APPRAISAL

OBJECTIVES
uniformity and consistency in the conduct of appraisal
of government property for disposal;

facility in the computation of appraised values;

more realistic valuations of property under disposal

based on the actual state or condition of properties
being disposed of;

a reliable basis of ensuring that government recovers a

fair return from the disposal of its properties.
 Appraisal
• It refers to the rendition of professional
and sound estimate of value of property
and/or interest therein as of a given time
and for specific purpose.

Reference: Materials for Comprehensive Real Estate Appraisal Seminar and Review,
Institute of Philippine Real Estate Appraisers (IPREA)
 Appraisal

• It is the process of valuation; in a more

technical usage, a systematic, analytical
determination and recording of property
facts, investment and value, based on
personal inspection and inventory of the
property.

Reference: Materials for Comprehensive Real Estate Appraisal Seminar and Review,
Institute of Philippine Real Estate Appraisers (IPREA)
 Appraisal
• It is an estimate, an opinion
• Its accuracy depends upon the
competence and integrity of the
appraiser; the soundness of the
processing of data, and availability
of pertinent data.

Reference: Materials for Comprehensive Real Estate Appraisal Seminar and Review,
Institute of Philippine Real Estate Appraisers (IPREA)
 Purpose of Appraisal

• To estimate value of the property

• To provide authoritative basis of
action or establishment of policy

Reference: Materials for Comprehensive Real Estate Appraisal Seminar and Review,
Institute of Philippine Real Estate Appraisers (IPREA)
Appraisal may or may not be
accurate depending on:

•Basic competence and

integrity of appraiser

•Soundness and skill with which

he/she uses the data

•Availability of
pertinent data
Appraised Value - an estimate or opinion of value of a
described property as of a specific date
transmitted in writing and supported by
relevant and factual data

Situations where appraisal is needed:

• transfer of ownership
• financing and credit
• just compensation in sale
or condemnation
procedures
• basis for taxation/taxes
APPRAISERS/VALUERS
DEFINITION OF TERMS

Acquisition Cost (AC) – the price at which the

property was acquired which also includes
related expenses incurred during the
acquisition/construction of the property such
as taxes, license fees, permit fees, clearance
fees, etc.
 DEFINITION OF TERMS

Appraised Value (AV) – an opinion of an

appraiser which is based upon an interpretation of
facts and beliefs into an estimate of value, as of a
stated date.
DEFINITION OF TERMS

Condition Factor (CF) – the adjustment

factor used to consider the actual condition of
the property under appraisal thru an
evaluation of the state or condition of the
major components of such property relative
to an ideally functioning model.

The condition factor is usually estimated

based on the component and condition rating
of the property.
 DEFINITION OF TERMS

Currency Fluctuation Factor (CFF) – refers to

the adjustment factor used to take into account
the devaluation or revaluation of the peso from the
year of acquisition to the year of appraisal.
 DEFINITION OF TERMS

Current Market Value (CMV) – is the price

estimated which a property will bring if exposed
for sale in the open market, allowing a reasonable
time to find a buyer who buys with knowledge of
the actual condition and utility of the property.
Principles in computing for the Appraised Value

Unserviceable property - at
scrap/junk value

Repairable / no
longer needed or
serviceable
property - at CMV
Principles in computing for the Appraised Value

real estate –
separate
guidelines

Antiques, works of arts -

by National Museum
 Appraisal Process

Seek
Compute the
Conduct reference
appraised
inspection price
value
information
Appraisal Process

Conduct inspection
Inspection of Property for Appraisal

Documentation
Inventory and Inspection Report of
Unserviceable Property
- for vehicles, equipment, furniture, and
semi-expendable materials

Report of Waste Materials (GF 64)

- for empty containers and remnants from
destroyed or damaged equipment parts /
fixed assets
 Forms
• INVENTORY AND INSPECTION
REPORT OF UNSERVICEABLE
PROPERTY

• WASTE MATERIALS REPORT

CHECKLIST FOR
UNSERVICEABLE
EQUIPMENT:
VEHICLES/HEAVY
EQUIPMENT
 Guidelines in observing Condition
of Property
Very Good (VG) • being used to its fully specified
(80-100%) purpose w/o being modified

