Drone can add value to Appraisal Practice

Property inspections plays a major part in the appraisal process. Inspecting roofs, aerial and panoramic views of the property and neighborhood is always a must have. Drones can help appraiser in making job easier.

Drones can provide a video and high resolution photographs which is one of the many benefits of using drones in appraisal. It can take pictures in various angle and up close which make the inspection and visibility of the properties very helpful in inspections.

In using aerial photographs, expenses are a major factor. Using aircrafts and helicopters are more costly than utilizing drone. By using drone you can save on aircraft rental cost, paying a pilot and fuel costs. All what you need in drone is a rechargeable lithium-ion batteries.

Drones is better than satellite photography such as google maps and wikimapia. Since there is no height limitations an appraiser can get the specific details of the properties, in real time.

Drones are the future of aerial property photography. By using this technology in your appraisal practice, you can gain a competitive advantage. #

Drone-assisted appraisal in the Province of Samar.

AA Appraisal valued island properties in Samar

AA Appraisal & Consultancy successfully valued  three island properties in Northern Samar. The appraisal inspection was done using drone technology and able to get different views of the islands and its beautiful beaches.

The 3 island properties which  have a total area of 400 hectares, are ideal for  high-end and tourism related development . The beaches and its location are accessible from different point of origin such as Manila and Cebu.

An appraisal is important in developing an opinion of value on how much a property is worth and plays a crucial part in setting the sales price of the property. Property owners and buyers rely on the third party appraisal to help them in the transaction.

While the appraisal of a regular properties in urban can be easily established by sale comparison, in valuing private island is more complex and trickier. AA Appraisal had researched and considers different islands in the country and international. “Experience in using different methodology such as income approach and development method plays a big part in appraisal”, Appraiser Gus explained.  

“Establishing a realistic and reliable value of property based on market data, previous appraisal reports and investment value of the property is crucial,” he continues.

He also emphasizes the importance of drone technology in appraising large properties like islands. “Drones will help appraisers in making inspections and documentation much easier”

Gus Agosto served as the Principal Appraiser of AA+ Appraisal & Consulting. He has been commissioned already to value beach properties, islands and other tourism related properties. He has served as a consultant for Asian Development Bank, Cebu Provincial Government and big corporations such as Vivant Energy, Avida Condominium, Ayala FGU, Punta Engano Development Corporation, and others.

Coping with COVID-19: Crisis and Opportunities

Screen Shot 2020-03-29 at 8.04.37 PMThe impact of the COVID-19 can be measured of its severity with number of affected person in the country. As of March 29,2020, there is a total of 1,418 confirmed cases, with 418 recovered and 71 deaths.  Majority of  confirmed cases are in Metro Manila and nearby provinces. COVID-19 is not as deadly as Ebola, which had a mortality rate of 60%, or SARS and MERS at 30%. But if the risk of death is lower, transmission is much higher.

Staying in business is the biggest challenge brought by the coronavirus. However, as Albert Einstein said, “In the midst of every crisis, lies great opportunity”.

There is a need to explore the economy, business, real estate sector and draw-up a plan to confront the crisis and explore opportunities not only to withstand but to emerge stronger. Businesses that are well-prepared will always recover more quickly.

Pandemic in History

Pandemic is not new in the country. Looking back in history, our country survived several  pandemic already. The nearest comparable pandemic to coronavirus that  impacted the country occurred in 1918-1919, with the Spanish Influenza or locally known as trancazo. It was also the pandemic that infected more than 500,000 of the global population. In the Philippines, the total number of deaths was estimated at 70,513, with the group suffered most were those between 10-29 years in age. This epidemic occurred in waves, beginning in June and the second, which is more severe one begun in October 1918.

Another outbreak , SARS, which has a worldwide impact last for five months, from March to July 2003. The country recorded 14 cases and 2 deaths, the lowest count in 30 countries affected by the disease. This can be attributed to the established guidelines or infrastructure system of the government, and also the characteristics of the virus itself.

On coronavirus, lockdown were implemented in Wuhan, China to contain the spread of the virus. However, it enables the businesses to be innovative and cope up with the situation, in its two-month lockdown. Businesses engage in providing basic essentials were allowed to continue. Digital ordering of food supplies to estate arrangements were encouraged. The implementation of QR Code system in detecting person with infection, provision of supplies and others.

The experiences we can learn from Wuhan and from our own gives us a light of hope on our quest to survive and end coronavirus.

Economic impact

The economic impact is inevitable. Luzon accounts for the 73% of the country’s gross domestic product (GDP), while Visayas and Mindanao have 13% and 15% respectively. The National Economic Development Authority projected already at 0.3 reduction of the GDP if the virus lingers until June, and will further increase to 0.7& if it will last until December.

