1 REC Nono Catolico Notes on GAVP.docx

8/15/2019 1 REC Nono Catolico Notes on GAVP.docx

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1.0 Introduction

1.1 The experience of Valuers and dialogue among nations through the International Valuation

Standards Committee (IVSC) exceptions, there is common worldwide agreement regardingfundamentals that underpin the valuation discipline. ocal laws and economic circumstances

ma!, on occasion. "e#uire special (and sometimes limited) applications, $ut fundamentals of

valuation methods and techni#ues are generall! similar throughout the world. It is an o$%ective of

the International Valuation Standards Committee to avow and promote these fundamentals.

1.& IVSC's Standards, pplications and uidance *otes (*s) are $ased on these fundamentals,

$ut it is the position of the Committee that it is inappropriate to attempt to articulate all

appropriate fundamentals within the $od! of each Standard. Instead, this section supplements

each Standard and provides an overview of fundamentals that are particularl! important to

understanding the valuation profession and to appl!ing the Standards.

2.0 Land and Property Concepts

&.1 Land is essential to our lives and our existence. Its importance $rings land into focus for

consideration $! law!ers, geographers, sociologists, and economists. s each of these disciplines

relates to land and to uses of land, the societies and nations of our world are affected.

&.& Valuation of land as if vacant or of land and improvement to or on the land is an economic

concept. +hether vacant or improved, land is also referred to as real estate. Value is created $!

real estate's

utility, or capacity to satisfy the needs and wants of human societies.

Contri$uting to value or human societies.

Contri$uting to value are real estate’s general uniqueness, duraility, fi!ity of location,

relati"ely limited supply, and the specific utility of a gi"en site.

&. Property is a legal concept encompassing all the interests, rights and enefits related to

ownership. -ropert! consists of the rights of ownership, which entitle the owner to a specific

interest or interests in what is owned. To distinguish $etween real estate, which is a ph!sical

entit!, and its ownership, which is a legal concept, the ownership of real estate is called real

property. The com$ination of rights associated with the ownership of real propert! is, in some

countries, referred to as the bundle of rights. #he bundle-of-rights concept liens propert!

ownership to a $undle of stics with each stic representing a distinct and separate right of the

propert! owner, e.g., the right to use, to sell, to lease, to give awa!, or to choose to exercise all or

none of these rights.

&./ $wnership of an interest in items other than real estate is referred to as personal

property. The word propert!, used without further #ualification or identification, ma! refer to

real property, personal property, or other t!pes of propert! such as usinesses and financial

interests, or a com$ination thereof. (See Section $elow and -ropert! T!pes.)

&.0 -ropert! Valuers, sset Valuers, and ppraisers are those who deal with the special discipline

of economics associated with preparing and reporting valuations. s professionals, Valuers must

meet rigorous tests of education, training, competence, and demonstrated sills. The! must also

exhi$it and maintain a Code of Conduct (ethics and competenc!) and Standards of professional

practice and follow Generally Accepted Valuation Principles (GAVP)

&. -rice changes over time result from specific and general effects of economic and social

forces. eneral forces ma! cause changes in price levels and in the relative purchasing power of mone!. 2perating on their own momentum, specific forces such as technological change ma!

generate shifts in suppl! and demand, and can create significant price changes.

Conce ts %undamental to &enerall 'cce ted (aluation


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&.3 4an! recogni5ed principles are applied in valuing real estate. The! include the principles of

suppl! and demand6 competitions6 su$stitution6 anticipation, or expectations6 change6 and others.

Common to all these principles is their direct or indirect effect on the degree of utilit! and

productivit! of a propert!. Conse#uentl!, it ma! $e stated that the utilit! of real estate reflects the

com$ined influence of all maret forces that come to $ear upon the value of propert!.

).0 *eal +state, Property, and 'sset Concepts

.1 Real estate is defined as the physical land and those humanmade items, which attach to

the land. It is the ph!sical, tangi$le 7thing8 which can $e seen and touched, together with all

additions on, a$ove, or $elow the ground. ocal laws within each countr! prescri$e the $asis for

distinguishing real estate from personal propert!. lthough these legal concepts ma! not $e

recogni5ed in all countries, the! are adopted here to distinguish important terms and concepts.

