expertise on us”, one of the participant shared in the lecture room. “Very knowledgeable in the topics discussed”, another participant shared.

The valuation masterclass is a project of PAREB Academy for its members. Its objective is to raise the level of PAREB Appraiser-members professional practice through seminars, workshop and provide linkages through appraiser’s directory.

Appraiser Gus Agosto has conducted lectures already in different areas of the country. Hosted by different local board, he traveled Iloilo City, Dipolog City, Cagayan de Oro, Pasig, Caloocan, Lucena, Puerto Princesa, Baguio, and other areas.

 

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Why valuation standards are important

I attended a seminar on Philippine Valuation Standards (PVS) recently and spoke to the technical committee members that produce it. The seminar was attended by Assessors of different local government units, nationwide. While the speakers were both members of the Technical Committee on drafting the Philippine Valuation Standards 2017.

I outlined the most important points in the discussion, relate to my experiences in valuation and share it with you.

Enhance the reputation of the profession and be at par around the world. Currently, there are multiple valuation methods used by different government agencies, local government units, private individuals, and banks. Thus it results in as many conflicting values for the same piece of property.

An established set of consistent standards would help in appraising assets and liabilities for financial reporting, especially for companies that control assets in various countries and work across national borders. For valuations for other purposes, the reputation of the profession would be enhanced if the clients could expect consistency in valuation reporting internationally.

Simplify the appraisal process. I work an appraisal for a client in U.S. and Australian federal territories, which typically require different standards. But if an appraiser-member of RICS is performing the appraisal in U.K., it should also comply with RICS standards, which differ in subtle ways.

PVS is the accepted set of standards for valuation in the Philippine setting. Contrary to some notions, it is not only applicable to the government agencies but rather it includes and should also be applied to bank institutions and private individuals.

A single set of standards and guidance notes would enable appraisers to produce a credible valuation with a similar report structure regardless of membership or the location of the asset to be valued.

An era of unified professional standards. There are many associations in the country which offer seminars and training for appraisers. All of this would be simplified through learning and adopting valuation standards. Regardless of which association you align with, the pathway for new appraisers to be a competent appraiser need to be consistent.

 With the Philippine Valuation Standards, the international valuation standards in the broader context, we now have a uniform term of engagements, report disclosures, recognized bases of value, terminology used in reporting and guidance notes.

We have valuation standards that are accepted regardless of location or the professional organization of the appraiser. What we need to do now is to encourage consistency and professionalism, further strengthening the public’s trust in valuations. The first step to this could be asking the members of multiple organizations who are active in the various leadership councils to ensure that their members are actively using the relevant sets of standards in their practice and continually looking for ways to streamline the process in a manner that works for all.

Our generation should be happy to be in the era in which we have now a uniform sets of standards. But there is still work to be done. We should endeavor to unite appraisers in different organizations and location to study, adopt and implement the valuation standards.

In this way, we can raise the level of consistency and professionalism, further strengthening the public’s trust in valuations.

 

Gus Agosto is the Vice-President for Visayas of the Philippine Association of Real Estate Board (PAREB). He is the Managing Owner of AA RealtyPro Solutions, an appraisal and consulting business organization. He also serves as faculty of University of San Carlos, Cebu City and took up Master of Arts in Economics (Candidate) in the same university. 

Importance of Cloud Storage for Appraisers

appraisal-workfilesPaperless office is one of the major tasks for every practicing real estate professional. Technology streamlines transactions and assignments to free more time for building relationships with the clients and in providing quality report.

Appraisers have lot of documents, photos, maps and sketch plans. Storing them in the cloud has made it easier to share and organize. You can share your data easily with clients and can even jointly collaborate on documents with others online.

“If you can perform the major tasks anywhere and away from office, you’re untethered,”  Gus Agosto, the Owner-Appraiser of AA Realty Solutions,  have said.

With your documents on the cloud, you avoid bogging down devices with every photo you’ve ever taken of your assignment. The other benefit is you won’t lose any of files if your computer crashes.

What’s important for appraisers, besides a comfortable camera, drone and high-tech computers, is always being able to access your programs and data WHEREVER YOU ARE: at home, office, branch office, breakfast, lunch, travelling, on client appointments, and at the title company.