Among the sectors in the economy that were hit the hardest were services, tourism, trade, and remittances. Real estate being in the service sector is among them.

Based on the estimate, tourism industry alone could lose P22.7 billion in revenues per month due to the corona virus outbreak. The industries such as the export processing zones will be vulnerable to the disruptions in global supply chains after the closure of airports, ports, and factories within the country and abroad. Real estate, which has a gross value added of 2.3 Billion, as of January 2020,  has greatly impacted.

Agriculture sector stand-out in this time of crisis. The role it plays in food sufficiency and  provision of employment to the people cannot be denied. In 2018, it employs 10 Million people in the countryside.

The declaration of “Enhanced Community Quarantine” from Luzon and other provinces signals a new situation in real estate.  It will pave way to a new redistribution of real estate development and type of properties that will be offered in the future.

Opportunities in time of crisis

Under the guidelines on the enhanced community quarantine, only those providing basic necessities and activities will be allowed to operate.

Basic necessities include food and medicine production:

  1. Public markets
  2. Supermarkets
  3. Groceries
  4. Convenience stores
  5. Hospitals
  6. Medical clinics
  7. Pharmacies and drug stores
  8. Food preparation
  9. Delivery services
  10. Water-refilling stations
  11. Manufacturing and processing plants of basic food products and medicines
  12. Banks
  13. Money transfer services
  14. Power
  15. Energy
  16. Water
  17. Telecommunications supplies and facilities.

Business procession outsourcing and export-oriented will continue to operate provided that they will employ social distancing. Other businesses are allowed to operate provided their employees are working at home.

These businesses are opportunities that need to be explored. This crisis require people to think out of the box and be innovative to remain in business. Analyze current business strength and weaknesses, to enable to capture opportunities in the market. Adaptability and collaboration is the key.

Key driver to resilience

In coping with the social and commercial disruption, a key driver is turning out, the digital technology and agriculture. Groceries and food supplies can be purchased online and delivered to the home. In Wuhan, local residents organize themselves for home delivery of essential supplies while in self-quarantine. The combination of consumer digital maturity and digitally supported supply chains has enabled local residents to organize home delivery of essential supplies to people in quarantine.

There are companies that provide virtual trainings and online seminars to its people and learnings about real estate salesmanship skills, market analysis, business matching, and other useful skills to personal development such as leadership and speaker’s training.

Agriculture plays a great role in the sustenance of food supplies and stable prices in the market. Farming and fishing activities were permitted during the period of quarantine. The government also ensure  the continues movement and unhampered flow of farm products to the cities.

Uncertainty still dominates the situation. Nobody knows what next week or months could bring. Preparation and planning is the key to overcome. Businesses should conduct scenario planning, the best and worst case scenarios, and the capability of the business to cope. There should be short and long term plan on the financial, organisational and operational  capability. Access to financial assistance and relief should be demanded from different government agencies.

Filipino people had been proven to be resilient amid calamities and crisis. Covid-19 is a wakeup call for us which both need to accelerate the digital transformation of our economy — ahead of the next pandemic.

 

 

 

A Closer Look at Cost Approach Valuation

Cost approach is one of the valuation approach that is commonly used in valuing man-made improvements and machinery. In the Philippine context, cost approach is being used to value improvements separate from the valuation of land. This method can be trace back to our long history of housing assessment in the Philippines. It is revered yet poorly understood.

In a nutshell, cost approach is a breakdown of what it would cost to reconstruct the property, as if it were destroyed less depreciation. Cost approach is highly reliable if the property subject for appraisal is new, and might have little or no depreciation at all.

But it’s not a walk in the park approach. There are a lot of misconception and need to polish. In cost approach method, an appraiser should master the building construction estimation, the difference between the reproduction and replacement method, types of depreciation, its application and whether it is curable and incurable, and the supply and demand that shape the economic situation.

Economic obsolescence is seldom used by practitioners. Analyzing the location of the property and its role in the supply and demand is at the core of this type. Example, an older warehouse that is not suited to containerized freight and as such not as valuable as the other one. Another example is a building designed for processing of local agricultural products which through the period of time, the community no longer produces these products. These buildings substantially depreciated due to economic obsolescence.

The crucial portion in the cost approach is the determination of the cost new and depreciation of the property subject for appraisal and breaking down the building cost into direct and indirect cost. It’s not just a list of materials and labor needed to construct a building, but should also include the developer’s and entrepreneurs’ profit. This is a reward for the role they played in ensuring the completion of the project and bring it to the consumers.

Defining the different part of depreciation is also an important one. The economic life of the improvement has bearing on its contribution to the market value of the property. However, there are confusion on the interrelation of remaining economic life, effective age and actual age. The economic life of a building can be as short as thirty five years, or its effective age is longer than the actual life. Thus the maintenance, renovation and repair plays an important role in prolonging the remaining economic life of the property.

