Bureau of Local Government Finance

Preparing SMV for Urban

Lands

1
Application of the Concept of Highest And
Best Use (HABU) in Valuation.

The PVS defines highest and best use as “the most

probable use of a property” which is:

• Physically possible,
• Appropriately justified,
• Legally permissible,
• financially feasible, and
• results in the highest value of the property
being valued
 Classification of Urban Lands
(defined under Section 199, RA 7160)

Residential Land – land principally devoted to

habitation

Commercial Land – land devoted principally for profit

and is not classified as agricultural, industrial,
mineral, timber, or residential land

Industrial Land – land devoted principally to industrial

activity as capital investment and not classified as
agricultural, commercial, timber, mineral or
residential land
 Procedures for
Developing the SMV
for Urban Lands:
1. Establishing the Benchmark Lot Values

• Identify the market areas

• Select value of standard lot or typical

parcel that serves as a model

• Benchmark lot should possess similar

characteristics common to the majority of
properties within the market area
2. Identify lot parcels using random
sampling/selection

• Random selection or sampling is the process of

selecting samples from a given number of real
properties in a particular sub-market area.

• Two types of techniques are used:

• The Probability
• The Non-Probability
• (the probability sampling is the most
commonly used)
Random selection of parcels using the
probability sampling.

1. Simple Random Sampling – choose samples at

random by using lottery or generation of random
numbers.

a. Lottery- requires a complete listing of the

property.
b. Generation of random numbers- more
efficient method for selecting a simple random
sample.
2. Systematic Sampling – samples are randomly
chosen following certain rules set by the
researcher. This involves the choosing of the k th
number of the properties

Formulae: k = N/n;
Where k = period of intervals
N = total number of properties
n = sample size of chosen property
Example:

In a population of N = 500 properties and sample

size n = 50, determine the interval

Using the formula k = N/n = 500/50

k = 10
- select every 10th property
- identify the starting property at random using a
random number generator
3. Stratified Random Sampling – used when the
number of real properties is too big to handle, the
RPU’s are divided into sub-groups called strata such
as classification (RACIMTS) or by georaphic
location, etc.

- determine sample size using Slovin’s formula: n =

N ÷ (1 + Ne2)

where: n = total sample size; N = total pop.

e = margin of error
(allowable value of e = 0.05)
Example:

Total no. of properties N = 1,000

Residential = 500; Comm’l = 300, Agric’l = 200
Sample size (n) = 1000/(1+(1000 x .052) = 286
Compute for sample size/stratum:

nRes = 286 x (500/1000) = 286 x .5 = 143

nComm = 286 x (300/1000) = 286 x .3 = 86
nAgri = 286 x (200/1000) = 286 x .2 = 57
4. Cluster Sampling – also called area sampling
where clusters are sub-market or other well-
defined areas
- Select clusters or sub-market areas

- Randomly select properties, within the

sampled clusters or sub-market areas

- Provides best results when elements within

clusters are heterogeneous
DEVELOPING THE SMV
FOR RESIDENTIAL
LANDS
CASE 1: USING SALES
COMPARISON
APPROACH
Sales Comparison Approach
Economic Principles Used in the Sales Comparison
Approach
• Competition
• Substitution
• Supply & Demand
• Highest and Best Use
• Balance
• Increasing and diminishing return
• conformity
Sales Comparison Approach
Economic Principles Used in the Sales Comparison
Approach (cont.)
• Utility
• Contribution
• Change
• Anticipation
Market Assumptions

• Sellers will not take less than present market value

(PMV) of similar property
• Buyers will not pay more than present market value
(PMV) of similar property.
Development of SMV Using Sales
Comparison Approach:
Prepare an SMV for a predominantly residential area

GIVEN:
Sub-Market Area 1 = Residential
No. of Land RPUs = 850
Sample size = 5% = 42 sales
Valid data = 32 sales
Manner of selection = Systematic sampling
(i.e., every 20th RPU was selected)

