SUMMARY OF APPRAISAL FORMULA

A) COMPOUNDED INTEREST
1. Future Value of Single Investment

FV = P (1+ r)n
Where:
FV - Future Value
P - Principal
r - interest rate
n - no. of compounding periods
Example:
Land purchased for P50,000 cash appreciates at the rate of 15% compounded annually. How
much is the land worth after 5 years? Disregard taxes, insurance and selling expenses.
Solution
n
FV = P (1+ r)
FV = P 50,000 x (1 + .15)5
FV = P 100,567.90 say P 100,568
2. Future Value of Annuity

FVA = A [(1+ r)n - 1 ]

r
FVA - Future Value of Annuity
A - Annual Uniform Payment
r - interest rate
n - no. of years
Example:
How much will a yearly investment of P 150,000 be after 10 years if the investor is satisfied
with a return of 12%?
Solution

FVA = A [(1+ r)n - 1 ]

r
10

FVA = 150,000 [(1+ .12) - 1 ]

0.12
FVA = P 2,632,310
3. Present Value of Single Investment (Discounting or Reversion Formula)
-n

PV = FV (1+ r)

Where:
PV - Present Value
FV - Future Value
r - interest rate
n - no. of compounding periods

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Example:
What is the reversion value of a property in 2 years with an estimated market value of P12, 540,000
an interest rate of 10% per year?
Solution
PV = P (1+ r)

-n

PV = P12,540,000 * (1+ .10)-2

PV = P 10,363,636.00
4. Present Value of Annuity
-n

PVA = A [1 - (1+ r) ]

r
PVA - Present Value of Annuity
A - Annual Uniform Payment
r - interest rate
n - no. of years
Example:
If a property is expected to produce a yearly income of P 3,600,000 for 8 years. What is the
present value of the yearly income today if discounted at a rate of 8%.
Solution
-n

PVA = A [1 - (1+ r) ]
r
-8

PVA = 3,600,000 [1 - (1+ .08) ]

0.08
PVA = P 20,687,900.20
5. Amortization Formula

M.A. =

P x

[1 - (1+ r)-n ]

MA - Monthly Amortization
P - Principal Amount (Loan Amount)
r - interest rate
n - no. of months
Example:
Mr. A purchases a house and lot thru installment basis. The contract price is P 3,500,000 with a
required downpayment of 20%. Compute the monthly amortization if the loan interest rate
per year is 8% for 5 years.
M.A. = P x (
r
)
1 - (1 + r)-n

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Where:
P = 3,500,000 - (3,500,000 x 20%)
P = 2,800,000
n = 5yrs x 12 = 60 months
r = .08/12 = 0.006667
M.A. = P 2,800,000 x (
.006667
)
1 - (1.006667)

-60

M.A. = P 56,774.44
6. Income Approach (Direct Capitalization)

Value =

Income

V=

Rate

I
R

Example:
What is the value of a property consisting of land and building with an annual net operating
income of P330,000 and with an over-all capitalization rate of 12.50% is

V=

I
R

V=

330,000
0.125

V=

P 2,640,000

7. Gross Rent Multiplier or Gross Income Multiplier (GRM or GIM)

GRM =

Sales Price or Value

Gross Rent

Example 1:
Compute the Gross Rent Multiplier (GRM) of the property that rented for P 250,000 per year
and was sold a month ago at P 8,500,000.
GRM =

GRM =
GRM =

Sales Price
Gross Rent
P 8,500,000
P 250,000
34

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Example 2:
Compute the indicated value of the property that rented for P 750 per month, using a month
monthly Gross Rent Multiplier (GRM) of 100, if the expenses attribute to the property were
115 per month.
GRM =

Value or Sales Price

Gross Rent

Value = GRM x Gross Rent

Value = 100 x P 750
Value = P 75,000
7. Land Residual Technique
- If Building Value is given; Land Value is Unknown
Step 1 Compute Net Operating Income (NOI) or Net Income Before Recapture (NIBR)
if Not Given
Potential Gross Income
Less: Allowance for Vacancy & Bad debts
Equals: Effective Gross Income
Add: Other Income or Miscellaneous Income
Less: Operating Expense (Admin. Expense, RPT, Depreciation)
Equals: Net Operating Income (NOI)
Less: Mortgage Payment (Debt Servicing)
Equals: Net Income Before Tax
Step 2 Analyze Income
a) Income due to Building = Building Value x Over-all rate
Where: Over-all rate = Interest rate (Land) + Recapture Rate
Recapture rate = 1/Remaining Economic Life
b) Income due to Land = NOI - Income due to Building
Step 3 Compute Land Value
Value of Land= Income due to Land x Interest Rate (Land only)
Step 4 Compute Total Property Value (TPV)
TPV = Land Value + Building Value
Example
Assume the following data:
Gross Income: P 2,350,000/year
Allowance for Vacancy & Bad debts: 5% of Gross Income/year
Operating Expense: P 220,000/year
Building Value: P 15.0M
Interest rate on Land: 8%
Economic Life of building: 40 years
Using Land Residual Technique, compute the Value of the Property:
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a) Compute NOI
Less: Allowance of Vac.
Less: Operating Exp.
NOI