Good Condition • being used near its fully

(G) specified utilization, with minor
(55-75%) repair

• below its fully specified

Fair Condition (F) utilization, requires general
(35-50%) repair / replacement of minor
parts
 Guidelines in observing Condition
of Property
• below its fully specified
Poor Condition (P) utilization, needs extensive
(15-30%) repair/replacement of major
components

Scrap Condition • unserviceable / cannot be

utilized to any practical degree
(S) regardless of modification or
(0-10%) repair

100% • Missing Property

 COMPONENT RATING TABLES
A. VEHICLES %
• Engine 23
• Body and Chassis 35
• Transmission 7
• Differential 5
• Others 30
 COMPONENT RATING TABLES
F.DENTAL EQUIPMENT
• Dental Unit & Chair 62
• Air Scaler 14
• Air Motor 14
• Compressor ¼ HP 5
• High Speed 3
• Dental Stool 2
Appraisal Process

Seek reference
price information
 Reference Price Information

Basic Price Information

•Current Market value
•Acquisition Cost
•Replacement Cost, New
Contributory /Other Price
Information
•Prices from second - hand
shops
•Currency Exchange Rate
Appraisal Process

Compute the
appraised value
("Forever Always" by Octavio Ocampo)
 Revised Formulae on
Appraisal of Government
Properties except Real Estate,
Antique Property and
Works of Art
 REVISED FORMULAE ON APPRAISAL
OF GOVERNMENT PROPERTIES
1. When property is still operational/functional or can be
repaired:

– When Current Market Value of a comparable data is

available
CF 1
AV = CMV x
CF 2
where:
AV - Appraised Value
CMV - Current Market Value
CF1 - Condition Factor of the Property
being appraised
CF2 - Condition Factor of the
Advertised/Canvassed Property
 REVISED FORMULAE ON APPRAISAL
OF GOVERNMENT PROPERTIES
2. When property is still operational/functional or can be
repaired:

– When Replacement Cost-New is available

A. When the Estimated Useful Life of the equipment is

available
ERUL
AV = RCN x
EUL
where:
RCN - Replacement Cost - New
ERUL - Effective Remaining Useful Life
EUL - Estimated useful Life (Table 2)
Effective Remaining Useful Life
(ERUL)

•Technical Audit Specialist shall resort to

his expertise/ experience in appraisal
aided by the checklist of Unserviceable
Property, Equipment Ledger Card/
History of Repairs, and photographs
Effective Remaining Useful Life
(EURL)

ERUL = Estimated Useful Life- Number

of Years the equipment has been
in service (normal condition)
ERUL is affected by:
• Major component was just currently
replaced, ERL is prolonged;
• Abnormal use of the property, ERL is
shortened
 REVISED FORMULAE ON APPRAISAL
OF GOVERNMENT PROPERTIES
3. When property is still operational/functional or can be
repaired:

– When Replacement Cost New is available

B. When the Estimated Useful Life of the equipment is

not available

AV = RCN x CF
where:
RCN - Replacement Cost - New
CF - Condition Factor of the property being
appraised
 REVISED FORMULAE ON APPRAISAL
OF GOVERNMENT PROPERTIES
4. When property is still operational/functional or can be
repaired:
– When Acquisition Cost is available

A. For Imported Properties

AV = ( AC x CFF ) x CF
where:
AC - Acquisition Cost
CFF - Currency Fluctuation Factor

P/dollar exchange rate on year of

appraisal
CFF =
P/dollar exchange rate on year of
acquisition
CF - Condition Factor of the Property
 REVISED FORMULAE ON APPRAISAL
OF GOVERNMENT PROPERTIES
5. When property is still operational/functional or can be
repaired:

– When Acquisition Cost is available

B. For Locally Manufactured Properties

AV = ( AC x PIF ) x CF
where:
PIF - Price Index Factor
CF - Condition Factor of the Property

Price Index on year of appraisal

PIF =
Price Index on year of acquisition
 REVISED FORMULAE ON APPRAISAL
OF GOVERNMENT PROPERTIES

6. For waste materials and property which are

unserviceable and can no longer be
repaired/reconditioned :

