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Valuation as a Multidisciplinary Practice

Valuation is a cornerstone of informed decision-making across industries, including real estate, agriculture, manufacturing, and engineering. It involves assessing value for various purposes, such as sales, taxation, insurance, and investment. Given its complexity, valuation has emerged as a multidisciplinary practice, bringing together professionals from diverse fields to ensure accuracy, reliability, and comprehensive results.

In the Philippines, various laws regulate professionals involved in valuation, ensuring that each operates within their defined scope of expertise. Real estate appraisers are governed by Republic Act No. 9646, also known as the Real Estate Service Act of the Philippines. This law establishes the standards for the licensure, practice, and professional conduct of real estate appraisers, granting them the authority to assess and determine the value of real estate properties, including land, buildings, and improvements.

For agricultural and biosystems engineers (ABEs), their practice is regulated by Republic Act No. 10915, the Philippine Agricultural and Biosystems Engineering Act of 2016. This law authorizes ABEs to perform valuations of agricultural and biosystems machinery, equipment, structures, and facilities, as well as agricultural engineering projects such as irrigation systems and farm infrastructure. Joint Resolution No. 1, Series of 2022, further clarifies the complementary roles between ABEs and real estate appraisers, stating that ABEs’ valuation reports for agricultural assets can serve as references for real estate appraisers when valuing agricultural properties.

Mechanical engineers, on the other hand, are governed by Republic Act No. 8495, known as the Philippine Mechanical Engineering Act of 1998. This law allows mechanical engineers to engage in the valuation of mechanical systems and equipment, such as HVAC systems, boilers, power plants, and other industrial machinery. Their valuations typically focus on the technical and operational aspects of machinery, assessing factors like depreciation, replacement costs, and operational efficiency, particularly in industrial or commercial properties. Similarly, other specialized professionals, such as electrical engineers regulated under Republic Act No. 7920 (The Philippine Electrical Engineering Law), contribute to the valuation process, particularly for properties with complex electrical systems. Architects, regulated by Republic Act No. 9266 (The Architecture Act of 2004), may also be involved in valuing buildings and structures, focusing on the design and construction aspects of real estate.

Each of these laws ensures that professionals work within their areas of expertise, providing accurate and legally compliant valuations. While real estate appraisers focus on the overall property value, agricultural and biosystems engineers and mechanical engineers bring specialized knowledge to appraise agricultural systems, machinery, and industrial equipment. Their collaborative roles, as outlined in Joint Resolution No. 1, Series of 2022, ensure that properties with specialized components, such as agro-industrial estates, are valued comprehensively and accurately. This multidisciplinary approach, guided by their respective laws, guarantees a thorough and credible valuation process that benefits all stakeholders involved.

Real estate appraisers are at the core of property valuation, focusing on land, buildings, and other real estate. They assess market conditions, zoning laws, and property improvements to provide a comprehensive valuation report. Their work is primarily guided by RA 9646 in the Philippines. However, in properties with specialized components, such as agricultural systems or mechanical infrastructure, real estate appraisers often rely on the input of other professionals. Agricultural and biosystems engineers, for example, are authorized under RA 10915 to assess agricultural assets like irrigation systems, silos, and other farm-related infrastructure. Their specialized knowledge is particularly crucial when valuing agricultural properties or agro-industrial estates. Similarly, mechanical engineers, as outlined in the Philippine Mechanical Engineering Act, can assess the value of mechanical equipment and machinery, such as HVAC systems, boilers, and industrial machines. These engineers evaluate factors like depreciation, operational value, and replacement costs, which are important for properties with significant mechanical infrastructure.

The interplay between these professions ensures a comprehensive approach to valuation. For example, in industrial properties, mechanical engineers evaluate the machinery and systems, while real estate appraisers integrate these technical valuations into the overall property value. In agricultural settings, ABEs assess farming equipment and infrastructure, and real estate appraisers consider these factors alongside land and property values to determine the total worth. The collaboration of these professionals leads to more accurate and thorough appraisals, addressing both the real estate and specialized components of a property.