DETERMINE MARKET VALUE AND ADJUSTMENT

FACTORS.
 Table 1: List of sales
Sale MV Area UV Rounded UV Sale MV Area UV Rounded UV
1 864,720 240 3,603 3,600 17 1,587,200 320 4,960 5,000
2 137,430 90 1,527 1,500 18 282,285 123 2,295 2,300
3 507,840 184 2,760 2,800 19 414,492 156 2,657 2,700
4 224,757 113 1,989 2,000 20 401,751 147 2,733 2,700
5 683,250 250 2,733 2,700 21 725,000 200 3,625 3,600
6 720,300 210 3,430 3,400 22 500,000 200 2,500 2,500
7 642,000 214 3,000 3,000 23 620,000 200 3,100 3,100
8 1,258,260 313 4,020 4,000 24 650,548 206 3,158 3,200
9 600,000 200 3,000 3,000 25 425,000 170 2,500 2,500
10 589,615 193 3,055 3,100 26 666,500 215 3,100 3,100
11 550,000 180 3,055 3,100 27 234,500 125 1,876 1,900
12 495,000 180 2,750 2,800 28 600,000 180 3,333 3,300
13 694,760 220 3,158 3,200 29 599,940 180 3,333 3,300
14 672,280 196 3,430 3,400 30 700,000 200 3,500 3,500
15 589,854 222 2,657 2,700 31 799,866 222 3,603 3,600
16 777,000 222 3,500 3,500 32 1,184,900 289 4,100 4,100

Using all the Sales Data, develop the Schedule of Market Values.
Table 2 Sort Rounded UV from lowest to highest.
Sale Area UV Rounded UV Int Sale Area UV Rounded UV Int
2 90 1,527 1,500 23 200 3,100 3,100 0%
27 125 1,876 1,900 21% 26 215 3,100 3,100 0%
4 113 1,989 2,000 5% 13 220 3,158 3,200 3%
18 123 2,295 2,300 13% 24 206 3,158 3,200 0%
22 200 2,500 2,500 8% 28 180 3,333 3,300 3%
25 170 2,500 2,500 0% 29 180 3,333 3,300 0%
5 250 2,733 2,700 7% 6 210 3,430 3,400 3%
15 222 2,657 2,700 0% 14 196 3,430 3,400 0%
19 156 2,657 2,700 0% 16 222 3,500 3,500 3%
20 147 2,733 2,700 0% 30 200 3,500 3,500 0%
3 184 2,760 2,800 4% 1 240 3,603 3,600 3%
12 180 2,750 2,800 0% 21 200 3,625 3,600 0%
7 214 3,000 3,000 7% 31 222 3,603 3,600 0%
9 200 3,000 3,000 0% 8 313 4,020 4,000 10%
10 193 3,055 3,100 3% 32 289 4,100 4,100 2%
11 180 3,055 3,100 0% 17 320 4,960 5,000 18%
Compute the % equivalent of the interval of each Rounded UV.

Interval CR = UV CR - UV PR X 100 where: CR = current row

UV CR PR = previous row
Determining the ranges at an average interval.
Average interval = ∑ Intervals / number of intervals
Average interval = 113% ÷ 31 = 3.65% say 5%

Determine the ranges using an interval of ±5% or ±0.05.

Range #1:
Table 3
Assume midpoint = 1500 (C1)
A B C D B1 = C1x(1-0.05) = Php1,425
Low 5% Mid High 5% D1 = C1x(1+0.05)-1 = Php1,574
Range (Php) (Php) (Php)
1 1,425 1,500 1,574 Range #2:
B2 = D1+1 = 1,574+1 = Php1,575
2 1,575 1,700 1,784 C2 = B2x(1+0.05) = Php1,700 (rounded)
… … … … D2 = C2x(1+0.05)-1 = Php1,784
12 4,305 4,500 4,724
Continue computing until last row.
13 4,725 5,000 5,249

Count the number of sales with UVs that fall within the range (Freq).
Table 4. Count the number of sales with UVs that fall
within the range and record under column E.

A B C D E
Range Low 5% Mid High 5% Frequency
1 1,425 1,500 1,574 1
2 1,575 1,700 1,784 0
3 1,785 1,900 1,994 1
4 1,995 2,100 2,204 1
5 2,205 2,300 2,414 1
6 2,415 2,500 2,624 2
7 2,625 2,800 2,939 6
8 2,940 3,100 3,254 8
9 3,255 3,400 3,569 6
10 3,570 3,700 3,884 3
11 3,885 4,100 4,304 2
12 4,305 4,500 4,724 0
13 4,725 5,000 5,249 1
Graph 1. Limit the number of ranges by combining UVs
with lower frequencies.

Plot the frequencies (column E) and the midpoints (column C) in a graph.

