RD Gumabay presentation -PVS Orientation.pdf

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1. Philippine Valuation Standards
(PVS) 2
nd
Edition, 2018
Incorporating the International Valuation Standards 2017 and
Providing Guidance Notes under Philippine Setting

2. Introduction
The Long Term Commitment of the Philippine Government on
the Land Reform Program:
•Alleviate poverty;
•Sustain economic growth by improving the land tenure security;
•Foster efficient land markets.

3. Valuation and Taxation Reforms
REFORM ACTION
Implement a valuation system that will
assess property values at their true
market levels;
Establish an independent national
authority that will set and enforce
valuation standards;
The proposed Valuation Reform Act
(VRA) was watered down by expanding
the BLGF mandate on appraisal instead
of creating the National Valuation
Authority (NVA)
Develop valuation standards for use by
government and private sectors
Publication of the Philippine Valuation
Standards, 1
st
Edition 2009 –Adoption
of the IVSC Valuation Standards under
Philippine Setting

4. Valuation and Taxation Reforms
REFORM ACTION
Raise the level of and professionalize
the property valuation industry.
Enactment of the Real Estate Service
Act (RESA) in 2009 intended to
professionalize the real estate practice
by transferring the regulatory functions
of the Department of Trade and
Industry (DTI) to the Professional
Regulation Commission (PRC) through
the Professional Regulatory Board of
Real Estate Service (PRBRES)

5. Roadmap of the PVS
2001
•Land Administration and Management Project (LAMP) was established.
•Australian Government (technical assistance)
•World Bank (financial support)
2009
•The Philippine Valuation Standards (1st Edition) –Adoption of the IVSC
Valuation Standards under Philippine Setting was published as part of a
wider on-going program of land reform in the Philippines.
2017
•The Philippine Valuation Standards 2
nd
Edition, 2018 is a component
project of the Technical Cooperation Project (TCP) entitled:
Mainstreaming Voluntary Guidelines on Governance of Tenure (VGGT),
under Food and Agriculture Organization of the United Nations (UNFAO)

6. The objectives of PVS 2
nd
Edition, 2018
included the following:
To raise the quality of public and private sector valuations and
reporting of valuations;
To provide consistency and understanding between providers
and users of valuations at national and international levels;
To promote transparency and reliability of valuations for
disposal of government assets, financial reporting, secured
lending, transfers of ownership and litigation and taxation;
To reduce financial risk for users of valuations.

7. IVSC Membership
•BureauofLocalGovernmentFinance–acceptedinMarch2018as
aninstitutionalmemberoftheInternationalValuationStandards
Council(IVSC),theindependentglobalstandardsetterfor
valuationpracticeandthevaluationprofession.
•IVSCmembers-shareabeliefthatraisingstandardsof
internationalvaluationpracticeisofbenefittothewiderpublic
interest.Betterstandardsimprovethetransparencyandstabilityof
thefinancialmarkets,contributetothegrowthofstronger
economiesandleadtoimprovedconfidenceforinvestorsand
users

8. International Valuation Standards Council (IVSC)
•TheIVSCfacilitatescollaborationandcooperationamongits
memberorganisations,whoarevaluationserviceproviders,
financialservicesbusinesses,regulators,internationalbodiesand
academicinstitutions.
•TheIVSCconsistsofmorethan100memberorganisationsfrom
aroundtheworldandissupportedbynumeroussponsorswhoare
leadersinthevaluationfield.

9. Objectives of the IVSC
•DevelophighqualityInternationalValuationStandards(IVS)which
ensureconsistency,transparencyandconfidenceinvaluations
throughouttheworld,and;
•EncouragetheadoptionofIVS,alongwithvaluation
professionalismprovidedbyValuationProfessionalOrganisations.

10. What are Valuation Standards and who need them?
•Astandardisalevelofqualityorachievement,especiallyonethat
peoplegenerallyconsidernormaloracceptable
•Standardsareessentialtodetermininghowwellapersonfollows
legal,professionalandethicalnorms.
•Dictionariesdefinestandardinvariousways.Twowell-known
dictionarydefinitionsappearbelow:
•“Anacknowledgedmeasureofcomparison”(TheAmericanHeritage
DictionaryoftheEnglishLanguage,FourthEdition).
•“Astandardissomethingestablishedbyauthority,customorgeneralconsent
asamodelorexample;acriterion”(MerriamWebsterDictionary).

11. What are Valuation Standards and who need them?
•Consideringtheformofappearanceastandardmayeither
measureaquantitativenumberoramount,oraqualitativelevelof
performance.
•Inthevaluationarea,valuersexistinallcultures,eveniftheyare
notofficiallyrecognizedassuch.
•Wherevervalueexists,anopinionofvaluealsoexists.
•Whenvaluersaremoreformallyorganized,recognizedmethods
aredevelopedandsubsequentlyvaluationstandardsarise.
•Thestandardscouldbenationalorinternational.

12. Valuation Standards –Categories which need them
•Valuerswhichareinterestedtopresentthereliabilityofvaluations
(inaccordancewithrecognisedstandards).Ontheotherhand
valuationstandardsrepresentameansofadvertisingoftheservice
qualityandalsoawayforprotectionfornewentrants.
•Clientsinitiallyconsiderthequalityofavaluationreportin
accordancewithown’sobjectives:lesstaxes,findingagoodloan
etc.Attheendtheyarecomfortableandtheyagreethevaluer’s
opinioniftheyknowthatvaluersfollowsvaluationstandards.

13. Valuation Standards –Categories which need them
•Authoritiesareresponsibleforgoodeconomicframework,
avoidingfrauds(exprivatizations)etc.
•GeneralPublicisnotsointerestedinsuchkindatechnicalissue.
Theviewisdifferentwhensomethingwronghappened(ex.bank
failure);inthiscasethey’llaskforthequalityofservicesandcreate
apressureforvaluationstandards.

14. International Valuation Standards (IVS)
•TheobjectiveoftheIVSistoincreasetheconfidenceandtrustof
usersofvaluationservicesbyestablishingtransparentand
consistentvaluationpractices.
•Astandardwilldooneormoreofthefollowing:
•Identifyordevelopgloballyacceptedprinciplesanddefinitions,
•Identifyandpromulgateconsiderationsfortheundertakingofvaluation
assignmentsandthereportingofvaluations,
•Identifyspecificmattersthatrequireconsiderationandmethods
commonlyusedforvaluingdifferenttypesofassetsandliabilities.

15. International Valuation Standards (IVS)
•InternationalValuationStandards2017–includesvaluationof
tangibleandintangibleassets.
•Thetangibleassetsconsistofrealpropertyandplantand
equipment.Businessandbusinessinterestsencompassesboth
tangibleandintangibleassets.
•Intangibleassetsincludegoodwill,trademarks,tradenames,
uniquetradedesign,patentandinternetdomainnames.

16. International Valuation Standards (IVS)
•Financialinstrumentsareassetsthatcanbetraded.
•Theycanalsobeseenaspackagesofcapitalthatmaybetraded.
Mosttypesoffinancialinstrumentsprovideanefficientflowand
transferofcapitalallthroughouttheworld'sinvestors.
•Theseassetscanbecash,acontractualrighttodeliverorreceive
cashoranothertypeoffinancialinstrument,orevidenceofone's
ownershipofanentity.

