Real Estate Appraisal is the process of valuing real property. The value usually sought is the property’s Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently. Not only that, but every property is different from the next, a factor that doesn’t affect assets like corporate stock. Furthermore, all properties differ from each other in their location – which is an important factor in their value.
One of the first steps undertaken during a real estate engagement is to carry out an appraisal of the property involved. Appraisals are generally conducted when a prospective buyer-investor wants to know the Fair Price with which a property can be obtained or when a seller seeks for advice regarding the price range a specific property can command.
There are several types of definitions of value sought by a real estate appraisal. Some of the most common are:
- Market value – In International Valuation Standards (IVS) definition, it is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer a willing seller in an arm’s length transaction, after proper marketing where the parties had each acted knowledgeably, prudently without compulsion.
- Value-in-use is the net present value (NPV)of a cash flow that an asset generates for a specific owner under a specific use.
- Investment value – in IVS definition, it is the value of an asset to the owner or a prospective owner for individual investment or operational objectives.
- Insurable value - is the value of real property covered by an insurance policy.
- Liquidation value - may be analyzed as either a forced liquidation or an orderly liquidation is a commonly sought standard of value in bankruptcy proceedings.
A professional Real Estate Appraiser, Mr. Ramon CF Cuervo III shares, his insights about the real estate appraisal. “Real Estate Appraisal is a very important job of real estate services because no two or more properties are alike. Due to its importance, the Real Estate Appraiser should be a professional, as required by the Philippine law, in tendering written report and advice on the value of a property,” he said.
The Republic Act 9646, sec. 3 (a) defines that “Appraiser, also known as Valuer, refers to a person who conducts valuation/appraisal; specifically , one who possesses the necessary qualifications, license, ability, and experience to execute or direct the valuation/appraisal of real property.”
Also, in Section 3 of the Real Estate Service Act Law (RESA Law), it states that “The act of rendering an opinion of value is the person who shall be licensed under the Professional Regulation Commission and the Professional Board of Real Estate Service.”
As further defined on sec. 3 (g) Real Estate Practitioners shall refer to and consist of the following:
Real Estate Consultant- a duly registered and licensed natural person who, for a professional fee, compensation or other valuable consideration, offers or renders professional advice and judgment on (i) the acquisition, enhancement, preservation, utilization or disposition of lands or improvements thereon; and (ii) the conception, planning, management and development of real estate projects.
Real Estate Appraiser- a duly registered and licensed NATURAL PERSON who, for a Professional fee compensation or other valuable consideration, performs or renders, or offers to perform services in estimating and arriving at an opinion of or acts as an expert on real estate values, such services of which shall be finally rendered by the preparation of the report in acceptable written form.
“My Advocacy is the proper recognition, accreditation, acceptance, and due respect given to the privileged professional,” Mr. Cuervo explained.
He is referring to the Sec. 2 of R.A. 9646, stating that the Declaration of Policy states that the State recognizes the vital role of real estate 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.
“It is therefore my concern and responsibility, as member of the Board of Real Estate Service to see to it that this law is properly followed. However, there is a dilemma whereby government agencies, corporations, including the Banko Sentral ng Pilipinas (BSP) and the Security and Exchange Commission (SEC) to accredit only Corporate Practice,” he said.
The SEC requirements for the accreditation of Real Estate Appraisers under SEC Memorandum No. 4, series of 2010, entitled, “Guidelines on Property Valuations, states that an appraisal company is defined as a corporation or partnership engaged in the appraisal business and employs a property valuer to conduct valuations of properties of its clients. The Circular also requires that for valuation of real properties relative to transaction of a REIT, the appraisal company or property valuer shall use the income capitalization approach, as provided for in paragraphs 5.12.2 to 5.12.6 of GN1-Real Property Valuations of the Property Valuations Standards.
For BSP, the following requirements are required for BSP Accreditation: SEC Accreditation, GIS (General Information Sheet), latest Audited Financial Statement, Mayor’s permit, BIR Certification, Tax Clearance/Registration, ITR, Business Permit, PARA (or maybe even IPREA whichever you are affiliated with) Certification of Good Standing, List of Officers and Technical Personnel including curriculum vitae and certifications, Company Profile, Scope of Services, List of Present Clientele, Minimum of 5 years existing company with licensed officer, and have rendered professional service to at least one commercial bank and two public companies.
Mr. Cuervo views these requirements as prejudice and discriminating to the Real Estate Appraisers because according to Section 32 of R.A. 9646, the conditions for Corporate Practice of the Real Estate Service are:
(a) No partnership or corporation shall engage in the business of real estate service unless it is duly registered with SEC and the persons authorized to act for the partnership or corporation are all duly registered and licensed real estate brokers, appraisers or consultants, as the case may be. The partnership or corporation shall regularly submit a list of its real estate service practitioners to the Commission and to the SEC as part of its annual reportorial requirements.
“Since this is a profession whose subject is the person, it is logical that these corporations and/ or partnerships be owned, managed and controlled by duly licensed real estate appraisers. Just in the case of accountants, lawyers, medical doctors, it is the professional who owns, runs and manages the corporation. It is a professional service, not a trade or business,” he said.
He said this because the practice that is being done today is that corporations are formed, owned, managed, controlled by a majority of shareholders that are not professionals, nor do they have the appropriate license.
“The appraisal practice due to the SEC regulations has made it almost impossible to reform valuations as an individual. Presently, there are about 3,000 licensed real estate appraisers but only ten corporations are accredited,” he said.
He added that this situation allowed investors to use (or even abuse) the individual appraiser as mere employees. Yet, by using their license, these owners and shareholders of appraisal companies absolve themselves from any responsibility.
“If anything goes wrong, the Board of Directors and management will “wash their hands” and claim that they had nothing to do with the Appraisal Report and therefore defend themselves from litigation, legal cases, and complaints from clients,” he said.
So, for Mr. Cuervo, strict rules and guidelines in the corporate practice of rendering Real Estate Appraisal Services should be implemented.
He is urging that the Appraisal Associations like the Institute of Real Estate Appraisers Inc. (IPREA) and the Philippine Association of Real Estate Appraisers Inc. (PARA), together with other Real Estate Associations and groups to join us in this advocacy in order to implement the Real Estate Service Act.
“It is not only for the interest of our professional real estate practitioners but for the good of our economy, society and nation. For the wealth of our country is measured by true, single, fair market valuation, rendered by the Filipino professional real estate appraiser that is globally competitive and with competence of International Standards,” he said.
*With sources from Wikipedia, IPREA and interview with Mr. Ramon Cuervo III