Combine ranges with very low frequencies.
When there are too many ranges, ranges may be combined. (e.g., ranges 1 & 2, 3
to 5 and 11 to 13)
Range Low Mid High
Table 5
1 1,425 1,600 1,784
Range Mid (Php) Freq 2 1,785 2,100 2,414
1 1,500 1 3 2,415 2,500 2,624
2 1,700 0 4 2,625 2,800 2,939
3 1,900 1 5 2,940 3,100 3,254
4 2,100 1 6 3,255 3,400 3,569
5 2,300 1 7 3,570 3,700 3,884
8 3,885 4,500 5,249
6 2,500 2
7 2,800 6 Table 6
8 3,100 8 To combine ranges, compute the average of
9 3,400 6 the mid values then round-off.
10 3,700 3
11 4,100 2
12 4,500 0 Warning: Collapse ranges carefully. The
13 5,000 1 interval between a midpoint increases,
thus, can overvalue or undervalue
properties inappropriately.
Table 7. Sort the midpoints from highest to lowest and
assign sub-class labels.
Sub-class Unit Value
R1 4,500
R2 3,700
R3 3,400
R4 3,100
R5 2,800
R6 2,500
R7 2,101
R8 1,600
Table 8. Determine adjustment factors and criteria using
selected items from sales data.
Analyze the given data and identify base lots.

Sale Sale Price Land Area Unit Value Description

9 600,000 200 3,000 Flat land, inside lot, no view or other factor
11 550,000 180 3,055 Flat land, inside lot, no view or other factor
22 500,000 200 2,500 Inside lot, land drops from road to 1.5 meters

23 620,000 200 3,100 Almost flat land, slightly slopes down from road

28 600,000 180 3,333 Flat lot, no view, located on good corner.

On higher part of subdivision, slight slope from
21 725,000 200 3,625
road, has very good view
Flat corner lot but near to old railway line and
12 495,000 180 2,750
squatters
30 700,000 200 3,500 Good flat piece of land on main road
Base lots: Sales 9, 11 and 23
Rounded unit value of base lot = P3,000
(UV9 + UV11 + UV23) ÷ 3 = P3,051

Compute for Adjustment Factors:

% Adjustment low land (sunken)
= (UV sale 22-UV sale 9)/UV Sale 9 x 100%
= (2,500-3,000)/3,000 x 100% = -17%
% Corner Lot
= (UV sale 28-UV sale 9)/UV Sale 9
= (3,333-3,000)/3,000 x 100% = +11%
Compute for Adjustment Factors: (cont.)

% Adjustment elevated land

= (UV21 – UV9)/UV9 x 100%
= (3,625-3,000)/3,000 x 100% = +20%
% Blighted lot (squatters) with corner influence
= (3,000x111%) = 3,333 (with Corner Influence)
= (2,750-3,333)/3,333 x 100% = -17.5%
% Effect to Main Road
= (UV sale 30-UV sale 9)/UV Sale 9 x 100%
= (3,500-3000)/3,000 x 100% = +16%
Results of Analysis:

• Base unit value = Php3,000/m2 (Sales 9, 11, 23)

• Sloping down = deduct 16% (Sale 22)
• Corner lots = add 11% (Sale 28)
• With a view = add 20% (Sale 21)
• Blighted Status (Squatters) = deduct 17.50% (Sale 12)
• Lots along main road = 16% higher (Sale 30)
 Table 9. SUMMARY

Land Unit
Sale Sale Price Description Comment
Area Value
Flat land, inside lot, no view or
9 600,000 200 3,000 May establish unit value
other factor
Flat land, inside lot, no view or
11 550,000 180 3,055 May establish unit value (Sale 9)
other factor
Inside lot, land drops from road to
22 500,000 200 2,500 17% drop in price
1.5 meters
Almost flat land, slightly slopes
23 620,000 200 3,100 May establish unit value (Sale 9)
down from road
Flat lot, no view, located on good Corner lot achieved 11% additional
28 600,000 180 3,333
corner. value
On higher part of subdivision,
Higher lot with view adds 20% to
21 725,000 200 3,625 slight slope from road, has very
value
good view
Flat corner lot but near to old Shows reduction in price 17.5%
12 495,000 180 2,750
railway line and squatters from standard corner price.
Good flat piece of land on main Main road location indicates 16%
30 700,000 200 3,500
road increase over base price.
Table 10. Criteria for Sub-Classification of Residential
Lands (from the sample data):
R1 R2 R3

Along main road Along interior roads …

Along interior road No View
with view Relatively flat
Relatively flat
Adjustment Factors for Residential Lands:

• Corner Influence = +11%

• Sunken Lots less than 1.5m = 0% (No adjustment)

• Sunken lots at 1.5 m or more = -17%

• Blighted Status (presence of squatters) = -17.50%

Example of a more comprehensive criteria for a sub-
class:
I. FIRST CLASS RESIDENTIAL LANDS
1. Located along concrete road
2. Area where top grade apartment or residential buildings
are predominantly situated
3. Public utility, transportation facilities are exceptionally
regular toward major trading centers
4. Located next to commercially classified lands
5. Water, electric and telephone facilities are available
6. Commands the highest residential land value in the city
7. Free from squatters
CASE 2: USING
ADJUSTMENTS
FOR TIME
Adjustments for Time
 Referred to as Indexing
 Analysis of the change in value over the period from which
sales are collected
 Property sales used as evidence for general revision may be
adjusted to prices at valuation date

