Knowing how to appraise the value of real estate properties is very important on the part of the Real Estate Broker to be able to recommend the best property at a given budget as well to the buyers themselves so they can make the right investment decision. The skill in determining values of properties help the real estate brokers/agents determine saleable properties and organize their arsenal of selling prowess to prioritize on these saleable properties. As important would be the buyers who should also get to know the real value of what they have bought.
The most common method is the cost approach.
This means that the value of a property
can be estimated by summing the land value and the depreciated value of improvements. The land value is usually based on the prevailing market value in the area distinct from the zonal value set by the government. For house and lot properties, it is best to separate the land from the building/improvement and add them up together after knowing its individual values.
For example, if you want to know the value of a house and lot in a subdivision in Mactan, a 3 bedroom house, 5 years old, with a floor area of 80 square meters and a lot area of 120 square meters. First, you will have to estimate the prevailing selling price of middle end subdivision in the area. Assuming the average is P6,000 per square meter, the value of the land would be 120 X 6,000 = P720,000.00 Then, estimate the value of the house.
The acceptable prices ranges are as follows:
Low Cost housing : P16,000.00 to P25,000 per square meter
Middle End housing: P26,000.00 to P35,000 per square meter
High End housing: P36,000.00 to P45,000 per square meter
So, for the lot area of 80 square meters X P30,500.00 average price per square meter = P2,440,000.00
Then add the value of the lot = P720,000 = P3,160,000.00 excluding VAT which is 12%
Since the example above states that the property is already 5 years old, depreciation value shall then be deducted as follows:
Depreciation = P3,160,000 / 50 years = P63,200.00 cost of depreciation per year.
Depreciation cost for 5 years = P63,200.00 X 5 = P316,000.00
Therefore the appraised value of the property in this example shall be P3,160,00.00 less P316,000.00 = P2,884,000.00