2,350,000.00
(117,500.00) (5% of P 2,350,000)
2,232,500.00
(220,000.00)
2,012,500.00

b) Analyze Income
Income due to Bldg. = Building Value x Over-all Rate
= P 15,000,000 x (Interest Rate on Land + Recapture Rate)
Recapture Rate = 1/40 = 2.5%
= P 15,000,000 x (8% + 2.5%)
Income (Bldg) = P 1,575,000
Income due to Land = NOI - Income due to Bldg.
Income (Land) = P 2,012,500 - P 1,575,000
= P 437,500
c) Compute Value of Land
Value of Land= Income due to Land / Rate (Interest on Land only)
=
5,468,750.00
d) Compute Total Property Value
TPV = Value of Land + Value of Building
= P 5,468,750 + 15,000,000
TPV =
20,468,750.00
8. Building Residual Technique
- If Land Value is given; Building Value is Unknown
Step 1 Compute Net Operating Income (NOI) or Net Income Before Recapture (NIBR)
if Not Given
Gross Income
Less: Allowance for Vacancy & Bad debts
Equals: Effective Gross Income
Add: Other Income or Miscellaneous Income
Less: Operating Expense
Equals: Net Operating Income (NOI)
Step 2 Analyze Income
a) Income due to Land = Land Value x Interest rate (Land only)
Where: Over-all rate = Interest rate (Land) + Recapture Rate
Recapture rate = 1/Remaining Economic Life
b) Income due to Building = NOI - Income due to Land

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Step 3 Compute Building Value

Value of Building= Income due to Bldg. x Over-all Rate
Where: Over-all rate = Interest rate (Land) + Recapture Rate
Recapture rate = 1/Remaining Economic Life
Step 4 Compute Total Property Value (TPV)
TPV = Land Value + Building Value
Example
Assume the following data:
Net Operating Income: P 2,350,000/year
Land Value: P 5.0M
Interest rate on Land: 8%
Economic Life of building: 40 years
Using Building Residual Technique, compute the Property Value:
a) Analyze Income
Income due to Land = Land Value x Interest rate (Land only)
= P 5,000,000 x 8%
Income (Land) = P 400,000
Income due to Bldg.= NOI - Income due to Land
Income (Bldg.) = P 2,350,000 - P 400,000
= P 1,950,000
c) Compute Value of Building
Value of Bldg.= Income due to Bldg./ Over-all Rate (Interest on land + Recapture rate)
= P 1,950,000 / (8% + 2.5%)
Recapture rate = 1/Rem. Economic Life
=
18,571,428.57
= 1/40
d) Compute Total Property Value
= 2.5%
TPV = Value of Land + Value of Building
= P 5,000,000 + 18,571,428.57
TPV =
23,571,428.57
9. Basic Appraisal Mathematics

a) Area of Square = s x s

b) Area of Rectangle= L x W

W
L

c) Area of Circle= r

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b1
d) Area of Trapezoid = (b1 + b2) x h
2

h
b2

e) Area of Triangle = 1/2 (b x h)