Characteristics:
• Analysing standard lots in a general area may result in a
Time Adjustment Table.
• Every adjustment builds up potential errors, therefore, the
best sales to use are arm’s length sale of an almost
identical property.
• Time adjustment studies should be conducted as close to
the valuation date as possible.
Table 11. Sample Time Adjustment Table
Land Sales Record – Various Purok, Barangay Poblacion
Quarter/Year Analyzed U. Value Quarterly % Increase Total % Increase
Apr-10 2,200 100.0%
Jul-10 2,250 2.2% 102.2%
Oct-10 2,275 1.1% 103.3%
Jan-11 2,300 1.1% 104.4%
Apr-11 2,325 1.1% 105.5%
Jul-11 2,650 12.30% 117.8%
Oct-11 2,650 0.0% 117.8%
Jan-12 2,750 3.6% 121.4%
Apr-12 2,700 -1.8% 119.6%
Jul-12 2,800 3.6% 123.2%
Oct-12 2,900 3.4% 126.6%
Jan-13 2,925 0.9% 127.5%
Apr-13 3,000 2.5% 130.0%

Q % Inc Row 2 = (AUV Row 2 – AUV Row 1)/AUV Row 2 X 100%

Total % Increase = 100 (Base) + Q % Inc
Table 12 . Check abnormalities in the pattern

Land Sales Record – Various Purok Barangay Poblacion

Quarter/Year Analyzed U. Value Total % Increase Q % Increase
Jul-11 2,650 12.30% 117.8%
Oct-11 2,650 0.0% 117.8%
Jan-12 2,750 3.6% 121.4%
Apr-12 2,700 -1.8% 119.6%

NOTE the July 2011 increase, no movement in October 2011

and the downward trend in April 2012. Abnormal sales may be
discarded.
Application:
Given:

Table 13. Sale per sub-market area (some puroks) in

the same Poblacion in the stated years:

Sub-Market Area Date of Sale Unit Value

1 May ’11 2,450
2 July ’11 3,000
3 Feb ’12 4,000
4 Oct ‘10 2,750
Determine the expected unit values as of May 2013.
Table 14. Sample Time Adjustment Table

Land Sales Record – Purok 1, Barangay Poblacion Table 15

Available Sales
Quarter/ Analyzed U. Q% Total %
Year Value Increase Increase Sub-Market Date of Unit
Apr-10 2,200 100.0 Area Sale Value
Jul-10 2,250 2.2 102.2 1 May 11 2,450
Oct-10 2,275 1.1 103.3 2 July 11 3,000
Jan-11 2,300 1.1 104.4
3 Feb 12 4,000
Apr-11 2,325 1.1 105.5
Jul-11 2,650 12.3 117.7 4 Oct 10 2,750
Oct-11 2,650 0.0 117.7
Jan-12 2,750 3.6 121.4
• Current date increment
Apr-12 2,700 -1.8 119.6 from base date = 30.0%
Jul-12 2,800 3.6 123.2 • Benchmark = May 2013
Oct-12 2,900 3.4 126.6 select closest = April 2013
Jan-13 2,925 0.9 127.5
Apr-13 3,000 2.5 130.0
Table 16. Sample % Increment from Base Value vis-a-vis
Available Date of Sale within Similarly Situated Sub-
Market Areas
% Increment from Available Date of Sale to May 2007
Available
Date of Sale Sub-Market Sub-Market Sub-Market Sub-Market
Area 1 Area 2 Area 3 Area 4
130.0-105.5 =
May 11 n/a n/a n/a
24.5%
130.0-117.7 =
July 11 n/a n/a n/a
12.3%
130.0-121.4 =
Feb 12 n/a n/a n/a
8.6%
130.0-103.3
Oct 10 n/a n/a n/a
= 26.7%

% Increment from Available Date of Sale:

= Total Increment Benchmark Date – Total Increment Date of Sale
Table 17 . Expected Unit Value at Current Date
Expected Unit Value as of May, 2013 (Current Date)
Available
Sub-Market Sub-Market Sub-Market Sub-Market
Date of Sale
Area 1 Area 2 Area 3 Area 4
2,450x1.245 =
May 11 n/a n/a n/a
3,050 or 3,000
3,000x1.123 =
July 11 n/a n/a n/a
3,369 or 3,300
4,000x1.086 =
Feb 12 n/a n/a n/a
4,344 or 4,300
2,750x1.267=
Oct 10 n/a n/a n/a
3,484 or 3,400