AV = Junk Value
Note: Junk Value is based on prevailing price of scrap
metal or lumber, whichever is appropriate

Computers and their peripherals shall be

appraised based on their junk value due
to obsolescence
 Determination of Appraised Value
• Unserviceable property which can no longer
be repaired or reconditioned and waste
materials shall be appraised at scrap or junk
value.
 Determination of Appraised Value
• For unserviceable property which can still be repaired or
reconditioned, and property no longer needed which are still
functional, shall be appraised based on the following:
 It shall be appraised on the Current Market
Value (CMV), if such is available.
 If CMV is not available, it shall be appraised
at its Replacement Cost New (RCN).
 Determination of Appraised Value
• For unserviceable property which can still be repaired
or reconditioned, and property no longer needed
which are still functional, shall be appraised based on
the following:
 If CMV and RCN are both not available, the
property shall be appraised at its Acquisition Cost
(AC). If the property at the time of acquisition is
“brand new”, adjust against observed condition at
the time of appraisal. If the property was acquired
“second hand,” condition at date of acquisition must
be defined before any adjustment is made.
 Determination of Appraised Value
• The determination of Salvage Value of
component/part of an asset found to be
serviceable shall be based on the hierarchy
stated in the previous slides
• For imported vehicles/mechanized
equipment, each component that has no
available local replacement shall be treated
as junk exclusive of the other components
which are available in the domestic market.
 Examples of
Computation of
Appraised Value
 Illustrative Examples
Given: Based on the data contained under the Inventory and
Inspection Report of Unserviceable Property (Annex A1)

Property Description:

Mitsubishi L-200 D/Cab Pick-up, Diesel Fed Model 1995, Silver Gray,
Loaded, w/Stepboard & Bedliner
Plate No. UFC 963, Engine No. 4D56A-D5940
Chassis No. K14TJUNSL-010751
Acquisition Date: AD = December 16, 1995
Acquisition Cost: AC = P495,000.00

Date of Appraisal: June 26, 2000

 Illustrative Examples
When Current Market Value (CMV) of a comparable property is
available
Solution:
CF1
AV = CMV x CF2
CMV = P209,000.00
Advertised Prices (similar brand and year model from Used
Car Dealers):
a) P209,000.00
b.) P260,000.00
c.) P285,000.00
CF1 = Condition Factor of subject property
CF2 = Condition Factor of comparable property
 Illustrative Examples
CF1 (see attached check list of subject property,
Annex C1)

Component % Weight CF
Engine 23 0.80 = 0.1840
Transmission 7 0.90 = 0.0630
Differential 5 0.90 = 0.0450

Body/Chassis 35 0.75 = 0.2625

Others 30 0.75 = 0.2250
Total: 0.7795
 Illustrative Examples
CF2 (see attached check list of comparable
property, Annex C2)
%
Component Weight CF
Engine 23 0.60 = 0.1380
Transmission 7 0.85 = 0.0595
Differential 5 0.85 = 0.0425
Body/Chassis 35 0.70 = 0.2450
Others 30 0.40 = 0.1200
Total: 0.6050
 Illustrative Examples
When Current Market Value (CMV) of
a comparable property is available
Thus:
0.7795
AV = (P209,000.00) 0.6050
AV= P269,282.00
 Illustrative Examples
When Replacement Cost New (RCN) is available
1. When the Estimated Useful Life (EUL) of the
property is available
Given: Same vehicle/property used in the
above CMV method
The cost of brand new engines for
the vehicle available in the market
is P100,000.00/unit
To determine RCN of the vehicle under
appraisal
 %
Component weight

Engine 23 = 0.23(P100,000.00) = P 100,000.00

0.23

Transmission 7 = 0.07(P100,000.00) = 30,435.00

0.23

Differential 5 = 0.05(P100,000.00) = 21,739.00

0.23

Body/Chassis 35 = 0.35(P100,000.00) = 152,174.00

0.23

Others 30 = 0.30(P100,000.00) = 130,435.00

0.23
434,783.00
say: 435,000.00
Add Cost of
Assembly,OCM: 65,000.00
RCN = P 500,000.00
Note: If there are available price data in
the market for the other components,
use the market data of said components
rather than the ratio and proportion
applied above.

