Using drone in appraisal

S-048395x2000Thinking outside the box is essential in the valuation profession. It only makes sense that drones would come to be in the hands of appraisers.

In recent appraisal assignments, appraisers’ uses drone in site inspections. Drones provide unique perspectives on properties, giving appraisers more information to use for a credible appraisal report.

“It allows us to get up higher, get a better view of the roof and rotate 360 degrees above the property to provide a view of the surrounding properties,” Appraiser Gus said. “We could not provide that footage without using a drone.”

There are many advantages in using  drone for appraisal. One is the ability to access hard-to-reach places. Areas considered previously unobservable such as roofings, gutters, easements and more, can now be seen using the correct equipment. Not only can these items be observed, but areas of interest can be identified for additional inspection.

Drones can be specifically useful in commercial properties,  large tracts of land where easements and prior improvements can be shown via photographs or video. This allows appraisers to observe and document a property in real-time on the date of inspection and will undoubtedly change the way many properties are viewed going forward.

These developments show that valuation profession is not afraid to innovate with new technology.  It elevated the practice of profession to a new and higher level.

” Drones provide appraisers more information to use for a credible appraisal report.”

 

Key points in the appraisal report

Appraisal reportIn every appraisal assignment, the appraiser should see to it that the client understand not only the final value, but the appraisal report in its entirety.

Appraisal report is the product of the whole appraisal process. It is an important document for decision maker in deciding whether or not to accept any real estate transaction.It outlines the strength and weaknesses of a property. Thus, the conclusion in the report can make or break any real estate negotiations.

Beside market value, what are the other factors that a property owner, real estate practitioner or investor should look to in an appraisal report?

Here are some of the major factors to consider as you read over the appraisal report.

Proper identification of the property.The most important in appraisal is the proper identification of the property. Definitely, wrong property is wrong appraisal. The appraiser should indicate the correct characteristics of the property like shape, size, depth, age, topography and boundaries. Documents such as the property title and tax declaration should match with the public records in the city assessor, engineering, city planning and Bureau of Lands.

Market trends. If the market has been going up, but the report says the market is going down, that could not support the final value. The report should show if what is unfolding in the market, otherwise that could lead to erroneous adjustments in the report.

Neighborhood Boundaries. The neighborhood boundaries listed in the appraisal report should show the correct similar neighborhood on which the subject property and the comparable (comps) sales are located. It can make a big difference if the wrong comps are used from inferior or superior neighborhoods.

Selection of comparables. The comparable used are the good substitution of properties a buyer might consider purchasing instead of the subject property. It should almost identical with the property appraised. Otherwise, it is a wrong comps and questionable.

Adjustments.Some reports make an adjustment by just getting the  average of the total price of comps in the market. It does not reflect the real estate market and are not reasonable.

Measurements. In measuring the improvements, appraisal report should present  a relatively similar to official records or to what a buyer know of the property. It is important to double-check, in case of error.

Improvements. The report won’t show an adjustment for every single update, but the final value should consider improvements. Keep in mind of course that not all improvements contribute to value. For example, a swimming pool in the backyard probably won’t be a huge plus in a beach area.

Qualification of the appraiser. Appraisal report mirrors the experience and qualification of the appraiser. Property owner, investors and real estate practitioners should look for appraisers that are not only licensed but possess a certain level of experience. The report should indicate the client list and types of property appraised by the appraiser. This will show if the appraiser is qualified to do the assignment.

Now that you know the important elements of an appraisal report, its time to obtain a copy from your appraiser or bank loan officer.

Remember that your property is one of your most important lifetime investments. The money spent on a quality appraisal is well spent.

Benefits of appraisal services

Appraisal-of-HomeSome property owner downplays the importance of appraisal. In determining the price of certain properties for example, some still uses the zonal value as a benchmark in knowing the worth of the property. Other sees the appraisal as a process of comparing the listing price of properties in an area. There are price-sensitive client that bargains in lowering appraiser’s fee, while there are also reliant on the opinion of certain real estate practitioners in pricing their properties to evade in paying the appraisal fee.

There are financial implications on relying to non-expert in real estate valuation. If the practitioner missed some current comparable evidence, is weak in the technical analysis, or errs in the interpretation of data, it might result in aggregate loss in the real estate transaction or losing the whole transaction itself.

In our experience, with the help of an appraisal, a property owner was able to make a sound bank loan. An investor uses the advice of an appraiser to quantify risk and project yield; a landowner has successfully inked a joint venture deal using the appraisal; an asset manager gets advice that makes him or her wise decision maker; and a lawyer is able to rely on appraisers’ expertise in litigation and court testimony.

Appraisal is not a simple process or just a mandated evil for which a client grudgingly pays as little as possible. Appraisal is a service that, if competent and timely, brings a benefit to a client that far outweighs the fee.

Appraisal report is a living document forming the very foundation for decision making. Where else is a client going to get such a detailed investigation of his or her property and its market?  It is not just a document that the banker throws into a file and the client never sees.

In today’s changing real estate market, solving the issues is the most invaluable contribution of the appraiser.