.& Real property includes all the rights, interests, and enefits rated to the ownership of

real estate. n interest or interests in real propert! is normall! demonstrated $! some evidenceof ownership (e.g., a title deed) separate from the ph!sical real estate. "eal propert! is a non9

ph!sical concept.

. Personal property includes interests in tangile and intangile items which are not real

estate. Items of tangi$le personal propert! are not permanentl! affixed to real estate and are

generall! characteri5ed $! their movea$ilit!.

./ In accounting terminolog!, assets are resources controlled $! an entit! as a result of past

events and from which some future economic $enefits are expected to flow to the entit!.

2wnership of an asset is itself an intangi$le. :owever, the asset owned ma! $e either tangi$le or

intangi$le.

./.1 The future economic $enefits em$odied in an asset ma! flow to the entit! in a num$er of

wa!s. ;or example, an asset ma! $e< (a) used singl! or in com$ination with other assets in the

production of goods or services to $e sold $! the entit!6 ($) exchanged for other assets6 (c) used

to settle a lia$ilit!6 or (d) distri$uted to the owners of the entit!. (International ;inancial

"eporting Standards =I;"Ss>, framewor 00)

./.& n asset is recogni5ed in the $alance sheet when it is pro$a$le that the future economic

$enefits will flow to the entit! and the asset has a cost or value that can $e measured relia$l!.

(I;"Ss, ;ramewor, ?@)

.0 International ;inancial "eporting Standards distinguish among tangi$le and intangi$le assets.

2f particular importance are the following terms and concepts<

.0.1 Current assets. 'ssets not intended for use on a continuing asis in the acti"ities of an

entity. Axamples include stocs, o$ligations owed to the entit!, short9term investments, and cash

in $an and in hand. In certain circumstances real estate, normall! treated as a fixed asset, ma!

$e treated as a current asset. Axamples include land or improved real estate held in inventor! for

sale.

.0.& Non-current assets - fied! or long-ter"! assets. These are tangi$le and intangi$le assets

which fall into the following two $road categories<

.0.&.1 Property! plant! "achinery and e#uip"ent . ssets intended for use on a continuing $asis

in the activities of an entit! including land and $uildings6 plant and e#uipment6 and other

categories of assets, suita$l! identified6 less accumulated depreciation. -ropert!, plant,

machiner! and e#uipment are tangi$le or ph!sical assets.

Philippine 3.5.1.1

In the Philippines, the term ‘Plant’ is not in general use. ‘Machinery and Euipment’ is the

collecti!e term adopted by "aluers, #hile, ‘Plant and Euipment’ is adopted by $ccountants.


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%eference to $Plant and %#uip"ent& in the 'V is therefore etended to Plant! achinery and

%#uip"ent.

.0.&.& *ther non-current assets. ssets not intended for use on a continuing $asis in the

activities of an entit!, $ut expected to $e held in long9term ownership including long9term

investments6 long9term receiva$les6 goodwill6 expenditures carried forward6 and patents,trademars, and similar assets. This asset categor! includes $oth tangi$le, or non9ph!sical assets

and intangi$le, or non9ph!sical assets. Intangi$le assets are considered items of intangi$le

personal propert!, and ma! include rating, goodwill, and various legal rights or instruments

(patents, trademars, cop!rights, franchises, and contracts.

.0. where either historic or current cost accounting conventions are upheld, as distinction is

drawn $etween operational and investment assets. 2perational assets are considered re#uisite to

the operations of the going concern or corporation. Investment assets that are owned $! a

corporation are considered extraneous to the operational re#uirements of the corporate owner.

. ccounting terminolog! differs somewhat from terms more common to Valuers. +ithin the

classifications discussed in para. , Valuers of real propert! are principall! involved with fixed

assets. Technicall! it is the ownership of the asset, or the right of ownership, that is valued rather

than the tangi$le or intangi$le asset itself. This concept distinguishes the economic concept of

valuing an asset o$%ectivel! $ased upon its a$ilit! to $e purchased and sold in a maretplace

from some su$%ective concept such as assuming an intrinsic or other than Mar&et "alue $asis.