17. CONTENTS -PVS 2
nd
Edition, 2018
Introduction
Glossary
IVS Framework
•IVS 101 Scope of Work
•IVS 102 Investigations and Compliance
•IVS 103 Reporting
•IVS 104 Bases of Value
•IVS 105 Valuation Approaches and Methods
General Standards
•IVS 200 Businesses and Business Interests
•IVS 210 Intangible Assets
•IVS 300 Plant, Machinery and Equipment
•IVS 400 Real Property Interests
•IVS 410 Development Property
•IVS 500 Financial Instruments
Asset Standards
Part I:
IVS 2017
(In toto)

18. Introduction IVS 2017
The International Valuation Standards Council (IVSC) is an independent, not-for-
profitorganization committed to advancing quality in the valuation profession. The
IVS are standards for undertaking valuation assignments using generally recognized
concepts and principles that promote transparency and consistency in valuation
practice.
IVS FrameworkThis serves as a preamble to the IVS, consisting of general
principles for valuersfollowing the IVS regarding objectivity,
judgement, competence and acceptable departures from the IVS.
International Valuation Standards (IVS) 2017
INTRODUCTION

19. Introduction IVS 2017
IVS General
Standards
This contains IVS 101 Scope of Work, IVS 102 Investigations and
Compliance, IVS 103 Reporting, IVS 104 Bases of Value and IVS
105 Valuation Approaches and Methods,applicable to valuations
of all types of assets and for any valuation purpose.
IVS Asset
Standards
In conjunction with the IVS General Standards, this contains IVS
200 Businessesand Business Interests, IVS 210 Intangible Assets,
IVS 300 Plant and Equipment, IVS 400 Real Property Interests, IVS
410 Development Property and IVS 500 Financial Instruments.
International Valuation Standards (IVS) 2017
INTRODUCTION

20. International Valuation Standards (IVS) 2017
IVS 2017
Glossary Defines certain terms used in IVS 2017
The glossary does not attempt to define basic valuation,
accounting or finance terms, as valuers are assumed to have an
understanding of such terms
Terms defined in the glossary are asset or assets, client,
jurisdiction, may, must, participant, purpose, should, significant
and/or material, subject or subject asset, valuation purpose or
purpose of valuation, valuation reviewer, valuer, weight, and
weighting.
GLOSSARY

21. International Valuation Standards (IVS) 2017
Framework IVS 2017
Compliance with
Standards
Compliance statements in accordance with the IVS implies
that the valuation is compliantwith all relevant standards
issued by the IVSC.
Assets and LiabilitiesThe standards can be applied to the valuation of both assets
and liabilities.
Valuer See glossary.
Objectivity Requires the valuer to make impartial judgements; the IVSC
Code of Ethical Principles for Professional Valuers provide an
example of an appropriate framework for professional
conduct.
IVS FRAMEWORK

22. International Valuation Standards (IVS) 2017
Framework IVS 2017
Competence Valuations mustbe prepared by those having appropriate
technical skills, experience and knowledge of the subject of
the valuation; otherwise it is acceptable for the valuer to seek
assistance from specialists.
Departures Are circumstances where specific legislative, regulatory or
other authoritative requirements must be followed that differ
from some of the requirements within IVS. Thistakes
precedence over all other IVS requirements.
IVS FRAMEWORK

23. (General Standards)
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101 Scope of Work IVS 2017
Introduction Sometimes referred to as terms of engagement.
General RequirementsIdentitiesof the valuer(s), client(s), intended user(s) and
asset(s) being valued; valuation currency; purpose of
valuation; basis(es) of value; valuation date; nature, extent
and limitations of the valuer’s work; nature and sources of
information; assumptions; type of report; restrictions on use,
distribution and publication of the report; and compliance
statement.
IVS 101 Scope of Work

24. (General Standards)
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101 Scope of Work IVS 2017
Changes to Scope of
Work
Some general requirements may not be determinable at the
outset. Until the valuation assignment is in progress, emerging
additional information may require further investigation.Any
scope of work changes over time must be communicated to
the client before completion and issuance of the valuation
report.
IVS 101 Scope of Work

25. (General Standards)
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102 Investigations and
Compliance
IVS 2017
General PrinciplesTo be IVS compliant, valuation assignments and reviewsmust
be in accordance with IVS principles and scope of work.
Investigations Must be appropriate for the purpose of valuation; sufficient
evidence must be assembled; limits may be agreed upon;
information supplied by a party other than the valuershould
be considered if credible or reliable , otherwise, such
information should not be used.
Valuation Record Mustbe kept for a reasonable period after the valuation
assignment.
Compliance with Other
Standards
The valuer must follow departures based on statutory, legal,
regulatory or authoritative requirements.
IVS 102 Investigations and Compliance

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103 Reporting IVS 2017
Introduction / OverviewThe valuation reportcommunicates the information necessary for
proper understanding of the valuation or review.
General RequirementsThe complexity of the asset being valuedand the users’
requirements will determine the level of detail appropriate to the
valuation report. The format of the report should be agreed upon
by the parties involved to establish the scope of work. While the
IVS does not require a particular form or format, the DOF,
through the BLGF prescribes certain forms for reporting and
taxation purposes.
(General Standards)
IVS 103 Reporting

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103 Reporting IVS 2017
Valuation Reports Must contain the following:scope of work; approach(es)
adopted; method(s) applied; key inputs used; assumptions
made; conclusion(s) reached; and date of the report (which may
differ from the valuation date).
Valuation Review
Reports
Must convey the following: scope of the review; valuation report
under review; reviewer’s conclusion, and date of the report
(which may differ from the valuation date).
(General Standards)
IVS 103 Reporting

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104 Bases of Value IVS 2017
Introduction Sometimes called standards of value.Describe the
fundamental premises on which the reported values will be
based.
Bases of Value
(common elements)
•Assumed transaction –hypothetical, actual, purchase
(entry), sale (exit), and/or transaction in a particular or
hypothetical market with specified characteristics.
•Assumed transaction date –will influence what information
and data a valuer consider in a valuation.
•Assumed parties to the transaction –hypothetical, known or
specific parties, potential parties, whether the parties are
subject to particular conditions or motivations at the assumed
date (e.g. duress), and/or anassumed knowledge level.
(General Standards)
IVS 104 Bases of Value

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104 Bases of Value IVS 2017
IVS-DefinedBases of
Value
•Equitable Value –the estimate price for the transfer of an
asset or liability between identified knowledgeable and willing
parties that reflects the respective interests of those parties.
•Investment Value/Worth –the value of an asset to a
particular owner or prospective owner for individual
investment or operational objectives.
•SynergisticValue –marriage value; the result of a
combination of two or more assets or interests where the
combined value is more than the sum of the separate values.
(General Standards)
IVS 104 Bases of Value

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104 Bases of Value IVS 2017
IVS-DefinedBases of
Value
•Market Value –the estimated amount forwhich an asset or
liability should exchange on the valuation date between a
willing buyer and a willing seller in an arm’s length
transaction, after proper marketing and where the parties had
each acted knowledgeably, prudently and without
compulsion.
•Market Rent –the estimated amount for which an interestin
real property should be leased on the valuation date between
a willing lessor and a willing lessee on appropriate lease terms
in an arm’s length transaction, after proper marketing and
where parties had each acted knowledgeably, prudently and
without compulsion.
(General Standards)
IVS 104 Bases of Value

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104 Bases of Value IVS 2017
IVS-DefinedBases of
Value
•Liquidation Value –the amount that would be realized when
an asset or group of assets are sold on a piecemeal basis,
including the cost of getting the assets into saleable condition
as well as those of the disposal activity. Value can be
determined under 2 different premises of value:
1.Orderly transaction with a typical marketing period, or
2.Forced transaction with a shortened marketing period.
(General Standards)
IVS 104 Bases of Value

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104 Bases of
Value
IVS 2017
OtherBases of
Value
•Fair Value (IFRS) –IFRS 13 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurable date.
•Fair Market Value (OECD) –the price a willing buyer would pay a
willing seller in a transaction on the open market.
•Fair Market Value (US IRS) –the price at which the property would
change hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell and both having
reasonable knowledge of relevant facts.
(General Standards)
IVS 104 Bases of Value