US court appointed expert witness

courtAppraiser Gus appointed and subpoenaed as an expert witness in  San Joaquin Superior County Court, Stockton, California. The court is  determining the value of  properties located in the Philippines which is under dispute and for disposition.

“I am humbled for the appointment and the opportunity to appear in a US Court as an appraiser witness.” Appraiser Gus replied upon knowing the order.

In its order, the court emphasized his role in the court proceeding citing the following:  “The appraiser provided an estimate of value for real estate properties in the Philippines. He has the the first hand knowledge of the properties, title information and estimated values which are crucial in resolving the property division aspect of the case.”

Prior to his appointment, Appraiser Agosto has served different trial courts in the cities of Lapulapu, Cebu, Mandaue and Talisay as court commissioner.  Beside working in the court, he has served clientele both in private and public. Some of them includes Miraizo Group of Hongkong, General Milling Corporation, SMC Lighterage Corporation, Southwestern University, Pilipinas Water Resources, Inc. and University of the Philippines. He was the former Managing Partner of Intech Property Appraisal, Inc. and Magaca Appraisal Konsult.

“It’s an opportunity to showcase our professional expertise in the USA, which is known as the hallmark of real estate industry.” Appraiser Gus told Appraiser News Online. “My job is to help the court in determining the value of the property under litigation.”

Appraiser Agosto is a National Director of the Philippine Association of Real Estate Board, Inc. He is also a faculty of real estate management and finance in the University of San Carlos, Cebu City.

 

Subpoena

 screen shot caption of the subpoena

Importance of macroeconomic analysis  in real estate practice

Having a view on the macroeconomic trends is critical when analyzing the real estate market. Real estate does not operate in a vacuum. Thus, it is essential for a real estate practitioner to grasp the role of the industry and knows the current events and how macroeconomic affect the real estate market, both in the aggregate supply and demand and the expectation of the buying public.

Real estate plays an important role in the economy. Residential real estate provides housing for families. It is the greatest source of wealth and savings for many families. Commercial real estate, which includes apartment buildings, create jobs and spaces for retail, offices and manufacturing. Real estate business and investment provide a source of revenue for millions.

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Real estate, renting, business and construction are both measured by, and contributes to Gross Domestic Product (GDP). As shown in the graph, its growth continues. In 2016, it contributed P1.8 trillion,  13 percent of the country’s gross domestic product. It exceeded its 2000 record of P3.5 trillion. At that time, real estate, renting and business was a hefty 9 percent component of GDP.

Private construction, which is mostly done by property developers and individuals, contributed P1.2 trillion in the gross domestic product. It is one of the contributor in  providing employment and help in lowering  unemployment rate.

Beside GDP, real estate market in the country is fueled by increasing foreign direct investment. Since 2007, the accumulated foreign direct investment totalled to P 2.1 Trillion. Meanwhile, the overseas Filipino workers remittances increases by 17% . From 22 Million in 2013 to $ 26.8 Million in 2016.

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Understanding key real estate relationships has a strategic implication on real estate decision making and portfolio management. The changing real estate environment can be linked to the macro-economy. Knowing the relationship between macroeconomic variables and real estate performance , and knowing whether these links are consistent or changing overtime ca provide a useful tool in leveling up our service to our clients and to our daily real estate practice.

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.

What they say on Appraiser Gus?

Let our clients and peers speak.

Gus Agosto has been perceptive enough to have realized the potential conflicts of interests with regards to meeting the sellers and has been able to navigate and maneuvered satisfactorily around it, and still come out with a justifiable figure that satisfies both parties.

Of course I would recommend him to others as he has performed what was expected of him and more.”

Richard Azares
Managing Broker
DiamondCrest Real Estate Services

“Gus Agosto is highly competent and much more knowing him in the high level of ethical standard and practice. He is knowledgeable and trustworthy in his assigned work.

We were doing the appraisal business together and yes Gus Agosto is commendable.”

Tom Academia
President
Magaca Appraisal & Konsult

“As a fellow appraiser, I can say that Gus is professional and considerate to his colleagues suggestions and opinions.
He is much updated with information and current events that could have an impact on the real estate industry especially the appraisal service.

Yes, I recommend him, because one does not only get an appraiser that can present you the technical aspect of the property but also a broker that knows the marketing conditions of a given location.”

Germaine Ouano
Managing Partner
Intech Property Appraisal, Inc.

“Gus is a new breed of appraiser that can be relied on the opinion of valuation. He is very active practicing appraiser/ someday a lecturer on the update of the Real Estate Profession and economic trend in the Philippines and ASEAN.”

Oscar Labrador
Founder
Cebu Appraisers

Highest and Best Use

It Is important for a real estate practitioner to know not only the current market value of the land they are marketing or dealing with. It is also equally important to determine its highest and best use. The highest and best use of a specific parcel of land is not determined through subjective analysis by a property owner, developer, real estate agent, or appraiser; but rather, it is a use shaped by the competitive forces within the market where the property is located.

In a real sense, the definition of highest and best use encompasses four tests. It is …
• the most probable use of land or improved property that is legally possible, physically possible, financially feasible (and appropriately supportable) from the market, and which results in maximum profitability.