h
b
f) Volume of cube = S x S x S
S
S

g) Volume of parellelepiped = L x W x H
H
W
L

h) Volume of Cylinder = R2 x H

i) Volume of Pyramid = B2 x H

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10. Basic Statistics

Statistics - is the study of how to collect, organize, analyze and interpret numerical information.
Variable - is a quantity that may assume any set of value. (ex. Monthly income, volume, price,etc.)
Constant is a quantity that does not change its value (ex. 12 inches = 1 foot, 1 year = 12 months)
Ungrouped data Raw data that are not organized in any specific way
(subject to analysis & interpretation)
Grouped data are raw data organized into groups or categories with corresponding frequencies
(distribution)
Population the entire collection of all possible observations of a particular characteristic of interest
(ex. grades of all students who took an entrance examination)
Sample is a representative set of observations that reflects the characteristics of the whole, that is,
the population from which it is taken.
Parameter is any statistical characteristic of a population, for example, the Mean and Standard
Deviation.
Measures of Central Tendency
- Statistical tools designed to give information concerning the average, or typical score of a large
number of scores.
Three Methods of measuring central tendency:
a)The Mean arithmetic average of all scores (M=SX/n)
M Mean
S - Summation of X
X raw score
n number of observations
Three Methods of measuring central tendency:
b) The Median (Mdn) - the exact midpoint of any distribution, or the point that separates the
upper half from the lower half of the distribution.
c) The Mode (Mo) - Is the measure that determines which score occurs number of times.
Frequently appearing score in the distribution.
Example:
X
120
118
115 Median = (115 + 114)/2 = 114.5
114 Mode = 114
114
112
SX 693; n = 6
Mean (simple) = SX/n
= 693/6
= 115.50

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Weighted Mean incorporates into the formula the weight of each term.
Example:
An exam was given for 3 subjects with corresponding weightsGrade (X)
Weight (W)
Exam No. 1
85
20%
Exam No. 2
90
30%
Exam No. 3
50%
80
50%
100%
Weighted Mean (Mw) = 85(.20) + 90(.30) + 80(.50)
= 84
Three Methods of measuring variability (Measure of Dispersion):
a) The Range the difference between the highest & lowest scores.
Example: If the highest score is 140; lowest is 60, range is (140 60) = 80
b) The Standard Deviation (SD) Is the absolute heart & soul of variability concept. Takes into
account all scores in a distribution.
It measures how much all scores deviate or vary from the Mean (Average)
2 Methods in Computing Standard Deviation:
1. Deviation Method
2. Computational Method (Long process)
Deviation Method
Formula; SD = Sx2/n

MAD = SX/n

SD- Standard deviation

X - Raw score
M - Mean
x - deviation score
n - number of scores
SX - summation of x = (X-M)

SX
Mean =

M=

Raw Score (X)

10
8
6
4
2
30
SX/n

Deviation Score x=(X-M)

10 - 6 = 4
8-6 =2
6-6 =0
4 - 6 = -2
2 - 6 = -4

30/5 = 6

Range = Highest - Lowest Score

= 10 - 2
Range = 8

Absolute Dev.
4
2
0
2
4
12

x2
16
4
0
4
16
40

SD =

40

MAD =

S Abs. x

SD =

5
2.828427

MAD =

12/5
2.4

MAD =

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11. Rawland Valuation (Subdivision Development Approach)

Step 1 Analyze Gross Income
Gross Income = Total Cash Price
Total Cash Price = Selling Price of Developed Lot/Sq.M. x Saleable Area
Where:
Saleable area = 70% x Gross Land Area
Step 2 Analyze Expenses
a) Development Cost
b) Administrative Expenses
c) Sales Expenses (Brokers Commission, Advertising, etc)
d) Interest on Working Capital
e) Miscellaneous Expenses
f) Contractor's Profit
Step 3 Compute Ultimate Rawland Value (URV)
URV = Gross Income - Expenses
Step 4 Compute Rawland Value/Sq.M.
Rawland Value/Sq.M. =
URV
x Annuity Factor
No. of Years x Gross Area
Compute Annuity Factor (if not given):

Annuity Factor = 1 - (1+r)-n

r
r = interest rate
n = no. of years
Example:
Mr. A offers his 10.0 hectare rawland in Lumbia, Cagayan de Oro City. Prices of developed lots in
Lumbia is at P 3,500/sq.m. Subdivision developers disclose a development cost of P 800/sq.m.
of the Gross Area; Admin., Sales & other expenses is estimated at P 21,000,000. At how much
should you buy the property given a 5 year development & sales period of 5 years?
Annuity based on a 12% interest rate is 3.60477.
a) Analyze Gross Income
Total Cash Price = Selling Price of Developed Lot/Sq.M. x Saleable Area
TCP = P 3,500/Sq.M. x 10 has x 10,000Sq.M./hectare x 70%
TCP = Php171,500,000.00
b) Analyze Expenses
Total Expense = Development Cost + Other Expenses
Total Expense =
Php101,000,000.00
c) Ultimate Rawland Value = Gross Income - Total Expenses
= Php70,500,000.00
d) Compute Rawland Value/Sq.M.
Rawland Value/Sq.M. =
URV
x Annuity Factor
No. of Years x Gross Area
RV/Sq.M. = Php171,500,000.00 x 3.60477
5 x 100,000
RV/Sq.M. = 508.27 or P 510/Sq.M.