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104 Bases of
Value
IVS 2017
OtherBases of
Value
•Fair Value (Legal/Statutory)
a)Model Business Corporation Act (MBCA) –the value of the
corporation’s shares.
b)Supreme Court of British Columbia (Canada) in Manning vs
Harris Steel Group Inc.–One which is just and equitable;Contains
the concept of adequate compensation (indemnity).
(General Standards)
IVS 104 Bases of Value

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104 Bases of Value IVS 2017
Premise of
Value/Assumed Use
•Highest and Best Use –must be physically possible,
financially feasible, legally allowed and result in the highest
value of the asset.
•Current Use/Existing Use –the current way an asset,liability,
or group of assets and/or liabilities is used; also known as
“Actual Use” in LGC 1991.
•Orderly Liquidation –describes the value of a group of assets
that could be realized in a liquidation sale, given a reasonable
time to find a purchaser(s) on an “as is, where is” basis.
•Forced Sale –the price will depend upon the natureof the
pressure on the seller under compulsion to sell and the
reasons why proper marketing cannot be undertaken.
(General Standards)
IVS 104 Bases of Value

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104 Bases of Value IVS 2017
Entity Specific
Factors
Include; addition or reduction in value derived from the creation
of a portfolio of similar assets, unique synergies between the
asset and other assets owned by the entity, legal rights or
restrictions applicable only to the entity, tax benefits/burdens
unique to the entity, and ability to exploit an asset unique to that
entity.
Synergies Refer to the benefits associated with combining assets.
(General Standards)
IVS 104 Bases of Value

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104 Bases of Value IVS 2017
Assumptions and
Special
Assumptions
Assumed facts fall into 2 categories:
(1)those that are consistent or could be consistent with, those
existing at the date of valuation, and
(2)those that differ from those existing at the date of valuation.
Transaction CostsThe seller’s costs of sale or the buyer’s cost of purchase and
adjustments for taxes payable by either party as a direct result of
the transaction.
(General Standards)
IVS 104 Bases of Value

37. Conceptual Framework of Market Value
(a)“Theestimatedamount”referstoapriceexpressedintermsof
moneypayablefortheassetinanarm’slengthmarket
transaction.
•MarketValueisthemostprobablepricereasonablyobtainablein
themarketonthevaluationdateinkeepingwiththemarketvalue
definition.
•Itisthebestpricereasonablyobtainablebythesellerandthe
mostadvantageouspricereasonablyobtainablebythebuyer.

38. Conceptual Framework of Market Value
(a)“Theestimatedamount”referstoapriceexpressedintermsof
moneypayablefortheassetinanarm’slengthmarket
transaction.
•Thisestimatespeciallyexcludesanestimatedpriceinflatedor
deflatedbyspecialtermsorcircumstancessuchasatypical
financing,saleandleasebackarrangements,special
considerationsorconcessionsgrantedbyanyoneassociatedwith
thesale,oranyelementofvalueavailableonlytospecificowner
orpurchaser.

39. Conceptual Framework of Market Value
(b)“Anassetorliabilityshouldexchange”referstothefactthatthe
valueofanassetorliabilityisanestimatedamountratherthana
predeterminedamountoractualsaleprice.
•Itisthepriceinatransactionthatmeetsalltheelementsofthe
MarketValuedefinitionatthevaluationdate.

40. Conceptual Framework of Market Value
(c)“Onthevaluationdate”requiresthatthevalueistime-specificas
ofagivendate.
•Becausemarketsandmarketconditionsmaychange,the
estimatedvaluemaybeincorrectorinappropriateatanother
time.
•Thevaluationamountwillreflectthemarketstateand
circumstancesasatthevaluationdate,notthoseatanyother
date.

41. Conceptual Framework of Market Value
(d)“Betweenawillingbuyer”referstoonewhoismotivated,butnot
compelledtobuy.
•Thisbuyerisneitherovereagernordeterminedtobuyatany
price.
•Thisbuyerisalsoonewhopurchasesinaccordancewiththe
realitiesofthecurrentmarketandwithcurrentmarket
expectations,ratherthaninrelationtoanimaginaryor
hypotheticalmarketthatcannotbedemonstratedoranticipated
toexist.

42. Conceptual Framework of Market Value
(d)“Betweenawillingbuyer”referstoonewhoismotivated,butnot
compelledtobuy.
•Theassumedbuyerwouldnotpayahigherpricethanthemarket
requires.Thepresentownerisincludedamongthosewho
constitute“themarket”.

43. Conceptual Framework of Market Value
(e)“Andawillingseller”isneitherisneitheranovereagernora
forcedsellerpreparedtosellatanyprice,noronepreparedto
holdoutforapricenotconsideredreasonableinthecurrent
market.
•Thewillingsellerismotivatedtoselltheassetatmarkettermsfor
thepriceattainableintheopenmarketafterpropermarketing,
whateverthatpricemaybe.
•Thefactualcircumstancesoftheactualownerarenotapartof
thisconsiderationbecausethewillingsellerisahypothetical
owner.

44. Conceptual Framework of Market Value
(f)“Inanarm’slengthtransaction”isonebetweenpartieswhodo
nothaveaparticularofspecialrelationship,e.g.,parentand
subsidiarycompaniesorlandlordandtenantthatmaymakethe
priceleveluncharacteristicofthemarketorinflated.
•TheMarketValuetransactionispresumedtobebetween
unrelatedparties,eachactingindependently.

45. Conceptual Framework of Market Value
(g)“Afterpropermarketing”meansthattheassethasbeenexposed
tothemarketinthemostappropriatemannertoeffectits
disposalatthebestpricereasonablyobtainableinaccordance
withtheMarketValuedefinition.
•Themethodofsaleisdeemedtobethatmostappropriateto
obtainthebestpriceinthemarkettowhichthesellerhasaccess.
•Thelengthofexposuretimeisnotafixedperiodbutwillvary
accordingtothetypeofassetandmarketconditions.

46. Conceptual Framework of Market Value
(g)“Afterpropermarketing”meansthattheassethasbeenexposed
tothemarketinthemostappropriatemannertoeffectits
disposalatthebestpricereasonablyobtainableinaccordance
withtheMarketValuedefinition.
•Theonlycriterionisthattheremusthavebeensufficienttimeto
allowtheassettobebroughttotheattentionofanadequate
numberofmarketparticipants.
•Theexposureperiodoccurspriortothevaluationdate.

47. Conceptual Framework of Market Value
(h)“Wherethepartieshadeachactedknowledgeably,prudently”
presumesthatboththewillingbuyerandthewillingsellerare
reasonablyinformedaboutthenatureandcharacteristicsofthe
asset,itsactualandpotentialuses,andthestateofthemarketas
ofthevaluationdate.
•Eachisfurtherpresumedtousethatknowledgeprudentlyto
seekthepricethatismostfavorablefortheirrespectivepositions
inthetransaction.

48. Conceptual Framework of Market Value
(h)“Wherethepartieshadeachactedknowledgeably,prudently”
presumesthatboththewillingbuyerandthewillingsellerare
reasonablyinformedaboutthenatureandcharacteristicsofthe
asset,itsactualandpotentialuses,andthestateofthemarketas
ofthevaluationdate.
•Prudenceisassessedbyreferringtothestateofthemarketatthe
valuationdate,notwiththebenefitofhindsightatsomelater
date.

49. Conceptual Framework of Market Value
(h)“Wherethepartieshadeachactedknowledgeably,prudently”
presumesthatboththewillingbuyerandthewillingsellerare
reasonablyinformedaboutthenatureandcharacteristicsofthe
asset,itsactualandpotentialuses,andthestateofthemarketas
ofthevaluationdate.
•Forexample,itisnotnecessarilyimprudentforasellertosell
assetsinamarketwiththefallingpricesatapricethatislower
thanpreviousmarketlevels.
•Insuchcases,asistrueforotherexchangesinmarketswith
changingprices,theprudentbuyerorsellerwillactinaccordance
withthebestmarketinformationavailableatthetime.