The o$%ective maret concept does, however, have special applications for limited or non9maret

propert! valuation as discussed in International Valuation Standard &.

.3 The term depreciation is used in different contexts in valuation and in financial reporting. Incontext of asset valuation, depreciation, refers to the ad%ustments made to the cost of

reproducing or replacing the asset to reflect physical deterioration and functional -technical

and e!ternal -economic osolescence in order to estimate the value of the asset in a

h!pothetical exchange in the maret when there is no direct sales evidence availa$le (see

para.@.&.1., Concepts ;undamental to enerall! ccepted Valuation -rinciples.) in financial

reporting depreciation refers to the charge made against income to reflect the systematic

allocation of the depreciale amount of an asset o"er its useful life to the entity. It is specific

to the particular entit! and its utili5ation of the asset, and is not necessaril! affected $! the

maret.

/.0 Price, Cost, aret, and (alue

/.1 Imprecision or vagueness of language, particularl! in an international communit!, can and

does lead to misinterpretations and misunderstandings. This is particularl! a pro$lem where

words commonl! used in a language also have specific meanings within a given discipline. That

is the case with the terms price, cost, mar&et , and value as the! are used in the valuation

discipline.

/.& Price is a term used for the amount ased, offered, or paid for a good or ser"ice. Sale

price is an historical fact, whether it is pu$licl! disclosed or ept confidential. Because of the

financial capa$ilities, motivations, or special interests of a given $u!er and or seller, the price

paid for goods or services ma! or ma! not have an! relation to the value which might $e ascri$ed

to the goods or services $! others. -rice is, however, generall! an indication of a relative value

placed upon the goods or services $! the particular $u!er andor seller under particular

circumstances.

/. Cost is the price paid for goods or ser"ices or the amount required to create or produce

the good or ser"ice. +hen that good or service has $een completed, its cost is an historical fact.

The price paid for a good or service $ecomes its cost to the $u!er.

/./ "ar+et is the environment in which goods and services trade $etween $u!ers and sellersthrough a price mechanism. The concept of a maret implies that goods and or services ma!

traded among $u!ers and sellers without undue restriction on their activities. Aach part! will


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respond to suppl!9demand relationships and other price9setting factors as well as to the part!'s

own capacities and nowledge, understanding of the relative utilit! of the goods and or

services, and individual needs desires. maret can $e local regional, national, or international.

/.0 Value is an economic concept referring to the price most liel! to $e concluded $! the $u!ers and sellers of a good service that is availa$le for purchase. Value is not a fact, $ut an

estimate of the liel! price to $e paid for goods and services at given time in accordance with a

particular definition of value. The economic concept of value reflects a maret's view of the

$enefits that accrue to one who owns the goods or receives the services as of the effective date of

valuation.

/. Value is therefore a h!pothetical price and the h!pothesis on which the value is estimated is

determined $! the valuation $asis adopted. ,asis of Value is defined in IVS & as a statement of

the fundamental measurement principles of a valuation on a specified date. 'asis of "alue

defines the nature of the h!pothetical transaction, e.g., whether or not there is exposure to a

maret, and the assumed motivation and the $ehavior of the parties. 'asis of "alue is used to

produce the estimate, and neither does it descri$es the state or condition in transferred. It is of

paramount importance to the use and understanding of valuations that the Basis of Value $e

clearl! disclosed, and that it is a $asis that is appropriate to the particular valuation assignment.

change in the Basis of Value can have a material effect on the valuation.

/.3 -rofessional Valuers, who posses intimate nowledge of a propert! maret6 understand the

interaction of participants in the maret6 and are, there$!, a$le to %udge the most liel! prices to

$e concluded $etween $u!ers and sellers of propert! in the maret avoid the un#ualified term

value $! preceding the term with the some ad%ective descri$ing the particular t!pe of value

involved. Mar&et "alue is the most propert! valuations and is discussed in International

Valuation Standard 1.