This multidisciplinary approach to valuation offers numerous benefits. It ensures accuracy, as each expert contributes their specialized knowledge to different aspects of the property. It also provides a comprehensive valuation, incorporating everything from land value to the worth of machinery or agricultural systems. Moreover, it guarantees regulatory compliance, as each professional operates within their legal scope—real estate appraisers under RA 9646, and ABEs and mechanical engineers under their respective laws. Finally, it fosters stakeholder confidence, as the valuation reports produced are detailed, reliable, and credible, providing property owners, investors, and other stakeholders with the information they need to make informed decisions.

Why Combining Brokering and Valuation Creates a Conflict of Interest

In the real estate industry, professionals often wear multiple hats to meet the diverse needs of clients. Brokers facilitate the buying, selling, or leasing of properties and earn commissions based on the transaction’s value. Appraisers, on the other hand, provide impartial, accurate property valuations that are essential for informed decision-making by buyers, sellers, lenders, and investors. Although these roles complement each other, combining them under a single practitioner can create significant conflicts of interest that undermine the integrity of both professions.

The core issue lies in the divergent motivations of brokers and appraisers. Brokers are incentivized by the commission, which is tied to the value of the property and the success of the transaction. This financial motivation can lead brokers to manipulate property valuations—either inflating the value to secure a sale or undervaluing a property to expedite the transaction. Such actions may benefit the broker but distort the true market value and could ultimately harm other stakeholders, such as lenders or buyers.

In contrast, appraisers are expected to provide unbiased, objective property valuations. Their work should be independent and based solely on the property’s characteristics, market conditions, and other relevant factors, without any external influences. When an individual engages in both brokering and appraising, it raises concerns about the integrity of the valuation and the possibility that the dual roles could influence the professional’s objectivity, judgment, and ethical decision-making. Their financial interest in closing the deal could lead to a questionable and potentially inflated or deflated property value.

A few weeks ago, a client requested our company to sign a non-disclosure agreement (NDA) to ensure the confidentiality of the information they would provide, we reassured them that confidentiality is a cornerstone of our professional practice. Not only do we strictly comply with the Data Privacy Act of the land, but we also adhere to the ethical principles outlined in the International Valuation Standards (IVS). These guiding frameworks collectively reinforce our commitment to safeguarding client information, maintaining impartiality, and upholding the highest standards of professional integrity.

As a company that handles sensitive and proprietary client information, we strictly comply with the Data Privacy Act. This legislation mandates the secure handling, processing, and storage of data to protect it from unauthorized access, misuse, or breaches. Our compliance ensures that every piece of information entrusted to us is treated with utmost care and responsibility.

Recognizing this inherent conflict of interest, the Real Estate Service Act (RESA) of the Philippines, which governs the practice of real estate services in the country, mandates the separation of the real estate broker and appraiser professions. RESA ensures that each profession operates independently, preserving the integrity of their respective roles. The law encourages individuals to specialize in either brokering or appraising, which safeguards both professional accountability and the quality of services provided to clients. By doing so, RESA helps maintain public trust and transparency in real estate transactions.

The separation of these professions also aligns with global best practices, such as those outlined in the International Valuation Standards (IVS). These standards emphasize the importance of ethics, integrity, and impartiality in valuation practices. By keeping brokering and appraising distinct, the real estate industry can better ensure that valuations remain objective and reliable, upholding the public interest and minimizing any potential conflicts of interest.

Hotel and Resort Valuation: Why Property Owners and Investors Need Expert Services

Valuing a hotel or resort property is a complex process that goes beyond simple real estate appraisal. In the Philippines, as in many parts of the world, it’s essential to distinguish between the valuation of the property itself and the business operations that drive its income. This dual approach – evaluating both real estate and business assets – is known as “business valuation.” Understanding this distinction is crucial because an accurate valuation can mean the difference between a successful acquisition or merger and a risky investment.