50. Conceptual Framework of Market Value
(i)“Andwithoutcompulsion”establishesthateachpartyis
motivatedtoundertakethetransaction,butneitherisforcedor
undulycoercedtocompleteit.

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105 Valuation
Approaches and
Methods
IVS 2017
Introduction/
Overview
The main approaches used in valuation are all based on the economic
principles of price equilibrium, anticipation of benefits or substitution.
These are the; Market approach; Income approach, and Cost approach.
Considerations in selectinga valuation method (para 10.3):
a)The appropriatebasis(es) and premise(s) of value depending on the
purpose of the valuation,
b)The strengths and weaknesses of the possible approaches and
methods,
c)The nature of the asset and methods used in the relevant market,
and
d)The availability of reliable information.
(General Standards)
IVS 105 Valuation Approaches and Methods

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105 Valuation
Approaches and
Methods
IVS 2017
Market Approach Provides an indication of value by comparingthe asset with
identical or comparable (similar) assets for which price
information is available under the following circumstances:
a)Recent sales,
b)Actively publicly traded assets, and/or
c)Frequent and/or recent observable transactions.
(General Standards)
IVS 105 Valuation Approaches and Methods

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Methods
IVS 2017
Market Approach
Methods
•Units of comparison
1.Real property –price per square meter, rent per square
meter and capitalization rates,
2.Business–earnings before interest, tax, depreciation and
amortization (EBITDA) multiples, earnings multiples,
revenue multiples and book value multiples,
3.Financial instruments –matrix pricing and metrics such as
yields and interest rate spreads.
(General Standards)
IVS 105 Valuation Approaches and Methods

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105 ValuationApproaches
and Methods
IVS 2017
Market Approach
Methods
Key Steps inthe Comparable Transactions Method
a)Identifythe units of comparison,
b)Identify the relevant comparable transaction and calculate
the key valuation metrics,
c)Perform comparative analysis of qualitative and
quantitative similarities and differences between the
subject and comparable assets,
d)Make necessary adjustments,
e)Apply the adjusted valuation metrics to the subject asset,
and
f)If multiple valuation metrics were used, reconcile the
indications of value.
(General Standards)
IVS 105 Valuation Approaches and Methods

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105 Valuation
Approaches and
Methods
IVS 2017
Market Approach
Methods
The choice of comparable transactions should be based on the
following context:
a)Evidence of several transactions is generally preferable to a single
transaction or event,
b)Evidence from similar assets provides a better indication of value
rather than assets where transaction prices require significant
adjustments,
c)Transactions that happen close to valuation date are more
representative of the market than older transactions,
(General Standards)
IVS 105 Valuation Approaches and Methods

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IVS 2017
Market Approach
Methods
The choice of comparable transactions should be based on the
following context:
d)Transactions should be “arm’s-length”,
e)Sufficient information should be available,
f)Information on the comparable transactions should be reliable,
and
g)Actual transactions provide better evidence than intended
transactions.
(General Standards)
IVS 105 Valuation Approaches and Methods

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Approaches and
Methods
IVS 2017
Market Approach
Methods
Adjustments for any material differences between subject and
comparable assets:
a)Material characteristics (age, size, specifications, etc.),
b)Relevant restrictions on either subject or comparable assets,
c)Geographical location and the related economic and regulatory
environments,
d)Profitability or profit–making capability of the assets,
e)Historical and expected growth,
(General Standards)
IVS 105 Valuation Approaches and Methods

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Methods
IVS 2017
Income ApproachProvides an indicationof value by converting future cash flow to a
single current value under the following circumstances:
a)The income –producing ability of the asset is the critical element
affecting value, and/or
b)Reasonable projections of the amount and timing of future
income are available.
(General Standards)
IVS 105 Valuation Approaches and Methods

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0
1
7
105 Valuation
Approaches
and Methods
IVS 2017
Cost
Approach
Provides an indication of value using the economic principle that a buyer will pay
no more for an assetthan the cost to obtain an asset of equal utility, whether by
purchase or by construction, unless undue time, inconvenience, risk or other
factors are involved. It calculates the current replacement or reproduction cost of
an asset, less physical deterioration and other forms of obsolescence, under the
following circumstances:
a)Participants would be able to recreate an asset with the same utility as the
subject asset,
b)The asset is not directly income-generating and the unique nature of the asset
makes using an income approach or market approach unfeasible, and/or
c)The basis of value is fundamentally based on replacement cost.
(General Standards)
IVS 105 Valuation Approaches and Methods

60. I
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105 Valuation
Approaches
and Methods
IVS 2017
Cost
Approach
Methods
Cost Considerations
a)Direct costs -materials and labor
b)Indirect costs -transport costs, installation costs, professional fees (design,
permit, architectural, legal, etc.), other fees (commissions, etc.), overheads,
taxes, finance costs (interest on debt financing, etc.), and profit
margin/entrepreneurial profit to the creator of the asset (return to investors)
Actual, quoted or estimated prices by third party suppliers or contractors already
include the desired level of profit. Adjustments may be made to reflect the
following:
a)Cost fluctuations between the date the cost was incurred and valuation date,
and
b)Any atypical or exceptional costs or savings.
(General Standards)
IVS 105 Valuation Approaches and Methods

61. I
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7
105 Valuation
Approaches and
Methods
IVS 2017
Depreciation/
Obsolescence
Refers to adjustments made to the estimated cost of creating an asset
of equal utility.In financial reporting or tax law, it refers to a method
for systematically expensing capital expenditure over time.
Types of Obsolescence:
a)Physical obsolescence –loss of utility due to physical deterioration
resulting from its age and usage.
1.Curable –cost to fix the obsolescence.
2.Incurable –expected life of the asset in years, mileage, units
produced, etc.
(General Standards)
IVS 105 Valuation Approaches and Methods

62. I
V
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1
7
105 Valuation
Approaches and
Methods
IVS 2017
Depreciation/
Obsolescence
Types of Obsolescence:
b)Functional obsolescence –loss of utility resulting from
inefficiencies in the subject asset.
1.Excess capital cost –caused by changes in design, construction
materials, technology or manufacturing techniques resulting in
the availability of modern equivalent assets with lower capital
costs, and
2.Excess operating cost –caused by improvements in design or
excess capacity resulting in the availability of modern equivalent
assets with lower operating costs.
(General Standards)
IVS 105 Valuation Approaches and Methods

63. I
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7
105 Valuation
Approaches and
Methods
IVS 2017
Depreciation/
Obsolescence
Types of Obsolescence:
c)External or economic obsolescence –loss of utility caused by
economic or locational factors. For real estate, examples of
economic obsolescence include:
1.Adverse changes to demand for the products or services
produced by the asset,
2.Oversupply in the market for the asset,
3.A disruption or loss of a supply of labor or raw material, or
4.The asset being used by a business that cannot afford to pay a
market rent for the assets and still generate a market rate of
return.
(General Standards)
IVS 105 Valuation Approaches and Methods

64. I
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2
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1
7
105 Valuation
Approaches and
Methods
IVS 2017
Depreciation/
Obsolescence
Considerations:
a)Physical life –how long the asset could be used before it would be
worn out or beyond economic repair.
b)Economic life –how long it is anticipated that the asset could
generate financial returns or provide non-financial benefit in its
current use.
Cash or cash equivalents do not suffer obsolescence and are not
adjusted.
(General Standards)
IVS 105 Valuation Approaches and Methods

65. I
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2
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300 Plant and
Equipment
IVS 2017
Overview The principles contained in the General Standards apply to
valuations of plant and equipment. This standard includes
modifications, additional principles or specific examples to
which this standard applies.
Introduction Plant and equipment (sometimes categorized as a type of
personal property) are tangible assets held by an entity for
use in the manufacturing, production or supply of goods or
services; for rental by others; or for administrative purposes
that are expected to be used over a period of time.
(Asset Standards)
IVS 300 Plant and Equipment