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12. Appraisal of Machinery/Equipment

Estimating Reproduction Cost New (RCN) by trending of indexing (based on original
x Trending
acquisition
Factorcost.
a)For Imported Machinery
RCN = Original Cost x Current Exchange Rate
x Trend Factor
Exchange Rate at Acquisition date
Trend Factor Kemper International Replacement Value Cost Trend
b) For Locally Manufactured Machinery
RCN = Original Cost x Local Index (from NEDA)
c) Appraisal of Machinery for Tax Purposes
RCNLD = OC x FC2 x PI x
REL
FC1

EL

where:
RCNLD Reproduction Cost New less Depreciation (DRC)
OC Original/Acquisition Cost
FC1 Exchange Rate (Acquisition)
FC2 Exchange Rate (Assessment Date)
EL Economic Life
REL Remaining Economic Life
PI Price Index (if available only)
Example A commercial machinery from USA was acquired, installed and in operation in
February 1999 at total original cost of $10,000,000. Re-appraisal was made in
December 2003.
Dollar Exchange Rate
Php
at 39.0890
the timeto
of $1.00
acquisition:
Dollar Exchange Rate
Php
at 54.2033
the timetoof$1.00
appraisal:
Estimated Economic Life: 30 years
To compute:
RCNLD = OC x FC2 x PI x REL
FC1
RCNLD = $10,000,000 x

EL
P54.2033 x 1.0 x 26/30
P39.0890

RCNLD = Php 12,018,065.00

ASSESSED VALUE: RCNLD x Assessment Level
= Php 12,018,065.00 x 80%
= Php 9,614,452.00

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13. 4-3-2-1 Rule

Lot D
Lot C
Lot B
Lot A

Value of Lot D
Value of Lot C
Value of Lot B
Value of Lot A

= 10% x Total Value of Property

= 20% x Total Value of Property
= 30% x Total Value of Property
= 40% x Total Value of Property

ROAD

14. Market Data Approach

SUBJECT
?

VALUE

COMPARABLE 2
P zzzz.zz
COMPARABLE 1
P xxxx.xx

COMPARABLE 2
+
(+/-)
(+/-)
(+/-)
(+/-)
(+/-)
(+/-)

P yyyy.yy

Adjustment(s)

(if applicable)

Time
Location
Size
Shape
Topography
Terrain
Corner Influence

Adjusted Value
Weight
Indicated Value

+
(+/-)
(+/-)
(+/-)
(+/-)
(+/-)
(+/-)

+
(+/-)
(+/-)
(+/-)
(+/-)
(+/-)
(+/-)

100% - X% -Y%

X%
Y%
= (Price of Comparable - Adjustments) x Weight

COMPARABLE

If Comparable is SUPERIOR
(Subtract Adjustment Factor)

(-)
SUBJECT
(+)
COMPARABLE

If Comparable is INFERIOR
(Add Adjustment Factor)

14. Cost Approach

Step 1 Value Land by Market Data Approach
Step 2 Compute Replacement Cost, New (RCN)
RCN = Cost of Replacement/Sq.M. x Floor Area (in Sq.M.)
Less: a) Physical Deterioration , SLM = Actual Age / Economic Life
b) Functional Obsolescence (if any)
c) Economic Obsolescence (if any)
Equals: Depreciated Replacement Cost (DRC)
Step 3 Compute Total Property Value (TPV)
TPV = Land Value + Depreciated Replacement Cost (Building)

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Example
Subject Property
Location
Land Area (Sq.M.)
Building
Floor Area (Sq.M.)

House and Lot

Pine Street, P.N. Roa Valley Subd., Cagayan de Oro City
182
Single-storey residential house; High cost; Year built - 2004, well-maintained
146
MARKET VALUE
VALUATION BY COST APPROACH
per Sq.M.
273,000.00
LAND:

182 Sq.M.

Php1,500
per Sq.M.

IMPROVEMENT: (Residential Building)

Reproduction Cost, New

146 Sq.M.

Php15,000

2,190,000
328,500.00
2,134,500.00

a) Physical Deterioration - Straight Line Method (SLM) - 6/40 x 100%

106,725.00
2,027,775.00
b) Functional Obsolesence

-5%
0.00
2,027,775.00

c) Economic Obsolesence

0%
Depreciated Replacement Cost (DRC)
TOTAL PROPERTY VALUE

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2,300,775.00