Valuing properties using income approach

value-riseThere are two income-based approaches that are primarily used when valuing a property, the direct capitalization method and the discounted cash flow method(DCF). These methods are used to value a property based on the amount of income it is expected to generate in the future.

Both methods are data driven.

The Direct Capitalization Method is most often used when a property is expected to have a relatively stable level of margins and growth in the future – it effectively takes a single benefit stream and assumes that it grows at a steady rate into perpetuity. The Discounted Cash Flow method, on the other hand, is more flexible and allows for variation in margins, growth rates, debt repayments and other items in future years that may not remain static.

I have valued an income generating properties in different parts of Cebu and nearby provinces and applied both the direct capitalization and discounted cash flow method. Based on the comparable properties and research, I used varying future growth rates (estimating the population growth, property value appreciation, risk and income).


In using this approaches to value, I put my shoes in my investor client. The motivation for the acquisition of property is to generate income.

In the discounted cash flow method, the value of a property is equal to the present value of its projected future benefits (including the present value of its terminal value). The terminal value does not assume the actual but rather represents the point in time when the projected cash flows level off or flatten (which is assumed to continue into perpetuity). The amounts for the projected cash flows and the terminal value are discounted to the valuation date using an appropriate discount rate, which encompasses the risks specific to investing in the specific property being valued. Inherent in this method is the incorporation or development of projections of the future operating results of the subject property.

In using the income approach to valuation, it is important to have a grasp on the present value factor; capitalization rate; to arrive at the present value of the property appraised. After the number crunching of the income statement and other financial documents, an appraiser can get the cash flow in a year and can model the succeeding years on the assumption that it will generate the projected income and growth, either steady or vary in several years.

Income approach is a tool in valuation that an appraiser can continue to harness and be proficient in arriving at a credible and defensible appraisal.

I remember a lecturer in a government assessors seminar, in referring to the application of income approach to valuation. He said, “Private appraisers are more advanced in the applications of different methods in the appraisal. They can apply even the income approach.” Thus, we have to prove it, in practice.

Courtesy call on BSP Governor

The Philippine Association of Real Estate Board paid a courtesy call to Bangko Sentral ng Pilipinas (BSP) Governor, Nestor Espenilla Jr. PAREB discusses the current situation of real estate appraisers and the need to review the BSP guideline on accrediting appraisal companies. The BSP Governor encouraged PAREB to submit a position paper. PAREB was headed by President Rey Cartojano, Senior Vice-President Moby Arquiza, Appraisal Committee Chairman Gus Agosto and VP Irene Ofrecio. Also present were the San Juan Real Estate Board Officers.

Bangko Sentral ng Pilipinas is the central bank of the Republic of the Philippines.

Appraisal best practices lecture kicks off

SoonReal estate appraiser Gus Agosto kicked off the Appraisal Seminar Series on July 16, 2018 at the PAREB Center, Pasig City.

Real estate appraisers and professionals attended the event hosted by the Philippine Association of Real Estate Board, Inc.  In his presentation, Agosto shared his real estate appraisal projects and addressed issues and trends in appraisal practice.

As a practicing and principal owner of AA Property Appraisal, which is primarily based in Cebu City, Agosto has developed an extensive experience in the appraisal of commercial, residential, special purpose, and industrial properties in different part of the country. Agosto has valued properties of country’s top corporation and institutions such as General Milling Corporation, SMC Lighterage, PTT Corporation, Vivant Power Corporation, Pilipinas Water, and University of the Philippines, Southwestern University, United Church of Christ and many more.

Agosto is a graduate of Bachelor of Arts in Economics and studied Masters of Arts in Economics. He is a licensed real estate broker, appraiser, and environmental planner. He is also a faculty member at the University of San Carlos, School of Business and Economics.

Series of lectures on the appraisal that will be conducted include the seminar on how to conduct market research, economic situation,  Philippine Valuation Standards, pricing strategies and appraisal, highest and best use analysis, mastering site and cost approach, mastering income approach, valuation of complex properties, appraisal report writing, using technologies in appraisal and more.

The seminar/lecture was made possible by Philippine Association of Real Estate Boards, Inc. through its President Rey Cartojano.

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Appraisers held breakout session in PAREB NCR-Luzon Conference

pareb-logo-smallThe Philippine Association of Real Estate Board (PAREB) gathered its appraiser-members in NCR-Luzon to strengthen their voice and be united under the PAREB Appraisers brand.

The session was graced by Philippine Regulatory Board of Real Estate Service (PRBRES) Chairman Eduardo G. Ong. Facilitated by Appraiser Gus Agosto, the session was attended by members of different PAREB local boards such as Baguio, Pangasinan, Manila, Rizal, Pasay-Makati, Lucena, Batangas, Cebu, Davao, and Palawan.