66. I
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1
7
300 Plant and
Equipment
IVS 2017
Introductiona)Asset-related:
1.The asset’s technical specification,
2.The remaining useful, economic or effective life, considering
both preventive and predictive maintenance,
3.The asset’s condition, including maintenance history,
4.Any functional, physical and technological obsolescence,
5.If not valued in its current location, the cost of
decommissioning and removal, and any costs associated with
the asset’s in-place location, such as installation and re-
commissioning of assets to its optimum status.
(Asset Standards)
IVS 300 Plant and Equipment

67. I
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2
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1
7
300 Plant and
Equipment
IVS 2017
Introduction 6.For rental purposes, the lease renewal options and other
end-lease possibilities,
7.Any potential loss of a complimentary asset,
8.Additional costs (additional equipment, transport, installation,
etc.), and
9.References from the Engineering, Procurement, Construction
(EPC) contract.
(Asset Standards)
IVS 300 Plant and Equipment

68. I
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2
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1
7
300 Plant and
Equipment
IVS 2017
Introduction•Typical assumptions on plant and equipment:
a)Assets are valued as a whole, in place and as part of an operating
business.
b)Assets are valued as a whole, in place but the business is not yet
in production.
c)Assets are valued as a whole, in place but the business is closed.
d)Assets are valued as a whole, in place but it is a forced sale.
e)Assets are valued as individual items for removal from their
current location.
(Asset Standards)
IVS 300 Plant and Equipment

69. I
V
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2
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1
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300 Plant and
Equipment
IVS 2017
Introduction •Valuation reports on plant and equipment must comment
on the effect of any associated tangible or intangible assets
(e.g. operating software for a machine etc.) on the reported
value.
Bases of Value The valuer must select the appropriate basis(es) of value in
accordance with IVS 104 Bases of Value.
(Asset Standards)
IVS 300 Plant and Equipment

70. I
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2
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1
7
300 Plant and
Equipment
IVS 2017
Valuation
Approaches
and Methods
•Market Approach
Commonly used for classes of plant and equipment that are homogeneous (e.g.
motor vehicles, certain types of office equipment,etc.) due to sufficient data of
recent sales of similar assets; cannot be used for specialized plant and equipment.
•Income Approach
Must consider thecash flows expected to be generated over the life of the asset
and the value of the asset at the end of its life.
Somecash flows may be attributable to intangible assets and difficult to separate
from the cash flow contribution of the plant and equipment.
It can be utilized in assessing the existence and quantum of economic
obsolescence.
Care must be exercised to ensure that the elements of value relating to intangible
assets, goodwill and contributory assets are excluded.
(Asset Standards)
IVS 300 Plant and Equipment

71. I
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1
7
300 Plant and
Equipment
IVS 2017
Valuation
Approaches
and Methods
•Cost Approach
Commonly adopted in the case of individual assets that are specialized or
special-use facilities.
Estimate the cost to a market participant of replacing the subject asset by
reference to the lower of eitherthe cost ofreproduction(exact replica) or
replacement (cost of obtaining analternative asset of equivalent utility).
The value should be adjusted to reflect the impact of physical, functional,
technological and economic obsolescence.
The adjusted replacement cost should be the same cost as the modern
equivalent asset from an output and utility point of view.
(Asset Standards)
IVS 300 Plant and Equipment

72. I
V
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400 Real
Property Interests
IVS 2017
Overview The principles contained in the General Standards apply to valuations of
real property interests. This standard contains additional requirements.
IntroductionProperty interests are normally defined by state or the law of individual
jurisdictions and are often regulated by national or local legislation.
A real property interest is a right of ownership, control, use or occupation
of land and buildings.
Intangible assets may have a material impact on the value of real property
assets.
The immovability of land and buildings means that it is the right that a
party holds that is transferred in an exchange, not the physical land and
buildings.
(Asset Standards)
IVS 400 Real Property Interests

73. I
V
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2
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1
7
400 Real
Property Interests
IVS 2017
IntroductionTypes of interest:
a)Superior interest –absolute right of possession and control of the land
and anybuildings upon it in perpetuity.
b)Subordinate interest –rights of exclusive possession and control of a
defined area of land or buildings for a defined period.
c)Right to use land or buildings but without aright of exclusive
possession or control.
(Asset Standards)
IVS 400 Real Property Interests

74. I
V
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2
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1
7
400 Real
Property Interests
IVS 2017
IntroductionRequirements in property identification:
a)Description of the real property,and
b)Identification of any superior or subordinate interest.
Typical examples of special assumptions:
a)Physical change has occurred (e.g. a proposed building is valued as if
complete on valuation date),
b)Change in the status of the property (e.g. a vacant building has been
leased at the valuation date),
c)The interest is being valued without taking into account other existing
interests, and
d)The property is free from contamination and other environmental risks.
(Asset Standards)
IVS 400 Real Property Interests

75. I
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2
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400 Real
Property Interests
IVS 2017
Bases of ValueThe valuer must select the appropriate basis(es) of value in accordance
with IVS 104 Bases of Value.
Valuation
Approaches
and Methods
•Market Approach
Units of comparison:
a)Price per square meter or per hectare,
b)Price per room, and
c)Price per unit of output, e.g. crop yield.
(Asset Standards)
IVS 400 Real Property Interests

76. I
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7
400 Real
Property Interests
IVS 2017
Valuation
Approaches
and Methods
Specific differences that should be considered:
a)Typeof interest,
b)Location,
c)Quality of the land or age and specification of the buildings,
d)Permitted use or zoning,
e)Basis of value,
f)Effective date of the price evidence andthe valuation date, and
g)Market conditions at the time of the relevant transactions and how
they differ from conditions at the valuation date.
(Asset Standards)
IVS 400 Real Property Interests

77. I
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400 Real
Property Interests
IVS 2017
Valuation
Approaches
and Methods
•Income Approach
The value is based upon actual or estimated income generated by the
owner of the interest. For an investment property, the form of income is
rent. For an owner-occupied property, it is rent saved on what it would
cost to lease equivalent space. If the income generating ability is closely
tied to a particularbusiness or trading activity (e.g. hotels, golf courses,
etc.), income is related to actual of potential cash flows. The use of a
property’s trading potential is referred to as profits method.
Discounted cash flow models may be used. The sum of present day values
represents an estimate of the capital value.
The discount rate will be based on the time cost of money and the risks
and rewards of the income stream.
(Asset Standards)
IVS 400 Real Property Interests

78. I
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2
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1
7
400 Real
Property Interests
IVS 2017
Valuation
Approaches
and Methods
•Cost Approach
This is generally applied to the valuation of real property interests through
the depreciated replacement cost method.
It may be used as the primary approach when there is either no evidence
of transaction prices for similar property or no identifiable actual or
notional income stream is available.
Itmay be used as a secondary or corroborating approach when market
transaction prices or income stream is available.
(Asset Standards)
IVS 400 Real Property Interests

79. I
V
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2
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1
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410 Development
Property
IVS 2017
IntroductionDevelopment properties are defined as interests where redevelopment is
required to achieve the highest and best use, or where improvements are
being contemplatedor are in progress at the valuation date such as;
a)Construction of buildings,
b)Undeveloped land provided with infrastructure,
c)Redevelopment,
d)Improvement of existing buildings,
e)Land allocated for development in a statutory plan, and
f)Land allocated for a higher value uses or higher density in a statutory
plan.
(Asset Standards)
IVS 410 Development Property

80. I
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410 Development
Property
IVS 2017
IntroductionExamples of circumstances requiring developmentvaluation:
a)When establishing whether proposed projects are financially feasible,
b)As part of general consulting and transactional support engagements
for acquisition and loan security,
c)For tax reporting purposes (ad valorem taxation analysis),
d)For litigation requiring valuation analysis (shareholder disputes and
damage calculations),
e)For financial reporting purposes (accounting for business combinations,
asset acquisition and sales, and impairment analysis), and
Asset Standards
IVS 410 Development Property