Here is an example of how to solve the problem  on actual age versus effective age:

  Years Percentage Contribution    
Portion of the House with 10 years old 20 70% 20 x 70% 14
Portion of the House with 5 years old 5 30 % 5 x 30% 1.5
Effective Age of Building 15.5 years

The house appraised which has a portion undergone renovation (30%) while others remain in its normal course of wear and tear and utility. The result will show that the effective age of the building is 15.5 years even if the actual life of the building is 20 years.

Simplistic analysis of cost approach will open the appraisal process and value conclusion to scrutiny and questions. At the end of the day, the appraiser’s experience and knowledge will play crucial in making sound judgment.#

 

 

 

 

Consultant Gus Agosto Speaks in Bangkok

The Thailand Real Estate and Business School has invited Consultant Agosto to lecture in the Complex Properties Valuation Seminar held in Bangkok, Thailand last Feb.3-5, 2019.

Consultant Agosto discussed the topics “Market Study and Highest and Best Use” and “Township Development Feasibility Study”, which has contributed to the learning of the participants. The seminar attended by valuers and academe from Maldives, Malaysia, Bangladesh, Kenya, Philippines and Thailand.

The topics were discussed with case studies in various part of the Philippines which makes the seminar a lively and actual demonstration of fundamental concepts in complex properties valuation. “This seminar add value to the knowledge and confidence of the participants”, Consultant Agosto ended.

 

Cebu Province acquires AA+ Appraisal services

Cebu Provincial Government has acquired the services of AA+ Appraisal & Consultancy, Inc. to appraise the properties owned by the Cebu Province.

Earlier, Gov. Gwendolyn Garcia said in an interview that she wanted Province-owned real properties reappraised to conform with the present fair market value.

Consultant Agosto said that “It was the biggest assignment that the company had for a local government. Nonetheless, it was not our first time doing appraisal of properties for the government. We already had previous appraisal of properties owned by the Power Sector Assets and Liabilities Management (PSALM) in La Union, Philippine Science High and others.”

Prior to this assignment, AA+ Appraisal & Consulting was also been tapped to help in the revision of the Schedule of Market Value of the Province. “Our company is always  ready to render service to our government as part of our obligation to the community, and also to the people of Cebu.” Consultant Gus Agosto reiterates in a message sent during the submission of the report on January 6,2020.

This is only to show that local governments and other government agencies started to grasp the importance of having a fair market value that is reflected to the present times and done by the experts in the field.#

Valuing the Valuation Reform Act

The Real Property Valuation Bill (HB 4664), which has been passed recently in the House of Representatives and will soon be deliberated in the Senate, is an important concern in the appraisal profession. There are two vital questions of the bill that need to be emphasised and clarified before arriving in a conclusion. These include question on how it will help the appraisal profession and how it will help the real estate industry.

First, how it will help the profession?

One of the major component of the bill is the establishment of a comprehensive database on land values. It will  centralize actual sold property data from the Register of Deeds, Assessor, Geodetic Engineers, and Local Government Units and will be shared to private entities through subscription.This will help in fostering transparency in land transactions and will also give more credibility on appraiser’s comparable data that is vital  in arriving at an opinion of value.

Investors will be more confident in the land market and real estate industry. They will be assured that what they have invested in, is the amount or value of the property in the market, through the use of appraisal methodology which is in line with the international standards adopted by the appraisers, both government and private.

Other Salient Features :

  1. It will establish a single and uniform standard of valuation which is based on international standards. The valuation standard that will be followed is the internationally accepted valuation standard and which requires higher degree of professionalisation in the industry.
  1. It will ensure that the appointment of assessor and assistant assessor should be a registered and licensed appraiser and from the local area.
  2. Creation of Central and Regional Consultative Committee that will ensure the representation from private national organization of appraisers, and regional organization of appraisers.
  3. Regular Updating of Schedule of Market Values. The bill also directs the local assessors to come up with a regular updated Schedule of Market Values, within 2 years from the effectivity of the act, and also once every three (3) years from the date of the last revision. However, instead of the local council, the Secretary of Finance will approve the draft.

Second, how it will help the real estate industry? 

The revenue generated from the valuation reform act will help fund government projects such as the ‘Build, build, build” of the Duterte Administration which in turn facilitates the faster movement of goods and people in different part of the country. The provision of infrastructures in regions will unlock new markets in various part of the country, and help stimulates the real estate market. Also, the additional revenue generated by the local government units will help in funding local economic enterprises and services to the people.

In conclusion, appraisers and the people have more reasons to support the valuation reform act. It will not only raise the standard of the profession and the industry and will elevate the profession to international level, but in the broader aspect, will stimulate the real estate market and spur economic growth.