/.? The value concept contemplates a monetar! sum associated with a transaction. :owever, sale

of the propert! valued is not a condition re#uisite to estimating the price for which propert!

should sell if it were sold on the date of valuation under conditions prescri$ed in the definition of

Mar&et "alue.

/.@ The ar+et Value of real estate is a representation of its maret9recogni5ed utilit! rather than

its purel! ph!sical status. The utilit! of assets to a given entit! or individual ma! differ from that

which would $e recogni5ed $! the maret or $! a particular industr!. ("efer to 0.D $elow)

/[email protected] Considerations similar to those expressed a$ove are applied to the valuation of propert!

other than real estate. ;inancial reporting will re#uire application of 4aret Value methods and a

clear distinction $etween such methods and methods used to estimate values other than Mar&et

"alue.

/.1D The total cost of a propert! includes all direct and indirect costs of its production. If

supplemental capital costs are incurred $! a purchaser su$se#uent to ac#uisition, the! will $e

added to the historical ac#uisition cost for cost accounting purposes. Eepending upon how the

utilit! of such costs is perceived $! the maret, the! ma! or ma! not $e full! reflected in the

propert!'s Mar&et "alue.

/.11 cost estimate for a propert! ma! $e $ased on either an estimate of reproduction cost or

replacement cost. "eproduction cost is the cost create a virtual replica of a propert! using

identical or, if identical materials. replacement cost estimate envisions a modern e#uivalent of

compara$le utilit!, emplo!ing the design, technolog! and materials that are currentl! used in the

maret.

.0 aret (alue

0.1 The concept of Mar&et "alue reflects the collective perceptions and actions of a maret and isthe $asis for valuing most resources in maret9$ased economies. lthough precise definitions

ma! var!, the Mar&et "alue concept is commonl! understood and applied.


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0.& ar+et Value is defined as<

he esti"ated a"ount for hich property should echange on the date of /aluation beteen a

illing buyer and a illing seller in an ar"&s-length transaction after proper "ar+eting

herein the parties had each acted +noledgeably! prudently! and ithout co"pulsion.

0. It is important to stress that the professionall! derived Mar&et "alue estimate is an o$%ective

valuation of identified ownership rights to specific propert! as of given date. Implicit within this

definition is the concept of a general maret comprising the activit! and motivation of man!

participants rather than the preconceive view or vested interest of a particular individual. Mar&et

"alue is a maret9supported estimate developed in accordance with these Standards.

0./ "eal -ropert! is distinguished from most goods and services $ecause of the relativel! longer

period re#uired to maret what is a relativel! illi#uid commodit! in order to achieve a price that

represents its Mar&et "alue. This characteristicall! longer exposure time, the a$sence of a Fspot

maret' (a maret in which commodities are availa$le for immediate sale), and the nature and

diversit! of properties and propert! marets give rise to the need for -rofessional Valuers and

Valuation Standards.

0.0 In some countries, the legal term ;air Mar&et "alue is used s!non!mousl! with the term

Mar&et "alue. (air Mar&et "alue should not $e confused with the accounting term, (air "alue.

(See para.?.1 $elow.) The IVSC position is that the term Mar&et "alue never re#uires further

#ualification and that all countries should move toward compliance with this usage.

3.0 4ighest and 5est 6se

.1 and is regarded as a permanent asset, $ut improvements upon or to the land have a finite

life. Because of the immo$ilit! of land, each real estate parcel possesses a uni#ue location.

and's permanence also means that it will normall! $e expected to outlast uses and

improvement, which have a finite life.

.1.1 The uni#ue characteristics of land determine its optimal utilit!. +hen improved land is

valued separatel! from improvements to or upon the land, economic principles re#uire that

improvements to or on the land $e valued as the! contri$ute to or detract from the total value of

the propert!. Thus, the Mar&et "alue of land $ased upon the 7highest and $est use8 concept

reflects the utilit! and the permanence of land in the context of a maret, with improvementsconstituting the difference $etween land value alone and total Mar&et "alue as improved.

.& 4ost properties are valued as a com$ination of land and improvements. In such cases, the

Valuers will normall! estimate Mar&et "alue $! considering the highest and $est use of the

propert! as improved.