81. I
V
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2
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1
7
410 Development
Property
IVS 2017
IntroductionExamples of circumstances requiring developmentvaluation:
f)For other statutory or legal events (compulsory purchases).
The residual value of a development property is sensitive to changes in
assumptions, projections of income and development costs.
(Asset Standards)
IVS 410 Development Property

82. I
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410 Development
Property
IVS 2017
IntroductionThe valuer must highlight the potentially disproportionate effect of
possible changes in either the constructions costs or end value on the
profitability of the project and the value of the partially completed
property.
A sensitivity analysis may be useful for this purpose.
Bases of ValueThe valuer must select the appropriate basis(es) of value in accordance
with IVS 104 Bases of Value.
(Asset Standards)
IVS 410 Development Property

83. I
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2
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1
7
410 Development
Property
IVS 2017
Valuation
Approaches
and Methods
•Market Approach
Some types of development property can be homogenousand frequently
exchanged in a market for there to be sufficient data from recent sales to
use as a direct comparison.
May have limitations for larger or more complex development property.
More problematic for development property where work on the
improvements are still incomplete.
May be appropriate for establishing the value of a completed property as
one of the inputs required under the residual method.
(Asset Standards)
IVS 410 Development Property

84. I
V
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2
0
1
7
410 Development
Property
IVS 2017
Valuation
Approaches
and Methods
•Income Approach
Establishing the residual value of a development property may involve the
use of a cash flow model.
•Cost Approach
Development cost is a key component of the residualmethod.
The cost approach is based on the economic principle that a buyer will
pay no more for an asset than the amount to create an asset of equal
utility.
(Asset Standards)
IVS 410 Development Property

85. I
V
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2
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1
7
410 Development
Property
IVS 2017
Special
Considerations
for
Development
Property
•Residual Method
A hybrid of the market, income and cost approach, based on the
completed “gross development value” less development costs and the
developer’s return.
It indicates the residual amount after deducting all known or anticipated
costs required from the anticipated value of the project when completed,
considering associated risks.
Can be highly sensitive to small changes in the forecast cash flow. Caution
is required because of the sensitivity of the result to changes in many
inputs. Models used vary in complexity and sophistication, allowing for
greater granularity of inputs, multiple development phases and
sophisticated analytical tools.
(Asset Standards)
IVS 410 Development Property

86. Part II: Philippine Context
Focusing on Valuation for
Taxation and Other Purposes

87. The contextualization to the Philippine setting was interspersed with the IVS 2007
manuscript which became the 1
st
Edition of the Philippine Valuation Standards (PVS) 2009.
For PVS 2
nd
Edition, 2018, while IVS 2017 was adopted in toto in the first part, Part II
contains the Philippine Context Focusing on Valuation for Taxation and Other Purposes.
Part II contains contextual discussion to clarify and explain any departure from the latest IVS
considering the recent changes in the Philippines’ legal and statutory framework. It takes
into account existing laws, rules and regulations pertaining to national and local valuation
for taxation and other purposes.
A departure from the IVS as a result of existing legislative, regulatory or other authoritative
requirements in the Philippines is permitted in valuations performed in accordance with IVS.

88. CONTENTS -PVS 2
nd
Edition, 2018
Introduction
Glossary
Framework
•PVS 101 Scope of Work
•PVS 102 Investigations and Compliance
•PVS 103 Reporting
•PVS 104 Bases of Value
•PVS 105 Valuation Approaches and Methods
General Standards
•PVS 300 Plant, Machinery and Equipment
•PVS 400 Real Property Interests
•PVS 410 Development Property
•Valuation for Taxation Purposes
•References for Valuation of Property for Other Purposes
Asset Standards
Part II
Philippine Context
Focusing on
Valuation for
Taxation and
Other Purposes

89. Part II: Philippine Context
Valuer UnderRESA,professionalrealestateappraisers,includinglocal
governmentassessors,requireRealEstateAppraiserLicense,
whichisgrantedbythePRCthroughalicensureexaminationor
byregistrationwithoutexaminationduringtheearlypartof
RESAimplementation.
Competence ThePRC,throughthePRBRES,shallformulatetheoperational
guidelinesintheimplementationofRANo.10912,ortheCPD)
Actof2016.
Framework

90. 101 Scope of
Work
Part II: Philippine Context
Identity of the
valuer
Thevaluermaybetheassessor,appraiserorappraisal
committeeorotherindividualsperformingvaluationfortaxation
andotherpurposes.
Identity of
clients
UnderIVS101,Section20,GeneralRequirements,para.20.1
(b),confirmationofthoseforwhomthevaluationassignmentis
beingproducedisimportantwhendeterminingtheformand
contentofthereporttoensurethatitcontainsinformation
relevanttotheirneeds.InthePhilippines,property
owners/administrators,localgovernmentunits,national
agencies,andotherinterestedpartiesaretheclients.
(General Standards)
PVS 101 Scope of Work

91. 101 Scope of
Work
Part II: Philippine Context
Identity of
other intended
users
Otherusersofvaluationreportsarepublicandtheprivate
sectordependinguponthepurposeoftheappraisal.
Asset(s)/
Properties
being valued
Theidentityoftherealestatebeingvaluedshallincludeland,
building,machineriesandotherimprovements.
The valuation
currency
ThePhilippinepesoisthestandardvaluationcurrency,unless
otherwisestated.
(General Standards)
PVS 101 Scope of Work

92. 102 Investigations
and Compliance
Part II: Philippine Context
InvestigationsFortheLocalGovernmentUnits,theMRPAAO,issuedunderLocal
AssessmentRegulationsNo.1-04,prescribestheprocess,proceduresand
requirementsfortheappraisalofland,building,andotherimprovements,
andmachineries,whichincludesgatheringofdataandotherevidences,and
inspectionofproperty,toensurethatthevaluationisproperlysupported.
Forothernationalagencies,suchastheBIR,investigationandcollectionof
informationshouldbeinaccordancewiththeirowninternalpoliciesand
regulations.
Valuation
Record
ThelocalassessorshallmaintaintheprescribedformsundertheMRPAAO.
Othergovernmentagenciesandstakeholdersshallmaintainandkeeptheir
valuationrecordsinaccordancewiththeirestablishedpoliciesand
procedures.
(General Standards)
PVS 102 Investigations and Compliance

93. 103 Reporting Part II: Philippine Context
Valuation
Reports
Valuationreportscanbecategorizedinto:
a)Narrativereports,eitherlongorshort,preparedbylicensedappraisersor
localassessorsandtheprovincial/cityappraisalcommittee;b)Scheduleof
realpropertyvaluessuchasScheduleofFairMarketValue(SMFV)and
ZonalValue(ZV);c)Formreportsprescribedbyappropriategovernment
agencies;andd)Oralreportsordepositionsduringtestimoniesbefore
adjudicatoryorcollegialbodies.
Valuation
Review
Reports
Valuationreviewreportsshouldbeconductedbycompetentandlicensed
appraiserexercisingimpartialjudgment,orinaccordancewithSection28of
RESA.Thevaluationreviewreportshouldcontainthescopeofreview,
documentsreviewedintermsofformandcontent,findingsandcomments,
includingrecommendations,andthedateofreview.
(General Standards)
PVS 103 Reporting

94. 104 Bases
of Value
Part II: Philippine Context
Defined
Basis of
Value –Fair
Market Value
Fairmarketvalueisdefinedas“thepriceatwhichapropertymaybe
soldbyasellerwhoisnotcompelledtosellandboughtbyabuyer
whoisnotcompelledtobuy”.[Section199(l),RANo.7160]
Premise of
Value –
Actual/Predo
minant Use
RealPropertyshallbeclassified,valuedandassessedonthebasisof
itsactualuseregardlessofwherelocated,whoeverownsit,and
whoeverusesit.(Section217,RANo.7160).“ActualUse”referstothe
purposeforwhichthepropertyisprincipallyorpredominantlyutilized
bythepersoninpossessionthereof.[Section199(b),RANo.7160]
(General Standards)
PVS 104 Bases of Value