Learning to make the most of new technology can be challenging, but staying on top of tech trends for business has become an important factor in every success.

“Real estate appraisal is overdue for cloud storage. Practitioners should appreciate the benefit of cloud computing. This is the future of real estate appraisal.”

The importance of taking pictures during site inspections

picsIn every site inspection, an appraiser will surely draw cameras to take pictures of the property. As the saying goes, a picture is worth of a thousand words. This holds true in appraisal. Pictures play an important role in the whole process.

Some clients like banks require photos of the properties; but others will ask why there is a need in taking pictures. They are thinking of their privacy. Let’s discuss the importance of taking pictures in the appraisal.

First, it forms part of the appraisal process. In every appraisal report, you can notice pictures of the property in the annexes or addendum of the report. This helps the appraiser in telling the story of the house and will support the valuation and assumptions provided in the report. Photos can highlight condition, layout, and quality of a house, building or a tract of land. Since no one except the lender or the property owner will read the report, you are assured of the confidentiality and privacy of your properties.

Second, it serves as back-up to the appraisers’ memory. When an appraiser takes photos, the appraiser can remember what the house was like. For instance, there have been times when I labeled the floor as vinyl during my inspection, but the photos clearly showed the floor was ceramic tile. Or maybe in the sketch showed only four bedrooms, but there were actually five based on my photos. Everyone makes mistakes, and that includes appraisers.

Third, it’s documentation. The pictures will greatly help the appraiser if he will be called to testify in the court or any government proceedings.  Since most litigation requires an appraisal of value at the time of taking, photos can be a tremendous tool to assist the appraiser’s description of the property. Few weeks ago, a client asked me to value a property for litigation purposes, I took pictures of the property. Come court hearing, the judge asked the condition of the property, thus I shared in court the pictures I took during the site inspection.

Now you know why an appraiser takes pictures of the properties. Instead of worrying, help the appraiser take good shots by turning on lights and keeping away dogs.

Using Income Approach in Valuation

finanzmanagementThe income method is seldom used in appraisal. Most probably not used in banking institutions. But how are we sure that we are using the right method in valuing real estate properties? Properties that generate income such as apartment buildings, leasable buildings or even public owned enterprise properties subject for litigation should be appraised using the income approach. Lets dive deeper into this method.

This approach converts the income generated or projected income expected to be generated by a property into an estimate of value using one of two ways:  direct capitalization or discounted cash flows.   Both approaches use two important components:  (1) current or estimated cash flows and (2) a capitalization rate or discount rate.

Estimated cash flows should be realistic enough and comparable to the current and historical financial data of the property.  Additional considerations such as the economy or market trends can also impact estimates.  Future plans to expand or add additional assets to the property should also be considered if this will increase your cash flow generated from the property.

The capitalization rate or discount rate should be determined and derived from market data.  The capitalization rate is used to determine a sales price at a given point in time where factors of the market approach can be used.  The sales price could be a current sales price determined by capitalizing the current year’s net operating income.  Sales price could also be a future sales price determined by capitalizing the estimated net operating income of a future period.  The discount rate is the total rate of return a buyer would require to purchase an investment and is used to discount the estimated future cash flows to a present value because a peso received in the future is worth less than a peso today due to time value of money. The discount rate makes the present value of the property’s future cash flows equal.

An appraisal is extremely beneficial in providing information for valuing property.  Thus, Valuers should strive to level up their professional practice and use different methods to arrive at a justifiable and fair market value. That is, a market value that is fair to all concern.

Site Valuation

appraisallargeOne day, I was asked to observe in a meeting of real estate practitioners. They were finalizing the asking price of a property that has just listed. One of them opined that they can base it to the Bureau of Internal Revenue (BIR) Zonal Value, while the other one, succumbed to the pricing that is based on the prevailing prices of properties in the area. I almost bolted from my seat to immediately correct the practitioners.