. 0ighest and best use is defined as<

he "ost probable use of a property hich is physically possible! appropriately 1ustified!

legally per"issible! financially feasible! and hich results in the highest /alue of the property

being /alued.

./ use that is not legall! permissi$le or ph!sicall! possi$le cannot $e considered a highest and

$est use. use that is $oth legall! permissi$le and ph!sicall! possi$le ma! nevertheless re#uire

an explanation $! the Valuer %ustif!ing wh! that use is reasona$l! pro$a$le. 2nce anal!sis

esta$lishes that one or more uses are reasona$l! pro$a$le uses, the! are then tested for financial

feasi$ilit!. The use that results in the highest value, in eeping with the other tests, is the highest

and $est use.

.0 pplication of this definition permits Valuers to assess the effects of deterioration and

o$solescence in $uildings, the most appropriate improvements for land, the feasi$ilit! of reha$ilitation and renovation pro%ects, and man! other valuation situations.


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. In marets characteri5ed $! extreme volatilit! or severe dise#uili$rium $etween suppl! and

demand, the highest and $est use of a propert! ma! $e a holding for future use. In other

situations, where several t!pes of potential highest and $est use are identifia$le, the Valuer

should discuss such alternative uses and anticipated future income and expense levels. +here

land use and 5oning are in a state of change, the immediate highest and $est use of a propert!

ma! $e an interim use.

.3 The concept of highest and $est use is a fundamental and integral part of Mar&et "alue

estimates.

7.0 6tility

3.1 #he +ey criterion in the "aluation of any real or personal property is its utility.

-rocedures emplo!ed in the valuation process have the common o$%ective of defining and

#uantif!ing the degree of utilit! or usefulness of the propert! valued. This process calls for

interpretation of the utilit! concept.

3.& 2tility is a relati"e, or comparati"e term, rather than an asolute condition. ;or

example, the utilit! of agricultural land is ordinaril! measured $! its productive capacit!. Its

value is a function of the #uantit! and #ualit! of the produce, which the land will !ield in an

agricultural sense, or of the #uantit! and #ualit! o $uildings essential to the agricultural

operation. If the land has developed potential, however, its productivit! is measured $! how

productivel! it will support a residential, commercial, industrial6, or mixed use. Conse#uentl!,

land value is esta$lished $! evaluating its utilit! in terms of the legal, ph!sical, functional,

economic, and environment factors that govern its productive capacit!.

3. ;undamentall!, propert! valuation is governed $! the wa! specific propert! is used and or

how it would ordinaril! $e traded in the maret. ;or some propert!, optimum utilit! is achieved

if the propert! in #uestion is operated on an individual $asis. 2ther propert! has greater utilit! if

operated as part of a group of properties, e.g., properties owned and managed $! a $usiness

entit! such as a chain of multiple retail outlets, fast food restaurants, or hotels. Therefore a

distinction must $e made $etween a propert!'s utilit! viewed individuall! and when considered

as a part of group. Valuer will regard the propert! as the maret views it, whether as discrete

entit! or as part of an aggregate or portfolio. T!picall!, the Valuer estimates and reports the value

of the propert! as an individual entit!. if the value of the propert!, taen as part of aggregate or

portfolio, is other than its individual value, such value should $e considered and reported.

3./ n individual propert! ma! possess an additional, or special, value a$ove its value as a

separate entit! $! reason of its ph!sical or functional association with an ad%oining propert!

owned $! others o its attractiveness to a purchaser with other special interests. The extent or

amount f such additional, or special, value is generall! reported separatel! from 4aret Value.

8.0 $ther Important Concepts

?.1 The expression Mar&et "alue and the term (air "alue as it commonl! appears in accounting

standards are generall! compati$le, if not in ever! instance exactl! e#uivalent concepts. (air

"alue, an accounting concept, is defined in International ;inancial "eporting Standards andother accounting standards as the amount for which an asset could $e exchanged, or a lia$ilit!

settled, $etween nowledgea$le, willing parties in an arm's length transaction. (air "alue is

generall! used for reporting $oth Mar&et and )on*Mar&et Values in financial statements. :ere

the 4aret Value of an asset can $e esta$lished, this value will e#uate to (air "alue.