An attempted analysis of highest and best use involves two considerations: [1] the most likely and profitable use of the site “as if vacant” under the requirements set forth above and, [2] if a property is “already improved”, it is the use that should be made of the property to maximize value for non-income producing properties or, maximize net operating income on a long range basis for investment properties. In cases where capital expenditure is necessary to renovate or improve an income producing property, these costs must provide a sufficient rate of return (to the owner) for the total amount invested in the site and building improvements.

Basic highest and best use assumptions include:

• If the property is located in an area “zoned” for commercial use, the maximum productivity of the land as though vacant will likely be based on commercial use. If, however, the competitive level of demand is greater for say, residential or multi-family use, then the highest and best use of the property as improved would be for residential use. If market preference conflicts with zoning (and consequently violates the legal permissibility test), a developer will consider if there is sufficient profit incentive to justify the added legal costs, extended time frame, and potential neighborhood opposition before obtaining a zoning change and developing the site.

• As long as the value of the property “as improved” is greater than the value of the site as “if vacant”, the highest and best use is usually the “improved” property. Once the value of the vacant land exceeds the value of the improved property (including demolition costs), highest and best use will usually dictate that improvements be demolished.

The following are examples of narratives from appraisal reports outlining the primary criteria in estimating highest and best use…

LEGALLY PERMISSIBLE USE
• The present zoning classification of Highway Business encourages the use of the subject property for retail —clearly a definition consonant with the present use of the subject property and surrounding properties. Environmental conditions and urban infrastructure are adequate to support the present use and it’s current use appears to legally conform with the current zoning ordinance.

• The present lack of zoning would allow for a wide variety of residential and/or commercial/industrial uses. As vacant, the proposed improvements would be legally permissible subject to the same land use regulations that apply to all property types such as erosion control measures, environmental safety, watershed implementation, and government agencies compliance. There were no apparent adverse easements or encroachments which would adversely impact subject and there are no known private deed restrictions which would prohibit full utilization of the site.

• Lack of zoning in the county and no known restrictions concerning the property would permit virtually any use. Even though new zoning regulations may be imminent in the near future, it is probable that current use patterns (retail and offices – a supermarket, insurance office, restaurant, bank branch, convenience store, and so forth) would entail similar zoning.

PHYSICALLY POSSIBLE USE

• The vacant site is near level, highly visible from the highway, and is considered suitable for “low rise” improvements. Although no soil report has been reviewed, it is the appraiser’s opinion that the soil has sufficient load bearing capacity to support construction. All public utilities are available at the street and capacity for utilities does not appear to be a limitation.

• If vacant, the site appears to be of sufficient size to accommodate many types of commercial buildings and parking requirements for those buildings. Likely uses would include office or retail. As improved, the existing retail building adapts well, still has significant remaining economic life, and therefore should not be demolished. On the other hand, the roof should be replaced and exterior painted to sustain the condition of the building.

• The subject site is mildly sloping at its most visible/usable portion. Improvements are possible but construction would be limited by the size, shape, and topography of the site as well as the ability of the vacant site to accommodate on-site well and septic placements. In January, 2002 hopes for a new sewer line to the area were diminished after local officials decided against building a sewer line through the valley. Instead, they elected to spend Php 1,500,000 for a small treatment sewage plant. Further, the recent construction of a nearby Food Lion Center in this rural location required construction of an on-site waste treatment facility that cost in excess of Php 500,000 and required the acquisition of four additional acres. These examples, and the prices paid for raw land, are reflective of the difficulty, additional development risk, and increased costs necessary to develop marginal sites for commercial use.

FEASIBLE AND MARKETABLE USES

• The current market value of the subject is driven by its current use. A general shortage of developable sites in this mountainous region has sustained land prices, encouraged development of marginal sites, and demolition of those buildings that no longer produce economic return. Case in point, rapid development along the Highway corridor. The advent of growth along the corridor has driven prices out of reach for most uses except those catering to brand name retailers, fast food/restaurant chains, and/or strip centers. Outdated buildings are being acquired and demolished to make way for more modern structures that can produce greater economic return.

• For the subject, it is fairly new and the cost to demolish would appear to make this property too costly as raw land. The location has high traffic volume – a requirement for retail use, but it has only marginal visibility (due to it’s elevation above the highway) and limited access – also requirements for retail. It’s present use as retail is constrained by the following: a lack of road frontage, excessive above-the-road elevation, small site size, and poor access – factors that would likely discourage brand retailers from acquiring the site if vacant. Although access may be cured at some cost, the elevation of the site, limited visibility, and blocked signage cannot be financially overcome. Market data suggests office and “secondary” retail pricing are competitive. Given these limitations, probable uses would include: [1] the continued retail use or, conversion to office use if conversion costs can be sufficiently amortized.

• The property is presently improved with a one-story 2000 sq. m. branch bank facility. The structure is reasonably well designed and in good condition however, it does not have the modern appearance of more recently constructed facilities. On the other hand, there are no other branch bank facilities in this section of the City and the present use as a branch bank is felt to command a competitive advantage due to the lack of competition of other banks in the market. Further, it is the appraiser’s opinion that use of this location for this purpose may command a premium in the market.