Here are the recommendations during the session:

  • The desire to practice the profession is high as challenges to provide opportunities persist: There are problems on how to start practicing the profession. One challenge highlighted is non-acceptance of appraisal without accreditation from Banko Sentral ng Pilipinas. PAREB should lobby with BSP and other agencies to amend policies and let members participate in the appraisal of government projects.
  • Develop mentorship. Few seasoned appraisers are doing mentorship, while there are demands for every major city to have mentors for new appraisers. There should be a meeting for mentors and discuss the guidelines in mentorship.
  • Appraisal education.  To heighten the capacity of every member, there should be a continuing education on the appraisal. Workshops on actual appraisal should be conducted on various boards to promote excellence worthy of the PAREB Brand of Appraisal.
  • Sharing of database and opportunities. The appraisers have been united to foster unity in exchanging data and opportunities. An efficient referral system has been worked out.
  • PAREB Directory. The advantage of PAREB is its presence in every major city of the country. The directory will help clients to connect directly to appraisers. Since it is listed per locality, clients can easily connect appraisers in the locality where the property is. The current list should be updated and should include the new members.



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Importance of Analyzing Market Trends in Real Estate Appraisal

value-riseA market is different from a neighborhood. In choosing comparables and reconciling values, it is worthy to consider the distinction between the two in analyzing market trends. This is vital in real estate appraisal.

A neighborhood is a grouping of complementary land uses. This is a geographical term and includes residential, commercial and even industrial uses within a neighborhood. Meanwhile, a market is the sum total of all competing properties of buyer and sellers in a given area or region under consideration. A market study is focused on competing properties. Therefore, in conducting market analysis one should not limit themselves in analyzing properties in a given geographical unit.

Most appraisers can easily identify appreciating market indicators. Some of which are the undersupply of competing properties and listings; reduced marketing time; an increase in list price than the previous sales price.

The presence of one or all of the indicators would be a signal of market appreciation and the appraiser should consider it in making adjustments and choosing comparables to produce credible reports.

The other method in analyzing the market trend is to distinguish the market if it’s a seller’s market or a buyer’s market.

In a seller’s market where a high level of competition exists, a seller will make concessions which are either non-existent or very minimal. This is in contrast to a buyer’s market where an abundance of competing properties exist and sellers are motivated to offer concessions to stimulate contracts.

A reliable appraisal, especially in dynamic and growing markets such as Metro  Manila and Metro Cebu, must consider real estate trends to offer the most insightful and complete valuation. When in doubt, consult with quality-oriented and experienced valuation professionals that specialize in market analysis.

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. 

AA Appraisers represents top corporations in 1Q 2018

AA Appraisers & Planners represented several major corporations in the 1st Quarter of 2018. These include power firm; beach resort; property investor; batching plant and energy firm, the company said in a press statement.

Top clients included Vivant Power Corporation, the largest power firm with investment in generation and electricity distribution in the country. It contracted AA Appraisers for the appraisal of Napocor power plant in Luzon. The power plant, located in Bauang La Union, covers 25-hectare properties.

Punta Engano Development Corporation also awarded AA Appraisers the contract for the appraisal and highest and best use analysis of beach properties in Lapulapu City.

Meanwhile, AA Appraisers performs an appraisal of beach resort properties owned and managed by the Cordova Gabi Beach Resort and Spa. The scope of services includes the appraisal of furniture and equipment of its hotel and restaurant.

Total Cordova Corporation commissioned AA Appraisers to conduct an appraisal of a batching plant facility in Cordova, Cebu. The scope of works includes the appraisal of equipment and land located in Cordova.

“These works represent an important milestone in AA Appraiser’s thrust to assist business and institutions in decision making. Our client’s continuous trust shows the recognition of our capability and the level of our company,” said Gus Agosto, Principal Appraiser of AA Appraisers and Planners.

AA Appraisers began operations in 2013. It specializes in litigation appraisal, commercial and residential. Some of its prominent clients are Miraizo Group of Hongkong, SMC Lighterage Corporation, General Milling Corporation, University of the Philippines, Southwestern University and more. It also represents clients abroad through Mark Grotewohl Law Firm of California and Finemore Walters and Story of Australia.


Prof. Gus Agosto speaks at General Santos City Appraisal Seminar

Appraisal mentor Gus Agosto spoke to a packed room at the Casa Verde, Greenleaf Hotel, General Santos City seminar hosted by the local board of Philippine Association of Real Estate Board, Inc (PAREB-GenSaSAreb). His workshop and presentation on “Workshop on Valuation of Real Estate Properties,” focused on the how to’s in conducting real estate appraisal. The workshop highlights were the actual site inspection of properties in the city proper and reporting of the findings and the final value to a panel of experts.

Senior Appraiser Art Lawa said “We have done an activity like this (workshop) in the past, but this one is much better and productive”. The workshop provided an actual appraisal assignment for the participants. They were divided into groups and provide an assignment to render an opinion of value to the properties.