?.& +pecialied property is propert! that is rarel!, if ever, sold in the maret except $! wa! of a

sale of the $usiness or entit! of which it is part, due to uni#ueness arising from its speciali5ed

nature and design, its configuration, si5e, location, or otherwise. +here this is limited or no

directl! compara$le maret information for Valuers to consider, the valuation process ma!

$ecome more complex. :owever, it is the Valuer's responsi$ilit! to develop data and reasoningfrom the maret to support and or explain the value conclusion. Aach of the valuation methods

ma! $e applied, and all applica$le methods should $e considered. +here possi$le, the Valuer


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develops land value, cost, and accumulated depreciation estimates from maret information, and

explains the $asis for the value estimate.

?. +here normal maret conditions are disrupted or suspended, or here suppl! and demand

im$alances lead to maret prices that do not meet the Mar&et "alue definitions, the Valuer ma!

face a difficult valuation pro$lem. B! using the Mar&et "alue concept and definition, and $!appl!ing maret data and reasoning to the valuation process, Valuers ensure the relevance and

usefulness of asset values reported in financial statements. s availa$ilit! and or applica$ilit!

of maret data decrease, the valuation assignment ma! re#uire a higher degree of professional

Valuer vigilance, experience, and %udgment.

?./ Valuer ma! $e re#uired to appl! a particular definition of Mar&et "alue to meet legal or

statutor! re#uirements. If so re#uired, the Valuer must mae specific disclosure of the fact and

descri$e the impact f an! differences upon the value estimated. +here an assignment is

undertaen in accordance with International Valuation Standards, the term Mar&et "alue will

alwa!s conform to the IVS definition.

?.0 ll valuation reports should mae clear the purpose and intended use of the valuation. In

addition to other reporting re#uirements, where financial reporting is involved the report should

specificall! identif! the asset class into which each asset is placed and the $asis for such

placement. Aach asset class should $e explicitl! explained.

?. The estimation and reporting of propert! and asset values, and elated guidance, are the scope

of these International Valuation Standards, pplications, and related uidance *otes. :ow the

results of valuations are to $e compiled, conve!ed, and incorporated with the findings of other

professionals is of crucial importance to Valuers. -roper understanding of terminolog! isessential for Valuers and those who read their reports. The sound use of experience and expertise

and correct application of methodolog! are also essential. These Standards are intended to serve

the common o$%ectives of those who prepare propert! ad asset valuations and those who must

rel! on their results.

9.0 (aluation 'pproaches

@.1 In order to estimate the price implied $! the appropriate 'asis of "alue, the Valuer will need

to appl! one or more valuation approaches. !aluation approach or method refers to generall!

accepted anal!tical methodologies that are in common use.

@.& 4aret $ased valuations normall! emplo! one or more of the !aluation approaches $!

appl!ing the economic principle of substitution, using maret9derived data. This principle holds

that a prudent person would not pa! more for a good or service than the cost of ac#uiring a

e#uall! satisfactor! su$stitute good or service, in the a$sence of the complicating factors of time,

greater ris, or inconvenience. The lowest cost of the $est alternative, whether a su$stitute or the

original, tends to esta$lish 4aret Value.

@.&.1 4aret $ased !aluation approaches include<

@.&.1.1 +ales -omparison $pproach. This comparative approach considers the sales of similar or

su$stitute properties and related maret data, and esta$lishes a value estimate $! processes

involving valued (a su$%ect propert!) is compared with sales of similar properties that have $een

transacted in the maret. istings and offerings na! also $e considered.

@.&.1.& Income -apitaliation $pproach This comparative approach considers income and

expense data relating to the propert! $eing valued and estimates value through a capitali5ation

process Capitali5ation relates income (usuall! a net income figure) and a defined value t!pe $!

converting an income amount into a value estimate. This process ma! consider direct

relationships. (Gnown as -apitaliation rates), !ield or discount rates (reflecting measures of

return on investment), or $oth. In general, the principle of su$stitution produces the highest

return commensurate with a given level of ris leads to the most pro$a$le value figures.