Expected Unit Value = Unit Value x (1 + increment from base value)

As of May 2013, the lots were valued as:
Table 18. Table showing value adjustments
Sub-Market Unit Value at Expected Unit Value in
Date of Sale
Area Date of Sale May 2013
1 May 11 2,450 3,000
2 July 11 3,000 3,300
3 Feb 12 4,000 4,300
4 Oct 10 2,750 3,400
CASE 3: USING LAND
RESIDUAL
TECHNIQUE
Land Residual Technique
A method used to determine the value of one component of a
property by deducting the value of other components from the
full value or sale price.
Application:
Given:

Parcel 1 Parcel 2
Land Area = 200m2 Land Area = 180m2 (9m x 20m)
Total Building Area (2S)= 180m2 Unit Value = Php 3,000/m2
Building Age = New Building Age = 5 years old
Selling Price = Php 1.85 million Annual Depreciation Rate = 1.1%
With Block fences = 60lm Total Building Area (2S)= 140 m2
Paving = 83m2 Selling Price = Php 1.45 million
With Block fences = Php1,200/lm

Conditions:
Lands are similarly situated. Buildings are similarly constructed.
Paving = Php800/m2

Determine the land unit value of Parcel 1.

Determine land value and building value of Parcel 2.

Land Value = 180m2 x Php 3,000/m2

= Php 540,000
Block Fences = Perimeter x Php1,200/lm
= 58 lm x Php1,200/lm
= Php 69,600
Depreciated Building Value = 1,450,000 – 540,000 – 69,600
= Php 840,400
Building Value New = Php 840,400 ÷ (1.0-0.055)
= Php 889,312
Building Unit Value = Php 889,312 ÷ 140m2
= Php 6,352/m2
= Php 6,500/m2
Apply the unit value of building to parcel 1:

Value of Building = 180m2 x Php 6,500/m2

= Php 1,170,000
Value of Fence = 60 lm x Php1,200/lm = 72,000
Value of Pavement = 83 m2 x Php800/m2
= Php 66,400
Value of Land (Parcel 1) = 1,850,000 – 1,170,000 – 72,000
– 66,400
= Php 541,600
Unit Value of Land = Php 541,600 ÷ 200m2
= Php 2,708/m2
= say Php 3,000/ m2
NOTES:

By using the same residual technique in extracting the

value of other lands, a schedule of market value can be
developed.

The criteria are determined by the conditions of the land.

Adjustment factors are determined by the physical

characteristics of the land.
FORMULATING VALUE
ADJUSTMENTS
Triangular and Irregular Lots

 Appraise using highest and best use or most probable use.

 Reduction in value due to shape will also be influenced by
size of the parcel.
i.e., small, awkwardly shaped parcels may suffer large drops in
value due to having very little use while large, irregular parcels
may be valued as other regular lots.
 It has yet to be proven that size affects value based on local
conditions.
Triangular and Irregular Lots

Common Approach to Value:

Base on the street - 2/3 x Market Trapezoidal/Irregular Lots =
Value of rectangular lot Rectangle + Triangle
Apex on the street - 1/3 x Market Accurate approach: Use
Value of rectangular lot Technical Description
Stripping Method

Land at various distances from the front of the site is

allocated with a different value as a percentage of the value
of land at the front.
Usually used for large lots.
Stripping Method

There are mixed views whether this method reflects market

dynamics.

It can be considered as a valid method in adjusting valuation IF

pattern exists and proven that it applies to many transactions.
“The stripping method shall not be applied on commercial and
industrial properties”
(Assessor’s Manual, p. 111)
Appropriate adjustment for commercial and industrial properties
may be done using other criteria or adjustment factors.
Stripping Method

Establishing a standard depth:

• Analyze a set of homogeneous properties
grouped by frontage and depth.
• Compare sales values.
• If property values fall as the depth gets longer,
then value is affected by depth.
• Standard depth varies between market areas.
Stripping Method

To illustrate:
Basic Assumptions:
(1) Standard depth = 35m
(2) Base price for a 35m deep lot is Php15,000.00/m2
(Established by Sale 2 and 3)
(3) All Lots were sold recently
(4) Frontage = 15 meters (except for lots 7 & 8)

Analyze each sale and determine if there is a pattern

evolving from these transactions.
Stripping Method
Table 19. Analysis for Stripping Method
Front x Area Unit
Sale Lot Price Computations Analysis
Depth (m2) Value/ m2

Lot is smaller than typical and

1 15 x 25 375 6,000,000 16,000 16,000/15,000 = 1.07 reflects slightly higher than typical
unit value
The typical depth for this locality
2 15 x 35 525 7,875,000 15,000 15,000/15,000 = 1 is 35m. There is no need for
stripping in this lot.
The typical depth for this locality
3 15 x 35 525 7,875,000 15,000 15,000/15,000 = 1 is 35m. There is no need for
stripping in this lot.