More than 80 real estate appraisers and brokers attended the workshop, which include bank appraisers, assessors and private practitioners in General Santos City, Cotabato and nearby provinces. The workshop received high marks from nearly everyone who attended, with the vast majority of attendees rating the event as one they would enthusiastically recommend to their colleagues.

“We are thankful to real estate appraiser guru Gus Agosto for sharing his skills and knowledge to GenSaSareb members, “ PAREB National Director Nimfa Esguerra said.

“World bank estimated the contribution of real estate at 50-7% of world’s wealth, but here in our country, the contribution of real estate activity ranges from 6-9% only of the Gross Domestic Product,” PAREB Vice-President Gus Agosto told the workshop participants. “Appraisers should take it as a challenge and a mission on how we could help our country to come out with a real value of the wealth of our nation.”

The workshop is part of the nationwide Appraisal mentoring program of  PAREB. It  provides support to appraiser-members to grow and become successful in their field. Mentoring program is designed to help new appraisers to gain actual experience and with the help of mentors from its pool of senior and experienced appraisers.

PAREB President Rey Cartojano expresses its support to the seminar. “We should institutionalize the education for each licenses in real estate practice-real estate broker, appraiser and consultant”. This will be fully materialized with the establishment of PAREB Academy in the future.

“Let us make PAREB not only as the oldest and biggest organization in the land, but also the most dynamic organization,” he ended.


Gus Agosto Speaks on Appraisal at Trinity University of Asia

Appraiser Gus Agosto gave a lecture on “Real Estate Appraisal Practice” at the Trinity University of Asia (TUA), located along E. Rodriquez Sr. Avenue, Quezon City,  last April 7, 2018.

Prof. Gus discusses the steps in conducting appraisal, using the sales comparison and cost approach in valuation. The lecture was followed by an actual appraisal and group reporting.

As the Vice-President of Philippine Association of Real Estate Board (PAREB), he has conducted lectures and mentoring on appraisal with different local board. He conducted a series of seminar in Cebu and at the PAREB Center in Pasig City.

As faculty member, he also teaches real estate and finance in University of San Carlos in Cebu City.

The lecture was organized by Prof. Karen Uy, one of the faculty of the Bachelor of Science in Real Estate Management.

“I want to give you only the best in Appraisal”, Prof. Karen told her students. “That is why I invited Appraiser Gus Agosto, to teach you how to conduct actual appraisal.”

He has appraised properties of various type such as power-plant, beach resorts, commercial buildings, hotels, hospitals, schools, residential, memorial parks and others. Appraiser Gus has been appointed several times as appraisal court commissioner in various courts within the country, even in the United States and Australia.

“I love sharing my knowledge with the next generation of real estate practitioners.” Prof. Gus told the students. “You are the future of the profession. You deserve only the best.”


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Assessors, Private Appraisers raises competencies on Valuation Standard

The Bureau of Local Government Finance held a seminar “Training on Philippine Valuation Standard” in Tagaytay City on 13  April 10- 2018.

The seminar was aimed to harmonize standards and promote acceptance from government assessors and private appraisers. Essentially, Philippine Valuation Standards is an adoption of  international  valuation standards in Philippine setting.

Over 65 representatives of different provincial, city and municipal assessors  all over the country participated the seminar. Two represents private appraisers-Gus Agosto and Lily Anne Bardago.

During the seminar, the first speaker Provincial Assessor Ilbas said that in recent years government assessors carried out work on valuing properties through sales comparison and cost approach, but rare in applying income approach. He said that the country adopted the international standards in accordance with the Philippine setting.

“We have laws and policies which are particular in our country. Thus, Philippine Valuation Standard is the application of International Valuation Standard in the country.”

Appraiser Gus Agosto appreciated the training. “It sharpen our knowledge on the Philippine Valuation Standards”. It merges the experiences of the assessors and private appraisers in their day to day practice of profession.

Speaker Gumabay stresses the importance of Philippine Valuation Standards. “Our generation should be happy to be in the era in which we have now a valuation standard.”

“It is not only to standardize the different valuation practices in different government agencies and private practice, but on how to be at par with other countries in terms of valuation practice.”

The International Valuation Standards (IVS) are standards for undertaking valuation assignments using generally recognised concepts and principles that promote transparency and consistency in valuation practice. IVS 2017 comprises five General Standards and six Asset Standards. The General Standards set requirements for the conduct of all valuation assignments including establishing the terms of a valuation engagement, bases of value, valuation approaches and methods, and reporting.

In conclusion, Appraiser Gus said “training on Philippine Valuation Standards will create public awareness on the relevance and competence of our real estate appraisers.  On a positive note, it gives confidence to international community that Filipino appraisers are at par with the global valuation practice.”