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.

Due Diligence In Real Estate Transactions

811-Due-Diligence-When-Buying-Real-EstateReal estate transactions involve a significant amount of money and rights of individual. The due diligence process minimizes the risks and provides safeguards against determinable issues that may affect the real estate transaction.

Making the right decisions in real estate transactions can be a challenge without complete and accurate information. A traditional legal principle is “caveat emptor” or “buyer beware.” This is from the traditional rulings that courts would make that the buyer was stuck with whatever he or she purchased and would have limited recourse. Due to this likely result, buyers had to be extra cautious when making buying decisions.

Due diligence provides for a thorough investigation into a transaction. It helps the buyer learn more about the property, the documents, environment and operational fundamentals of the deal. This process helps avoid surprises after the transaction when remedies may be limited.

The actual scope of the due diligence process depends on the buyer’s needs and the transaction itself. If the buyer is a developer, he or she may have very different needs than when the buyer is purchasing the property for lease or investment. There are individuals who have a pending court case and interested in knowing the property to determine the site and use as evidence in court.

The due diligence process begins by determining the expected use of the property and use this information as a framework. Due diligence seeks to address a number of issues and identify important information for buyers. This information includes determining the property’s owners, boundary lines, the rights that come with the sale, the expected future use of the property and highest and best use as development options. The process should identify any issues related to the property title, easements, encumbrances, liens or other hurdles to complete ownership. Additionally, the due diligence process can reveal if there are any restrictions that might affect the use of the property or its development, such as environmental issues, zoning restrictions or legal compliance matters such as abiding by Agrarian Reform Law, NIPAS Act, Agriculture and fisheries Act, road right of way act, government programs and more.

The due diligence process can also reveal information as it is uncovered. For example, the technical description plotting cannot be close may pop up after the document analysis is conducted. Additionally, it is important to determine the real estate market and demographic data to predict the future demands in the area.  Site inspection will determine the actual topography, terrain, shape, boundaries, neighbourhood and existence of any occupants or informal settlers in the property.

Last but not the least, is the environmental assessment, to uncover any daunting environmental hazards or issues of the property such as gas leak, wet lands, or use of the property as manufacturing in the past.

The due diligence process is very important. Adequate time must be reserved for this process to be conducted thoroughly and carefully. Party in a transaction should be encouraged to provide specified documents and information to ease the transaction. Be aware of all interests, liabilities, expenses and possible uses for the property.

This information will allow parties in transactions to make an informed decision.

Subdivision Development Method

12Land valuation is the most common appraisal assignment. An appraiser uses different method of valuation taking in consideration the purpose of the appraisal. But land differs in sizes, shapes and probable uses that an appraiser should look up to. Land which is large enough has different characteristics that warrants equal if not special attention. Besides, large tract of land requires more data and sets of comparable in using sales comparison method to arrive in a reliable and defensible market value.

An appraisal technique seldom used by appraisers in determining value of large tracts of land is the subdivision or development approach. This technique determines market value by subtracting the costs of developing a potential subdivision from its anticipated proceeds, and discounts the remainder to arrive at present value as of the date of the appraisal.

In using this technique, an appraiser should prepare a subdivision lay-out to determine the number, size and shape of lots. Through research estimate prices of lot; rental rate per square meters if improved with buildings; the development cost and developers profit and the income stream discounted to the present and arrive in its market value.

Often, land value estimates emanating from the subdivision or development approach are significantly lower than those correspondingly derived from the sales comparison approach with a lower lot sizes and different uses. In theory, if both the development method and sales comparison approach were applied correctly, the value estimates should be similar. Nonetheless, the process of reconciliation of different approaches, the appraiser should give weight to the method which is more reliable and justifiable than the other.

In the whole process of the development method of appraisal, the experience, skill and judgment of the appraiser will play with paramount of importance. There are number of methods and techniques available for the appraisers to explore and gain expertise in the practice of profession. Through our innovative effort as an appraiser, we can make an important contribution in popularizing and practicing the subdivision or development approach, in the service of our clientele and to the society.

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.

Cavite Appraisal

 

I appraised properties in Cavite recently. My client, which is an expat living in the US, instructed me to deliver the report within three (3) days for court submission. He gave me only the exact address of the property, the rest will be produced through research.

Early in the morning I travel to Noveleta, Cavite for my first assignment, through the Manila-Cavite Expressway or Cavitex. I arrived in the municipal hall and paid a courtesy call with the Municipal Assessor, then proceed to the site for actual site inspection and research.