Base lot size, 525m2 x

P15,000 = P7.875M
Sale of P9.135M –
P7.875M = P1.26M Shows 20% lesser in value than
4 15 x 42 630 9,135,000 12,000
Therefore, rear strip = front strip
P1.26M/(7mx15m) =
P12,000/m2
12,000/15,000 = 0.8
Stripping Method
Table 20. Analysis for Stripping Method (cont.)
Front x Area Unit
Sale Lot Price Computations Analysis
Depth (sqm) Value/ m2

Base lot of 525m2 x P15,000

= P7.875M
Sale of P10.35M – P7.875M
= P2.475M
Rear strip has a value of There was a drop in value by
5 15 x 50 750 10,350,000 11,000
P2.475M/(15m x 15m) = 26.7%
P11,000/m 2

UV for rear strip =

P11,000/m2
11,000/15,000 = 0.733

(15x30)+ 480m2 x P15,000 = P7.2M Corner lot shows additional 15%

6* 480 8,280,000 17,250
(30.1x2) P8.28M/P7.2M = 1.15 value from basic lot

30.1x This lot will not be considered for

7** (17(N), 20 292.5 4,095,000 14,000 14,000/15,000 = 0.93 stripping since it has a different
(S), 30(W)) frontage and side street

* Irregular corner Lot ** Slightly irregular corner lot

Stripping Method

Table 21. Analysis for Stripping Method (cont.)

Front x Area Unit
Sale Lot Price Computations Analysis
Depth (m2) Value/ m2

540m2 x P15,000 = P8.1M

P9.072M – P8.1M =
P972,000
N(19x30),
Additional value of a corner An additional 12% value from a
8*** W (30.1m), 540 9,072,000 16,800
lot: P972,000 basic lot
S (17m)
(P972,000/540m = 1,800
2

additional unit value)

18,000/15,000 = 1.12

*** Slightly irregular corner lot

Stripping Method

From the previous table, the following conclusions

can be made:

• Unit value in the area is Php15,000/m2

• Lots exceeding the 35m standard depth
showed a lower unit value, thus, was affected
by depth.
• Corner lots are not affected by stripping.
Physical Factors as Basis for the Development of
Adjustment Factors

• Adjustments needed to allow for physical differences

when valuing properties
 i.e., size, view, location, shape, elevation, topography,
access
• A common method is the use of matched pairs
 Requires that sales are similar in all, except 1,
characteristics
 Validate adjustment by comparing a succession of other
matched pairs
 Create Table of Adjustments after several adjustments
were made
Property Conditions as Basis for the Criteria in the
Classification and Sub-Classification of Lands

• Basis for classification are the limitations of

land use and value of sales in a particular
area, given all conditions are equal

• Physical effects of properties (i.e.,

applicable to a number of properties) may
also be used as criteria
Establishing Land Value Maps

• Visible and effective tool for displaying values

deduced from actual land and improved sales.

• Can be any form of LGU base map but should include

details on location and, if possible, show actual
streets/roads.

• Tool for appraisers with index on benchmarks and

market data.
Preparation of Land Value Maps

Working Land Value Maps

• Shows range of values within a sub-market area detailed
along streets and particular locations
• Information on maps include the benchmarks, all sales,
recent asking prices, offers, zoning, road information,
statistical building class, depreciation and other
appraisal data.
• Factors affecting value are usually color-coded
Land Value Maps

Working Land Value Map:

Land Value Maps
Final Land Value Map:
Schedule of Market Values (Base Value Map - Barangay Poblacion)
Preparation of Land Value Maps

Final Land Value Maps

• Final values are plotted along the streets or peculiar

locations on the map

• Land value maps work efficiently on urban areas where

there are road and street networks
DEVELOPING THE SMV
FOR COMMERCIAL
AND INDUSTRIAL
LANDS
Developing SMV for Commercial and Industrial
Lands

Valuation is focused on the utility of the property/site,

i.e., the intended use of the property for a typical buyer
from a typical seller.