95. 104 Bases
of Value
Part II: Philippine Context
Market
Approach
ItisalsoknownasMarketDataApproachwhichissynonymousto
ComparativeorComparableSalesApproach.Thisisanappraisalprocedure
inwhichthemarketvalueestimateispredicateduponpricespaidinactual
markettransactionsandcurrentlistings.
Income
Approach
ItisalsoknownasIncomeCapitalizationApproach.Itisadirectapproachto
estimatethevalueofproperty.Itisbasedonthetheorythatthevalueofan
income-producingpropertyisnomorethanthereturnderivedfromit.
Cost ApproachCostApproachisalsoknownastheReproduction/ReplacementCostNew
(RCN)Approach,whichisafactualapproachusedexclusivelyinappraising
man-madeimprovementssuchasbuildingsandotherstructures.
(General Standards)
PVS 104 Bases of Value

96. 300 Plant,
Machinery and
Equipment
Part II: Philippine Context
Valuation of
Machinery
Theappraisalandassessmentofmachineryforrealpropertytaxpurposesis
providedunderSection224oftheRANo.7160whichstates:
(a)Thefairmarketvalueofbrand-newmachineryshallbetheacquisition
cost.Inallothercases,thefairmarketvalueshallbedeterminedby
dividingtheremainingeconomiclifeofthemachinerybyitsestimated
economiclifeandmultipliedbythereplacementorreproductioncost.
(b)Ifthemachineryisimportedtheacquisitioncostincludesfreight,insurance
andothercharges,brokerage,arrastreandhandling,dutiesandtaxes,
pluscostofin-landtransportation,handling,andinstallationchargesatthe
presentsite.
(General Standards)
PVS 300 Plant, Machinery and Equipment

97. 300 Plant,
Machinery and
Equipment
Part II: Philippine Context
Valuation of
Machinery
Acquisitioncostfornewlyacquiredmachinerynotyetdepreciatedand
appraisedwithintheyearofitspurchase,referstotheactualcostofthe
machinerytoitspresentownerplusthecostoftransportation,handling,and
installationatthepresentsite.[Section199(a),RANo.7160]
ThevaluationofPlant,Machinery,EquipmentandFacilitiesofRenewable
EnergypursuanttoChapterVII(c)ofRANo.9513,otherwiseknownas
RenewableEnergyActof2008,shallbetheoriginalcostlessaccumulated
normaldepreciationornetbookvalue.
(Asset Standards)
PVS 300 Plant, Machinery and Equipment

98. 400 Real
Property
Interest
Part II: Philippine Context
Real Property
Interest
Realpropertyreferstoalltherights,interestsandbenefitsrelatedtothe
ownershipofrealestate.Theserightsarelumpedintoa“bundleof
rights.”[p.xii,MassAppraisalGuidebook(MAG)]
Legal Bases
for the
Valuation of
Real Property
PursuanttoSection201oftheRANo.7160,theDOFshallpromulgate
thenecessaryrulesandregulationsfortheclassification,appraisaland
assessmentofrealpropertyintheformofDepartmentOrder,LARand
otherformofissuances.
(Asset Standards)
PVS 400 Real Property Interest

99. 400 Real
Property
Interest
Part II: Philippine Context
Modes of
Acquiring
Ownership of
Real Property
TheCivilCodeofthePhilippines(RANo.386)enumeratesthemodeof
acquiringownershipofrealpropertyunderArticle712,BookIII,thereof:
(a)Occupation;(b)Intellectualcreation;(c)Bylaw;(d)Bydonation;(e)
Bytestateandintestatesuccession;(f)Inconsequenceofcertain
contracts;(g)Bytradition;and(h)Bymeansofprescription.
Classes of
Real Property
for
Assessment
Purposes
Forpurposesofassessment,realpropertyshallbeclassifiedasthe
following:(a)Residential,(b)Agricultural,(c)Commercial,(d)Industrial,
(e)Mineral,(f)Timberland,or(g)Special.
(Asset Standards)
PVS 400 Real Property Interest

100. 410
Development
Property
Part II: Philippine Context
Development
Property
ValuationofDevelopmentPropertyfortaxationpurposesmustfollow
thePVS400RealPropertyInterestsonAssetStandards.However,
valuationforotherpurposesmustrefertoIVS410Development
PropertyonAssetStandards.
(Asset Standards)
PVS 410 Development Property

101. Valuation for Taxation Purposes
Introduction
Valuation, also known as appraisal, refers to the systematic, analytic and logical
analysis of the recording of property facts, circumstances, investments and
other relevant data resulting in a supportable estimate or professional opinion of
the value of the property as of a specific date and for a specific purpose. The
valuation of real properties shall be used as basis for property taxation.

102. Valuation for Taxation Purposes
REAL PROPERTY VALUATION
Valuation Practice
RA No. 9646 declares the policy of the State to recognize the “vital role of real
estate service practitioners in the social, political, economic development and
progress of the country by promoting the real estate market, stimulating
economic activity and enhancing government income from real property -based
transactions. Hence, it shall nurture through proper and effective regulation and
supervision a corps of technically competent, responsible and respected
professional real estate service practitioners whose standards of practice and
service shall be globally competitive and will promote the growth of the real
estate industry.”
Real Estate Service Practitioners, pursuant to RA No. 9646, consist of the
following: (a) Real estate consultant; (b) Real estate appraiser; (c) Real estate
assessor; (d) Real estate broker; and (e) Real estate salesperson

103. Valuation for Taxation Purposes
Authority of the Department of Finance
The Department of Finance promulgates the necessary rules and regulations for
the classification, appraisal, and assessment of real property pursuant to the
provisions of the LGC of 1991. (Section 201, RA No. 7160)
Preparation of Schedule of Market Value
The preparation of the SMV is a mass appraisal process which facilitates the
appraisal of multiple properties at a given date by a systematic and uniform
application of appraisal methods and techniques. The blend of cost and sales/direct
comparison approaches to value may be used as technique for preparing the SMV.
Zonal Valuation
The Commissioner of the BIR has the authority to prescribe real property values
pursuant to Section 4 of the TRAIN, or RA No. 10963, which amended Section 6(E)
of the National Internal Revenue Code (NIRC).

104. Valuation of Property for Other Purposes
Introduction
This section serves as a reference for valuation of property for other
governmental purposes. For other purposes not herein listed, reference must
be made to the applicable Standards under Part I hereof.
Creation of Appraisal Committee
National government agencies and other instrumentalities also have their own
internal appraisers, and may create their own appraisal committee depending
on the nature of their agency, and the specific mandate functions and
authorities.

105. Valuation of Property for Other Purposes
Acquisition of Private Property
National and local governments, GOCCs, and instrumentalities of government
may acquire private properties for government programs and projects.
•Agricultural Land Valuation and Landowner Compensation
•Valuation of Lands for Socialized Housing

106. Valuation of Property for Other Purposes
Valuations of Private Lands for Acquisition by the Government
Valuation of private land for acquisition of the national government for road
right-of-way (RROW) shall be governed by the provisions of Sections 5, 6 and 7
of RA No. 10752, an Act Facilitating the Acquisition of Right-of-Way Site or
Location for National Government Infrastructure Projects, and its implementing
rules and regulations.
Valuation of private lands for acquisition of local governments shall be through
the power of Eminent Domain as provided for in Section 19 of RA No. 7160.
Local governments may adopt the prescribed procedures in Sections 5, 6, and
7 of RA No. 10752. Otherwise, they shall be guided by Executive Order No.
132, series of 1937, as amended, which provides the procedures to be followed
in the acquisition of private property for public use and creating appraisal
committees.