Then I went to Trece Martirez City to conduct due diligence for a property under dispute. I visited the site and afterwards went to the City Hall to conduct research and investigation.

I finished the assignment in three days and submitted it. My clients were happy after reading the appraisal report I sent to them.”Thank you for excellent job.”

A commendation that makes an appraiser happy.

Let us now tour Cavite.

Cavite is a province in the Philippines located on the southern shores of Manila Bay in the Calabarzon region on Luzon island. It is bounded on the north by Manila Bay and Metro Manila, on the east by Laguna, on the west by the South China Sea, and on the south by Batangas. It is composed of 7 Cities and 26 Municipalities. With a population of 3,090,691 in 2010, it is the most populated province in the country.

You can reach Cavite from Metro Manila through Aguinaldo Highway and Manila-Cavite Expressway or Cavitex .Situated just 21 kilometers south of the capital, it is one of the most industrialized and fastest growing province because of its close proximity to Metro Manila. Many companies, such as Intel, have established manufacturing plants in numerous industrial parks in the province. As of 2012, there are 382 actively operating companies in Cavite Export Processing Zone.

Major historic events happened in Cavite that shaped Philippines today, if you want to know more about Philippine History, you can visit Cavite and it will be like seeing the history itself not just reading them from Philippine History books.

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Tool for Brokers & Appraisers

 

In our practice of real estate appraisal and brokerage, it is basic to have knowledge on site location and lot plotting. I am sharing this presentation to real estate practitioners and the general public in general.

We should continue in educating ourselves to better serve the public and raise our professional practice to a new and higher level.

 

 

Mixed use development appraisal

11221862_1062426540442254_1175843060924474763_oReal estate valuation is the process of developing an opinion of value. It can be used in determining the value of property whether single use or mixed use development.

So far we have discussed more on the single use appraisal, now let me share and discuss the appraisal of mixed use development.

In valuing property, the first and foremost we should have to know is the intended use or the purpose of the appraisal. It will serve as a guide in appraising the mixed use property.

Mixed-use development is—in a broad sense—any single building, that blends a combination of residential, commercial, institutional, or industrial uses, where those functions are physically and functionally integrated. It may also a site or a building, complex of buildings, or district of a town or city that is developed for mixed-use by a private developer, government agency, or a combination.

In a nutshell, there are benefits in mixed use developments. For example, it reduces distances between housing and workplace, retail business and other. It is now common to have developments which align to the concept of live, work and play.

It is a great challenge to an appraiser in coming out of an opinion of value that reflects the actual use and the highest and best use of the mixed use property. An appraiser can use the different approaches in valuation such as sales comparison, cost and income approach. And since it is a mixed use, you have to use different comparable, and methods. An appraiser has to dig more data and information from the knowledgeable persons in the neighborhood, government officials and industry leaders where the property is located.

In analyzing data, we have to consider the zoning, allowable use, predominant use, conforming use, legal and illegal non-conforming use, the highest and best use, neighborhood analysis, market trends not only of the city but the region as well.

Nothing beats the importance of conducting actual inspection of the property and the neighborhood. It will give concrete data and visualization of the property. The trend of development in the locality and region, will broaden your perspective and analysis.

Valuing mixed use properties will force the appraiser to be more analytical and creative in solving problem –to determine the market value that is reliable and defensible.

ASEAN IS ONE TONIGHT

We welcome 2016, not just a new year, but a new era for our country and other members of ASEAN. ASEAN is one community tonight.

The ASEAN Economic Community endeavors to become a single market and production base. It will unify the 625 Million people of 10 countries under ASEAN as a single community. ASEAN will be connected thru effective air, sea and land links. Further development of regional connectivity will help people, goods and services flow across the region more quickly and cheaply.

ASEAN identifies professions that are allowed to practice in other ASEAN countries. Small-Medium Enterprises (SME) will become more competitive. Those who are open to ASEAN market can expand operations and acquire office space and industrial properties outside the Philippines.

ASEAN community gives us more opportunities. The free movement of goods, services, skilled labor and capital would require more commercial and residential buildings and other infrastructures.

At the same time, it brings challenges to connect. Bigger, skilled and more advanced real estate practitioners from other ASEAN countries can enter the local market. They need local partners and counterparts.

New era requires new mindset and system. It means old habits and comfort zones should be archived. It is an era where connectivity and excellence is a must.

Happy New Year!   Welcome to ASEAN Community.

ASEAN-logo-One-community

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.