Considerations in valuing commercial land:

• Location
• Optimal size
• Flow and Volume of Traffic
• Corner Influence
• Public facilities and amenities
Developing SMV for Commercial and Industrial
Lands

Considerations in valuing industrial land:

• Zoning
• Large Area
• Availability of private and public utilities
Developing SMV for Commercial and Industrial
Lands

Specific Valuation Approaches

• The correct valuation approach is that which

will be used by buyers and sellers in the
property market
• Nature of improvements makes valuation more
complex
• Valuation with emphasis on permitted use and
geographic factors
Income Capitalization Approach: Capitalization of Ground
Rent

Ground rent is rent for vacant land.

Process of valuation is straightforward, not complicated by
operating expenses
Difficulty with capitalizing ground rent is in determining
capitalization rate
To determine a reliable rate, locate a comparable site that was
sold which can be valued by sales comparison, and is also
leased.
Income Capitalization Approach: Capitalization of Ground
Rent

Ground rents often show a lower capitalization rate than

developed properties due to the durable nature of the land.

Caution!
Long-term or short-term rent do not often reflect the value of the
land.
Short-term rent – rent for convenience, for purposes of short-term
storage, from owners who do not require the land in the
immediate future
Income Capitalization Approach: Capitalization of Ground
Rent – Application

Given:
Table 22. List of Ground Rent
Land
Lot Dimensions Net Rent Description
Area
Flat land, inside lot, no view or other
1 10m x 20m 200 42,000
factor
Flat land, inside lot, no view or other
2 8.5m x 20m 170 35,000
factor
Inside lot, land drops from road by 1.5 m
3 8m x 20m 160 26,000
(i.e., slopes down)
Almost flat land, slight fall from road
4 7.5m x 20m 150 31,000
(slope down)
5 10m x 20m 200 46,000 Flat lot, no view, located on good corner
Income Capitalization Approach: Capitalization of Ground
Rent - Application

Formula:
V = I / CR
Where:
V = Market Value
I = Net Income/Rent
CR = Capitalization Rate
CR = I / V x 100
Income Capitalization Approach: Capitalization of Ground
Rent – Application

Table 23. Estimate the CR from known valid sales and rentals

Market Net Annual

Sale Area Capitalization Rate
Value Rent
A 150 2,000,000 240,000 12.0
B 180 2,000,000 180,000 9.0
C 100 1,100,000 120,000 10.91
D 200 3,800,000 360,000 9.47
Average Capitalization Rate 10.35% or 10%
 Income Capitalization Approach: Capitalization of Ground
Rent – Application
Table 24. Determine unit values
Lot Land Net Mo. CR Market UV Influences Adj. to Unit Value Rnded
Area Rent % Value w/ UV without Unit
Inf (Inf) Influence Value
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)

Flat, inside lot, no other

1 200 42,000 10 5,040,000 25,200 factor 0% 25,200 25,000
Flat, inside lot, no other
2 170 35,000 10 4,200,000 24,705 factor 0% 24,705 25,000

3 160 26,000 10 3,120,000 19,500 Inside lot, drops to 1.5m -17% 16,185 16,000
4 150 31,000 10 3,720,000 24,800 Almost flat, slight slope 0% 24,800 25,000

5 200 46,000 10 5,520,000 27,600 Flat, no view, good corner +12% 30,912 31,000

(e) = [(c)x 12)]/(d) (f) = (e)/(b) i = (f) x [(100%-(h)]/100

Income Capitalization Approach: Capitalization of Ground
Rent – Application

Table 25. Schedule of Market Values for Commercial Lands

Sub Classification Unit Value

C1 25,000
C2 20,000
C3 15,000
C4 12,500
C5 10,000
C6 7,500
C7 5,000
 Income Capitalization Approach: Capitalization of Ground
Rent – Application
Sample Criteria for Sub-Classification of Commercial Lands:
1st class i. Located along concrete road
comm ii. Areas where highest trading activities takes place
lands iii. Areas where vehicular and pedestrian traffic flow are
exceptionally busy
iv. Apparently commands the highest commercial land value
2nd class i. Located along concrete road
comm ii. Areas where the highest trading, social or educational
lands activities are considerably high
iii. Areas where all concrete commercial or business buildings
are situated
iv. Areas where vehicular and pedestrian traffic flow are
considerable busy, but fall short than that of the 1st class
commercial lands
Etc. ...
Income Capitalization Approach: Capitalization of Ground
Rent – Application

Adjustment Factors:
Corner Influence = +12%

Sunken Lots less than 1.5m = 0%

(No adjustment)

Sunken lots at 1.5m or more = -20%

Other adjustment factors can be determined using

the same method.
Income Capitalization Approach: Capitalization of Ground
Rent – Application

NOTE:

Where there are no rental data specific only to the land,

identify similar lands with improvements which rental
adheres more to the land rather than its improvement.
Example:
• Car Wash
• Parking lots
• Display areas
Factors Influencing values of Commercial and Industrial Lands
Unaffected by Time

