PVS Flashcards
Adoption of the IVSC Valuation Standards under Philippine Setting
Philippine Valuation Standards (1st Edition) 2009
established in 2001, spearheading the government’s land reform program in partnership with the Australian Government (technical assistance) and the World Bank (financial support)
Land Administration and Management Project (LAMP)
DOF thru BLGF and NTRC (National Tax Research Center) is tasked with implementing these reforms
-Implement a valuation system
-Establish an independent national authority
-Develop valuation standards
-Raise the level of and professionalize the property valuation industry
Real Estate Service Act of 2009
RA 9646
Real Estate Service Act (RA 9646) was signed by? date?
Gloria Macapagal Arroyo; June 29, 2009
Real Estate Service Act (RA 9646) effectivity date?
July 30, 2009
Real Estate Service Act of 2009 transfer the regulatory function of ___ to ___ thru the direcr supervision and regulatory control of ___
DTI; PRC; PRBRES
technical arm responsible for pursuing the valuation reform agenda created by DOF in 2007
Property Valuation Staff (PVS)
The PVS 1st Edition is based on what edition of IVS
8th Edition
those who deal with the special discipline of preparing and reporting valuations
valuer
The IVSC has undertaken 8 revisions of the International Valuation Standards, which were published in
1985, 1994/97, 2000, 2001, 2003, 2005, 2007
The IVSC has grown by the year 2007 to include associations with member or observer status representing how many countries?
52 countries
IVSC is a Non-Government Organization (NGO) member of
United Nations
IVSC at the time PVS (1st Edition) was released, the following papers were available
2 White papers:
-Valuation in Emerging Markets
-The Valuation of Real Estate Serving as Collateral for Securised Instruments
1 Technical Paper:
-Mass Appraisal for Property Taxation
IVSC international headquarters
12 Great George Street, London, UK
a term referring to valuations performed primarily for use in financial reporting
asset valuation
a person who posseses the necessary qualifications, ability, and experience to estimate property value for a diversity of purposes including transactions involving transfer of property ownership, property considered as collateral to secure loans and mortgages, property subject to litigation or pending settlement of taxes, and property treated as fixed assets in financial reporting
Professional Property Valuer
The IVS represent accepted, or best, practice in the Valuation profession, also known as
Generally Accepted Valuation Principles (GAVP)
IVSC, the organization of the standards follows:
- Introduction
- Concepts Fundamental to Generally Accepted Valuation Principles
- Code of Conduct
- Property Types
- Introduction to the Standards
- Standards
- Applications
- Guidance Notes
- Glossary
3 principal elements of the IVS
Standard, Application and Guidance Notes
wether vacant or improved, land is also referred to as
real estate
is created by real estate’s utility, or capacity to satisfy the needs and want of human societies
value
Contributing to value are real estate’s
uniqueness, durability, fixity of location, relatively limited supply, specific utility
is a legal concept encompassing all the interest, rights and benefits related to ownership
Property
the ownership of real estate
Real Property
rights associated with the ownership of real property
bundle of rights
is defined as the physical land and those human-made items, which attach to the land
Real Estate
includes all the rights, interests, and benefits related to the ownership of real estate
real property
includes interests in tangible and intangible items which are not real estate
personal property
are resources controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity
assets
assets not intended for use on a continuing basis in the activities of an entity. (Ex: stocks, obligations owed to the entity, short term investments, cash in bank/hand)
Current assets
fixed or long-term assets
Non-current assets
Non-current assets are tangible and intangible assets which fall into the following 2 broad categories
-Property, plant, machinery and equipment
-Other non current assets (not intended for use in a continuing basis but expected to be held long term, ex. long-term investments, long-term receivables, goodwill, expenditures carried forward, patents, trademarks)
Machinery and Equipment is the collective term adopted by ___ while Plant and Equipment is adopted by ___
Valuers, Accountants
adjustments made to the cost of reproducing or replacing the asset to reflect physical deterioration and functional (technical) and external (economic) obsolescence
depreciation
In financial reporting, this refers to the charge made against income to reflect systematic allocation of the depreciable amount of an asset over its useful life to the entity
depreciation
a term used for the amount asked, offered, or paid for a good or service
Price
the price paid for goods or services or the amount required to create or produce the good or service
cost
the environment in which goods and services trade between buyers and sellers through a price mechanism
market
is an economic concept referring to the price most likely to be concluded by the buyers ans sellers of a good or service that is available for purchase
value
is not a fact, but an estimate of the likely price to be paid for goods and services at a given time
value
defines the nature of the hypothetical transaction, e.g., whether or not there is exposure to a market, and the assumed motivation and behavior of the parties
Basis of Value
most common type of value associated with property valuations
market value
the cost to create a virtual replica of a property using identical or, if identical materials are not available, similar materials
Reproduction cost
cost for a modern equivalent of comparable utility, employing the design, technology and materials
replacement cost
define market value according to PVS 1st Edition
the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion
a market in which commodities are available for immediate sale
spot market
define Highest and best use
The most probable use of a property which is physically possible, appropriately justified, legally permissible, financially feasible, and which results in the highest value of the property being valued
in markets characterized by extreme volatility or severe disequilibrium between supply and demand, the highest and best use of the property is
holding for future use
where land use and zoning are in a state of change, the immediate highest and best use of the property may be
interim use
an accounting concept, is defined in the International Financial Reporting Standards and other accounting standards as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction
Fair Value
is property that is rarely, if ever, sold in the market except by way of sale of the business or entity of which it is part, due to uniqueness arising from its specialized nature and design, its configuration, size, location, or otherwise
Specialized property
refers to generally accepted analytical methodologies that are in common use
valuation approach or method
this principle holds that a prudent person would not pay more for a good or service than the cost of acquiring an equally satisfactory substitute good or service