I have appraised hundreds of properties already, and comparing prices of properties in the area is erroneous. It won’t give justice to the property of the client. Site valuation is not just as simple as comparing with other sold or offered for sale properties in the area.  For one, no two vacant lots are the same typically; no two houses are the same. Every property is unique.  There are differences in size, location, width and depth of lot, and leveling or topography of the land.  The most important to consider is the lot size. Smaller lots tend to sell for a higher price per square meter than larger lots.  However, if the end use is commercial, bigger lots command a much higher price. Once the sales price per square meter is determined for each comparable or “comps”, the reconciliation process begins. Then there are other factors that should be consider such as easement, road right of way,  encroachment, presence of informal settlers or other occupants, the neighborhood, and also, the facilities and amenities in the vicinity.

In the larger scale, one has to consider also the real estate market, from the city or municipality up to the provincial level.  All of these should be taken into account.

Meanwhile, the method of obtaining a market value from the Assessor’s Office is not reliable. We all knew that a lot owner usually declared their property at low level to minimize taxation. The zonal value also cannot be use nor relied on.  Zonal values were based on streets or zones and not on individual property. Just remember that these two were all for taxation purpose only.

In conclusion, real estate practitioners should not shillyshally in topping the services of an appraiser. An experienced appraiser can guide practitioners in arriving at a reliable price of their listings. They have the knowledge and skills in discerning the value of a property. Your client deserve the best service from you.

SME and the Valuation Standard

zzq9wVj4_400x400On Tuesday, Nov. 17, the Asia Pacific Economic Cooperation (APEC) kicked-off the Small and Medium Enterprise (SME) Summit 2015, with the theme, “Innovation and Big Ideas: Pushing Boundaries” that aims to challenge the traditional framework and mindset of micro and SMEs to further innovate their businesses.

SME is the engine of growth and innovation in APEC. It comprises over 97 percent of enterprises in the region; over half of the total workforce in APEC member economies; 20 to 50 percent share to GDP; and contributes up to 35 percent of direct exports.

The process of innovation of business requires new mindset and building of credibility of their businesses. The International Valuation Standards Council (IVSC) has recognized this demand and considers it critically important to build valuation expertise and capacity through the application of consistent standards and to continue to develop a globally respected valuation profession to apply these standards with the required vigor and coherence. Having uniform valuation standards in place ensures that the environment in which SMEs operate is fair and encourages healthy competition within and across borders.

The global application of clear valuation standards can benefit SMEs and companies of all sizes in a number of ways. Practitioners, alongside their clients, liaise with a variety of third-party organizations, such as banks, grant funders, and other external parties involved in various transactions. In order to meet their expectations and develop meaningful relationships based on mutual trust, the companies need to demonstrate a high level of credibility. The consistent application of fair value measurement implemented by well-qualified valuation practitioners is an important means for achieving this goal.

All parties involved in the business process should be involve in the education on the importance of valuations standards, which, once applied, help companies to operate in a more accountable and transparent way. As such, valuation standards ultimately can improve companies’ reputation and positioning in the marketplace.

No two properties are alike

marketvaI have a client who asked me if I am using the same appraisal report format in my practice.  I quickly replied no. Why? Real estate properties have different appraised values depending on how you intend to use the appraisal. For instance, valuation for insurance may be very different than the value in the market, estate tax, property resale, or insurance. Other assigned uses include investment, liquidation, price confirmation, equitable distribution, loan collateral, retrospective value and many more.

Qualified and educated appraisers understand the many different types of values, assigned uses, and market condition in an specific area. He or she works with client to choose the proper type of value so that they can use the appraisal correctly and effectively.

Whenever there’s a question about the value of your property, there’s also a risk involved. It may be the risk of selling too low, or of paying too much: the risk of being under or over insured; the risk of not getting your fair share in a division of property; the risk of incurring tax penalties or being audited when calculating estate taxes.

A professional appraiser helps you manage these and other such risks by providing a written opinion of value upon which you can base your financial decisions. Rather than being just an “educated guess”, the professional appraiser’s value conclusions are based upon prescribed methods of valuation, research and report writing.

Bankers, investors, insurers, brokers, trustees, lawyers, judges, government agencies – ALL are dependent upon the knowledge and expertise of the appraisers, and so are you. Too often and too late, people find out that the appraisals they have are inaccurate or misleading, resulting not only in greater risk to themselves, but also a waste of millions out of their pocket.

No two properties are alike, no two appraisals are alike.