Understanding Hotel and Resort Properties

Hotels and resorts differ significantly in structure and operation. City hotels are often high-rise buildings that cater to business and urban travelers, while resorts tend to be located in popular tourist destinations and usually offer villas, lodges, and expansive spaces. The revenue generation capabilities of these properties also differ, as city hotels rely heavily on room bookings and catering services, while resorts may have additional revenue streams from activities, events, and outdoor experiences. For any hotel or resort valuation, it’s essential to consider vacancy rates, room rates, selling price, and income from various sources.

Our Portfolio in Hotel and Resort Valuation

At AA+ Appraisal & Consultancy, we have extensive experience appraising some of the Philippines’ most sought-after hotel and resort properties. Our portfolio includes a diverse range of locations, such as:

  • Islands Resort in Northern Samar
  • Fun Park & Resort in Dasmarinas, Cavite
  • Beachfront properties in Panglao, Bohol
  • Prime beach resorts in San Vicente and Puerto Princesa, Palawan
  • Hotel and Resort in Cordova, Cebu
  • Mountain Resort in Pinamungajan and Toledo Cebu
  • Exclusive beachfront sites in Punta Engaño and Tabogon, Cebu
  • Five-star hotels in Cebu City and other major destinations

Our team’s expertise in valuing these high-profile locations, which attract both local and international tourists, enables us to deliver accurate and reliable appraisals that reflect the true potential of each property.

Key Valuation Approaches for Hotels and Resorts

  1. Cost Approach: This method focuses on the cost of land and building improvements, plus the cost of materials and equipment used in hotel operations. This approach can provide a reliable baseline, but it may not fully capture a hotel’s revenue-generating potential, especially if the valuation excludes certain equipment or decorations.
  2. Market Approach: For properties with substantial market data, the market approach offers a more comparative valuation based on similar hotels or resorts. It’s critical, however, to have detailed information on comparable properties to perform an accurate market comparison.
  3. Income Approach: Since hotels and resorts are revenue-driven properties, their valuation often hinges on projected income and profitability. Factors like occupancy rates, average room rates, and food and beverage sales provide a clear picture of a property’s income-generating potential. Additionally, for properties managed by hotel chains, an understanding of management contracts and performance benchmarks is necessary for a comprehensive valuation.

Importance of Expert Valuation Services for Owners and Investors

Valuing a hotel or resort property is more than just a calculation – it requires a nuanced understanding of the market, operational revenue streams, and industry trends. Here’s why expert valuation services are indispensable:

  • Informed Decision-Making: A detailed and credible valuation report empowers owners and investors to make informed decisions. Whether developing a new hotel, investing in a resort, or expanding a portfolio, a well-researched valuation reveals a property’s true potential.
  • Credibility and Accuracy: Expert appraisers bring industry knowledge and experience to the table, ensuring that valuations are both credible and accurate. This is especially important for lenders and financiers who need reliable data to support refinancing or loan issuance decisions.
  • Tailored and Timely Reporting: Hotel and resort valuations often require tailored approaches due to the unique nature of each property. Professionals provide customized reports that are delivered on time, even for portfolios of various sizes and locations, allowing clients to move forward with confidence.
  • Market-Specific Insights: Changes in real estate markets, local regulations, and competitive landscapes affect hotel values. Professional appraisers stay informed about these shifts, using advanced methodologies and analysis to adjust valuations accordingly.

Required Documents for a Comprehensive Hotel Valuation

Accurate hotel valuations rely on a comprehensive set of documents, which may include:

  • Land ownership documents
  • Building permits and plans
  • Business licenses and occupancy rates
  • Financial statements of business operations over the past three years
  • Environmental Impact Assessments (for larger hotels)
  • Management contracts, where applicable

Partnering with Experienced Professionals

The valuation of hotels and resorts requires specialized knowledge and experience, as these properties are often more complex and financially dynamic than standard real estate assets. At AA+ Appraisal & Consultancy, our appraisers are experts in hotel and resort valuation, equipped with in-depth market insights and a commitment to delivering reliable, actionable results. Our services help owners, investors, and financiers achieve clarity and confidence, enabling them to pursue their projects and investments with a firm grasp of the property’s worth.

By leveraging our expertise, particularly in high-demand areas like Panglao, Palawan, and Cebu, you gain an edge in understanding the full value and potential of your hotel or resort property.