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

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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.

Using Income Approach in Valuation

finanzmanagementThe income method is seldom used in appraisal. Most probably not used in banking institutions. But how are we sure that we are using the right method in valuing real estate properties? Properties that generate income such as apartment buildings, leasable buildings or even public owned enterprise properties subject for litigation should be appraised using the income approach. Lets dive deeper into this method.

This approach converts the income generated or projected income expected to be generated by a property into an estimate of value using one of two ways:  direct capitalization or discounted cash flows.   Both approaches use two important components:  (1) current or estimated cash flows and (2) a capitalization rate or discount rate.

Estimated cash flows should be realistic enough and comparable to the current and historical financial data of the property.  Additional considerations such as the economy or market trends can also impact estimates.  Future plans to expand or add additional assets to the property should also be considered if this will increase your cash flow generated from the property.

The capitalization rate or discount rate should be determined and derived from market data.  The capitalization rate is used to determine a sales price at a given point in time where factors of the market approach can be used.  The sales price could be a current sales price determined by capitalizing the current year’s net operating income.  Sales price could also be a future sales price determined by capitalizing the estimated net operating income of a future period.  The discount rate is the total rate of return a buyer would require to purchase an investment and is used to discount the estimated future cash flows to a present value because a peso received in the future is worth less than a peso today due to time value of money. The discount rate makes the present value of the property’s future cash flows equal.

An appraisal is extremely beneficial in providing information for valuing property.  Thus, Valuers should strive to level up their professional practice and use different methods to arrive at a justifiable and fair market value. That is, a market value that is fair to all concern.

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.

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