principle of substitution
3 valuation approaches
- Sales Comparison Approach
- Income Capitalization Approach
- Cost Approach
this comparative approach considers the sales of similar or substitute properties and related market data, and establishes a value estimate by processes involving comparison
Sales Comparison Approach
this comparative approach considers income and expense data relating to the property being valued and estimates value through a capitalization process
Income Capitalization Approach
principle which holds that the income stream which produces the highest return commensurate with a given level of risk leads to the most probable value figure
principle of substitution
this comparative approach considers the possibility that, as an alternative to the purchase of a given property, one could acquire a modern equivalent asset that would provide equal utility
Cost Approach
in applying an income capitalization approach to determine the price that investor is willing to pay for a particular investment based on the investor’s anticipated rate of return, a valuer arrives at an estimate of
Investment Value or Worth
are suppositions taken to be
true
Assumptions
constraints
imposed on valuations
Limiting Conditions
a person who possesses the
necessary qualifications, ability, and
experience to execute a valuation
Valuer
Valuer who is in the employ of either the entity that owns the assets or the accounting firm responsible for preparing the entity‘s financial record and/or reports
Internal Valuer
Valuer who, together with any associates, has no material links with the client, an agent acting on behalf of the client, or the subject of the
assignment
External Valuer
4 categories of property
real property, personal property, businesses, financial interests
is an interest in real estate
real property
encompasses all the rights, interests, and benefits related to the ownership of real estate
real property
real property is to realty, personal property is to
personalty
all the rights associated with the ownership of real property
bundle of rights
Absolute ownership subject only to
limitations imposed by the country
fee simple estate, or freehold
Under a lease, the landlord, or lessor, maintains the ownership interest, known in some countries as the
leased fee estate
The interest which the tenant, or lessee,
acquires under the lease, known in some countries as the
leasehold estate
are created when the tenant or lessee in a prior lease conveys to a third party, a sublessee, the interest that the tenant, or lessee, enjoys, i.e., the right to use and occupy the property
Subleaseholds
non- possessory (incorporeal) interests in landed property conveying use, but not ownership, of a portion of that property
Easements
created by legal divisions of the ownership interest
Partial or fractional interests
The interest of a beneficiary under a trust is known as the
equitable or equity interest
A beneficiary is said to hold ___ while ___ is held by the trustee
equitable title, legal title
are created by mortgage pledges where the property is used as collateral to secure finance or a charge is taken over the property
Security or financial interests
refers to ownership of an interest in items other than real estate
Personal Property
are attached to the property by the
tenant and used in conducting the trade or business
trade fixtures / tenant’s fixtures / Non-realty fixtures
are fixed improvements or additions to the land or buildings, installed and paid for by the tenants to meet the tenant’s needs
Leasehold improvements, or
tenant’s improvements
are the sum of liquid assets less short-term liabilities
net current assets
are interest held in intangible entities
Intangible assets
any commercial, industrial,
service or investment entity pursuing an economic activity
business
an entity normally viewed
as continuing in operation in the foreseeable future with neither the intention nor necessity of liquidation or of curtailing materially the scale of its operations
going concern
Properties such as hotels; fuel stations;
restaurants; and movie theatres, or cinemas
trade related properties
include current assets, and long-term assets such as realty, fixtures, equipment, and tangible personal property
Tangible assets
include management skill, marketing know-how, credit rating, an assembled work force, an operational plant, goodwill, and ownership of various legal rights and instrument (e.g.,
patents, copyrights, franchises and
contracts)
Intangible assets
Valuations of going concerns are generally based on
Value in Use
an ownership arrangement in which all partners share in investment gains and losses and each is fully responsible for all liabilities
general partnership
an ownership arrangement consisting of general and limited partners; the general partners manage the business and assume full liability for partnership debt while the limited partners are passive and liable only to the extent of their own capital contributions
limited partnership
a combination of two or more entities that join to undertake a specific project
joint venture
an agreement to keep open an offer to buy, sell, or lease real property for a specified period and at a stated price
option
is any liability that is: a contractual obligation to deliver cash or another financial asset to another entity to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity
financial liability
any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity
financial instrument
any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities
equity instrument
a financial instrument that, from the issuer‘s perspective, contains both a liability and an equity element
compound (financial) instrument
value is created and sustained by the inter-relationship of four factors
utility, scarcity, desire, and purchasing power
The utility for which a good or service
is produced and the scarcity, or limited
availability, of the good or service are
generally considered
supply-relatedfactors
Consumer preferences and purchasing power, which reflect desire for the good or service and define the affordability of the item, are generally considered
demand-related factors
an environment in which goods, services, and commodities are
traded between buyers and sellers through a price mechanism
market
states that the price of a good or service, or commodity varies inversely with the supply of the item and directly with the demand for the item
principle of supply and demand
In property markets, this represents
the quantity of property interests that are available for sale or lease at various prices in a given market within a given period of time, assuming labor and production costs remain constant
supply
In property markets, constitutes the number of possible buyers or renters seeking specific types of property interests at various prices in a given market within a given period of time, assuming other factors such as population, income, future prices, and consumer preferences remain constant
demand
the amount that has been asked, offered, or paid for the item
price
the amount of money required to create or produce a commodity, good, or service
cost
an estimate of the most likely price that will be paid for a good or service available for purchase at a given time
value