Component % weight ERUL EUL

Engine 23 x 6 / 7 = 0.1971
Transmission 7 6 7 = 0.0600
Differential 5 6 7 = 0.0430
Body/Chassis 35 5 7 = 0.2500
Others 30 5 7 = 0.2140
0.7641
1. When the Estimated Useful Life
(EUL) of the property is available

AV = (P500,000.00) 0.7641
AV = P382,050.00
 Illustrative Examples
When Replacement Cost New (RCN) is
available

2. When the Estimated Useful Life

(EUL) of the property is not
available

Given: Same vehicle/property used

in the above CMV Method
Solution:
AV = RCN x CF
 Illustrative Examples
When Replacement Cost New (RCN) is available

2. When the Estimated Useful Life (EUL) of the

property is not available
where:
RCN = P500,000.00
CF = 0.7795 (from CMV Method above)

AV = P500,000.00 x 0.7795

AV = P389,750.00
 Illustrative Examples
When Acquisition Cost (AC)
is available:
• For imported properties:
Acquisition Cost Method
AV = AC x CFF x CF
 Illustrative Examples
When Acquisition Cost (AC) is available:
• where:
CFF = Currency Fluctuation
Factor
CFF = P/$ exchange rate on year
of appraisal / P/$ exchange
rate on year of acquisition
 Illustrative Examples
When Acquisition Cost (AC) is available:

CFF = 40 / 25.7144

CFF = 1.56

CF = 0.7795

AV = (P495,000.00) (1.56) (0.7795)

AV = P601,930.00
AV CMV = P269,282.00
AV RCN (life in years) = P382,050.00
AV RCN (cond. factor) = P P389,750.00

AV CFF = P601,930.00
 Illustrative Examples
• Other Cases:
1. When the property/subject vehicle is lost for which
accountability is being assessed

CF1
AV = CMV x CF2

AV = P209,000.00 x 1.0
0.6050
where : CF1 = 1 (condition factor when subject property is
lost under sec. 4.1.3)
AV = P345,455.00
 Illustrative Examples
• When the component, such as engine unit, of the
above vehicle under appraisal is missing/salvaged:
CF1 (see attached check list of subject property, Annex C1)

Component % Weight CF
Engine 23 0.80 =

Transmission 7 0.90 = 0.0630

Differential 5 0.90 = 0.0450

Body/Chassis 35 0.75 = 0.2625

Others 30 0.75 = 0.2250
Total: 0.5955
 Illustrative Examples
• When the component, such as engine unit, of the
above vehicle under appraisal is missing/salvaged:
CF2 (see attached check list of comparable
property, Annex C2)
%
Component Weight CF
Engine 23 0.60 = 0.1380
Transmission 7 0.85 = 0.0595
Differential 5 0.85 = 0.0425
Body/Chassis 35 0.70 = 0.2450
Others 30 0.40 = 0.1200
Total: 0.6050
 Illustrative Examples
• When the component, such as engine unit, of the
above vehicle under appraisal is missing/salvaged:

AV = (P209,000.00) x 0.5955/ 0.6050

AV = P205,719.00
 Illustrative Examples
When the engine unit is beyond economic repair and
is considered junk/scrap:
where:
Estimated Weight of Engine= 500 kilos
P5.00 = prevailing market value of metal
AV = (P209,000.00) X 0.5955/ 0.6050
+ P2,500.00

AV= P205,719.00 + P2,500.00

AV = P208,219.00
 Contents of Appraisal/Valuation
Report
• Date of the Valuation Report
• Identification of the Client and any other
Intended Users
• Purpose of the Valuation
• Identification of the Asset or Liability to be
Valued
• Basis of Value
 Contents of Appraisal/Valuation
Report
• Valuation Date
• Extent of Investigation
• Nature and Source of the Information Relied
Upon
• Assumptions and Special Assumptions
• Restrictions on Use, Distribution or Publication

Ref: International Valuation Standards, International Valuation Standards Council, 2011

 Contents of Appraisal/Valuation
Report
• Valuation Approach and Reasoning
• Amount of Valuation or Valuations
• Identification and Status of the Valuer

Ref: International Valuation Standards, International Valuation Standards Council, 2011