107. Valuation of Property for Other Purposes
Valuation for Disposition of Properties
Appraisal of Public Lands and Other Patrimonial Property
The specific provisions of Section 3 of Department of Environment and Natural
Resources (DENR) Administrative Order (AO) No. 98-20 are presented as
follows:
Manner of Conducting the Appraisal –In conducting the appraisal or
reappraisal, the fair market value of the property shall, as much as possible, be
ascertained by considering the following factors, to wit:
a) Extent, classification, location, actual use and development trends of the
area; b) Assessed value and BIR zonal valuation; c) Sales and holding prices of
lands of similar character located in the area; d) Highest and best use or
potential of the property; e) The purpose for which the property is to be
disposed of; and f) Other relevant factors or circumstances.

108. Valuation of Property for Other Purposes
If the zonal value is not available, the fair market value or the current selling
price of properties of similar character in the area as determined by the
Assessor’s Office concerned, shall be utilized. The foregoing, notwithstanding,
part or parts not exceeding thirty percent (30%) of its total area, of industrial or
commercial land covered by lease application or contract, which are devoted to
and actually utilized for growing of trees, shall be appraised or re-appraised at
zero value.
Valuation for Other Purposes
Valuation for other purposes by other government agencies shall be guided by
the standards, subject their respective governing laws, rules and regulations
and procedures.

109. Appraisal and the
Appraisal Process

110. Definition of Appraisal/Valuation
•Valuation–adeterminationofthemonetaryvaluesatsome
specifieddateofthepropertyrightsencompassedinanownership
•Appraisal–statedresultofvaluingaproperty,makingacost
estimate,forecastingearnings,oranycombinationoftwoormore
ofthesestatedresults.Itisalsoanactofvaluing,estimatingcost
orforecastingearnings.

111. Definition of Valuation/Appraisal
•Valuationalsoknownasappraisalreferstothesystematic,analytic
andlogicalanalysisoftherecordingofpropertyfacts,
circumstances,investmentsandotherrelevantdataresultingina
supportableestimateorprofessionalopinionofthevalueofthe
propertyasofaspecificdateandforaspecificpurpose.

112. Other Definitions
•Costestimation–anestimateoftheamountofmoneythatwould
berequiredatsomespecifieddate,toconstruct,produce,replace
orreproducesometangibleand/ortangiblething,withoutregard
toitsownership
•Earningsforecast–anestimateorforecastofthefuturenet
monetaryreturns,deliverablefromsomethingownedor
consideredasbeingowned

113. Other Definitions
•Therefore,appraisalisanestimateoropinionofvalue,wherean
estimateisNOTa:
•Statementofvalue
•Determinationofvalue
•Fixingofvalue

114. Other Definitions
•Anappraisalisonlyoneperson’sopinionofvalue
•Differentappraisersmayarriveatdifferentestimates
•Theaccuracyandusefulnessofthevalueestimatedependsonthe
appraiser’sskill,experienceandjudgment

115. IVS Definition of Market Value
•MarketValue-definedas“theestimatedamountforwhichan
assetorliabilityshouldexchangeonthedateofvaluationbetween
awillingbuyerandawillingsellerinanarm’s-lengthtransaction
afterpropermarketingwhereinthepartieshadeachacted
knowledgeably,prudentlyandwithoutcompulsion”.

116. The final value
estimate,
when stated as
a single figure
is traditionally
called a point
estimate. This
figure is the
appraiser’s
best estimate
of the value of
the property.
Report Estimate(s) of
Value(s) As Defined
Reconciliation
is the analysis
of alternative
conclusions to
arrive at a final
value estimate
Reconcile Value
Indicators
Estimated
Land/Site
Value (As
Defined)
Market
Approach
Income
Capitalization
Residual
Method
Estimated
Improved
Property Value
(As Defined)
Cost Approach
Market
Approach
Income
Capitalization
Estimated Market
Values
Land as if Vacant
and Available
Property as
Improved (Existing
or Proposed)
Definition of
Highest and Best
Use -the
reasonably
probable and legal
use of vacant land
or an improved
property; which is
physically possible,
appropriately
supported,
financially feasible,
and that results in
the highest
ESTIMATE HIGHEST
AND BEST USE
Subject Property
Competitive
Properties
Property Analysis
Comparison
Analysis
Site Improvements
Sales
Size Rentals
Age and Condition
Costs
Location Elements
of Comparison
Legal (Title, Use)
Units of
Comparison
SELECT AND COLLECT
DATA
General
Market Analysis
Demand
Components
Supply
Components
Trends
Forecasts
PRELIMINARY
ANALYSIS AND PLAN
Identify and Locate
the Real Estate
Identify the
Property Rights to
be Valued
Establish the
Date(s) of Value
Estimate(s)
Identify the Use of
the Appraisal
Define the Value (s)
to be Estimated
Identify Limiting
Conditions or
Limitations
DEFINE THE
APPRAISAL PROBLEM
Appraisal Process

117. Practice of Real Property
Valuation/Appraisal in the Philippines
•The practice of real property appraisal in the Philippines is subject to
regulation as promulgated under Republic Act 9646 or the Real Estate
Service Act.
•Covered under the act are appraisers and assessors as duly defined in the
Act.
•The Professional Regulation Commission (PRC), Professional Regulatory
Board of Real Estate Services (PRBRES) is the government body tasked with
providing comprehensive policy guidelines; conduct of licensure
examinations; issue, suspend, revoke or reinstate, after due notice and
hearing, CR’s and professional ID’s; maintain a register of licensed real estate
service practitioners; monitor the conditions affecting the practice of real
estate service; and adopt a National Code of Ethics and Responsibilities
issued by the AIPO;

118. Practice of Real Property
Valuation/Appraisal in the Philippines
•Under RESA, all assessors and assistant assessors should be licensed
real property appraisers.
•Bureau of Local Government Finance (BLGF) of the Department of
Finance (DOF) as part of its mandate is tasked with providing
consultative services and technical assistance to the local government
and the general public on local taxation, real property assessment and
other related matters

119. Part III: Guidance Notes

120. International Valuation Standards (IVS) 2007, which was
adopted by the Philippine Valuation Standards (PVS) 2009
included guidance notes.
Guidance Notes are issues that relate to the application of
the Standards that frequently arise in valuation practice
and from those who use valuation services.
The Guidance Notes provide guidance on specific valuation
issues and how Standards are to be applied in more specific
business and service-providing situations. The Guidance Notes
complement and expand on the Standards and Applications,
with which they have equal importance.

121. IVS 2007/PVS 2009 included fifteen (15) guidance notes.
In the succeeding editions of IVS, the guidance notes were
removed for various reasons.
Either the elements were carried forward and merged with
other relevant topics/sections or the IVSC produced revised
Technical Information Papers (TIP) on the topics.
After the consultants deliberated on which portions of the PVS
2009 are still valid with regards to valuation practice in the
Philippines, eight (8) guidance notes were prepared and which
form part of the PVS 2017.

122. CONTENTS -PVS 2
nd
Edition, 2018
•Part I IVS 2017 (In toto)
•Part II Philippine Context –
Annotations to IVS 2017
•Part III Guidance Notes
PVS GN100 Mass Appraisal for Property Taxation
PVS GN 200 Valuation of Agricultural Properties
PVS GN 300 Reviewing Valuations
PVS GN 400 Valuation of Properties in the Extractive
Industries
PVS GN 500 Valuation of Historic Property
PVS GN 600 Consideration of Hazardous and Toxic
Substances in Valuation
PVS GN 700 Valuation of Trade Related Property
PVS GN 800 Valuation for Compulsory Acquisition

123. CONTACT US:
Bureau of Local Government Finance
[phone] / [phone]
[email protected]