Table 26 Sample list of property values unaffected by time with

features and analyzed effects
Feature &analyzed effect (UV)
Unit Area Market
Pty Date Comments
Value m2 Value Corner View Traffic Other

1 6,700 200 1,340,000 Feb-08 Typical Lot

2 7,250 200 1,450,000 Mar-09 +550 High side of Road
3 7,350 210 1,543,500 Apr-09 +650 Good view
4 6,500 280 1,820,000 Apr-09 Typical Lot
5 7,900 200 1,580,000 May-09 +1200 Abuts 1st Class Subdn.
6 6,750 250 1,687,500 Jun-09 Typical Lot
7 5,750 200 1,150,000 Jun-09 -950 Near busy Intersection
8 7,500 200 1,500,000 Jun-09 +800 Adjoins Main Street
9 8,050 200 1,610,000 Aug-09 +750 +600 Good Corner and view
10 6,550 300 1,965,000 Aug-09 Typical Lot
Sales within the 18-month period unaffected by time (lots 1, 4, 6, 10).
Factors Influencing values of Commercial and Industrial Lands
Unaffected by Time

Table 27. Adjustment factors unaffected by time

Adjustments (Php)*
Corner View Traffic Size Features
Base Land Base Land
775 600 -950 0 1,200
Value at Area of Base
Pty
Base Date Typical lot Date
(Php/m2) (m2) % Adjustments (Average/Base Land Value x 100)

1 6,700 200 8-Feb 12 9 -14 0 18

2 7,250 200 9-Mar 11 8 -13 0 17
3 7,350 210 9-Apr 11 8 -13 0 16
4 6,500 280 9-Apr 12 9 -15 0 18
5 7,900 200 9-May 10 8 -12 0 15
6 6,750 250 9-Jun 11 9 -14 0 18
7 5,750 200 9-Jun 13 10 -17 0 21
8 7,500 200 9-Jun 10 8 -13 0 16
9 8,050
*Adjustments = average 200
of feature9-Aug 10 effect7per item-12
and analyzed 0 15
10 6,550 300 9-Aug 12 9 -15 0 18
Factors Influencing values of Commercial and Industrial Lands
Unaffected by Time

Table 28. Effect to a property unaffected by time: Average

adjustments
Base Land Area for Locality using typical lot 200
Base land Value at Base Date 6,700
Base Date Feb 08
Adjustments* % Adjustment**
Corner 775 12%
Views 600 9%
Traffic -950 -14%
Size 0 0%
Features 1,200 18%

* Derived average on feature and analyzed effect per column

** %Adjustment = Average/(Base Land Value) x 100%
(Example: 775/6700 x 100 = 11.6% or 12%)
Factors Influencing values of Commercial and Industrial Lands
Unaffected by Time

Table 29. Resulting Average to unaffected properties 1,4, 6 &10:

Base Land Area for (1) (4) (6) (10)
Locality using typical lot 200 280 250 300
Base land Value at Base
6,700 6,500 6,750 6,550 Ave
Date
Base Date Feb 08 Apr 09 Jun 09 Aug 09
Adjustments* % Adjustment**
Corner 775 12% 12% 11% 12% 12%
Views 600 9% 9% 9% 9% 9%
Traffic -950 -14% -15% -14% -15% -15%
Size 0 0% 0% 0% 0% 0%
Features 1,200 18% 18% 18% 18% 18%

* Derived average on feature and analyzed effect per column

** %Adjustment = Average Adjustment/Base Land Value x 100%
Drafting the SMV for Residential, Commercial and Industrial Lands

Table 30. Sample SMV

2003 2009
Street/ Subdivision Vicinity Base Value Base Value
Sub-Class Sub-Class
(Php) (Php)
Barangay 1
3,500.00 R-4 5,000.00 R-3
Street A Road 1 - Road 2 2,800.00 I-3 7,200.00 I-2
Street B Street XX - Street YY 5,000.00 R-1 6,000.00 R-2
Interior Lots 2,500.00 R-8
Avenue A Street XY - Street YZ 12,800.00 C-1 20,000.00 C-1
Gen Luna - Street XY 10,300.00 C-3 12,000.00 C-4
Street XY - 1st 300m 8,500.00 C-5 15,000.00 C-3
Street YZ to Port Area 4,000.00 I-1 8,000.00 I-1
Others 4,800.00 R-2 6,000.00 R-2
Subdivision A 6,000.00 R-2
Subdivision B 5,500.00 R-2 7,000.00 R-1
All Blighted Areas
Note: R = Residential, C = Commercial, I = Industrial