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@.&.1. -ost $pproach. This comparative approach considers the possi$ilit! that, as an alternative

to the purchase of a given propert!, one could ac#uire a modern e#uivalent asset that would

provide e#ual utilit!. In a real estate context, this would involve the cost of ac#uiring e#uivalent

land and constructing an e#uivalent new structure. Hnless undue time, inconvenience, and ris

are involved, the price that a $u!er would pa! for the set $eing valued would not $e more than

the cost of the modern e#uivalent. 2ften the asset $eing valued will $e less attractive than the

cost of the modern e#uivalent $ecause of age or o$solescence. depreciation ad%ustment is

re#uired to the replacement cost to reflect this. (See * ? The Cost pproach for ;inancial

"eporting (E"C).)

@. Valuations developed for purposes other than esta$lishing Mar&et "alue ma! appl! similar

approaches. ;or example<

@..1 n entit! ma! appl! a cost approach to compare the cost of other $uildings with the cost of

proposed $uilding to the entit!, there$! ascertaining the $argain or premium accruing a particular

propert! at variance with the maret at large. This application focuses on a particular propert!and what ma! $e a non9maret cost.

@..& n owner of land ma! pa! a premium price for ad%acent propert!. In appl!ing a sales

comparison approach to determine a maximum price that owner is willing to pa! for ad%acent

land, a Valuer arrives at a figure that ma! well exceed its Mar&et "alue. Such an estimate is

called +pecial "alue.

@.. n investor ma! appl! a rate of return that is non9maret and particular onl! to the investor.

In appl!ing an income capitali5ation approach to determine the price that investor is willing to

pa! for a particular investment $ased on the investor's anticipated rate of return, a Valuer arrivesat an estimate of In!estment "alue or orth rather than Mar&et "alue.

@./ Aach valuation approach has alternative methods of application. The Valuer's expertise and

training, local standards, maret re#uirements, and availa$le data com$ine to determine which

method or methods are applied. The reason for having alternative approaches and methods is to

provide the Valuer with a series of anal!tical procedures and reconciled into a final value

estimate, depending upon the particular t!pe of value involved.

@.0 Valuation approaches and methods are generall! common to virtuall! all t!pes of valuation,

including real propert!, personal propert!, $usinesses, and financial interests. :owever, valuation

of different t!pe of propert! involves different sources of data appropriatel! reflect the maret n

which the propert! (and or service or $usiness) is to $e valued. ;or example, individual

$uildings are commonl! sold and valued in the relevant real estate maret whereas the values of

the shares of stoc in propert! compan! that owns a num$er of $uildings are reflected $! pricing

in the relevant shares maret.

Code of Conduct

1.0 Introduction

It is fundamental to the operation of International Valuation Standards that valuations performed

in compliance therewith should provide $! honest and competent -rofessional Valuers, free of

$ias or self9interest, whose reports are clear, will not mislead, and will disclose all matters

essential to the proper understanding of the valuation. Valuers should alwa!s promote and

preserve pu$lic trust in the valuation profession.

-hilippines 1.1

Pri!ate +ector realty ser!ices practitioners comprising real estate salesman, real estate bro&ers,

real estate appraisers and real estate consultants are currently regulated by the )ational -ode

of Ethics for %eal Estate +er!ice Practitioners /)-E%E+P0 #hich are complementary to this

-ode of -onduct.

-hilippines 1.&


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he Public +ector, and particularly $ssessors and their staff, must.

i0Promote and preser!e public trust inherent in the assessment ser!ice2

ii0Maintain a high standard of honesty and integrity and conduct their acti!ities in a manner not

detrimental to the go!ernment, the public and their profession2 and

iii0Ensure that all of their staff, persons or subordinates adhere to this -ode f -onduct.

2.0 :cope

&.1 Valuers compl! with these Standards either $! choice or $! re#uirement placed upon them $!

law or regulation or at the instructions of clients, intended users, and or national societies or

organi5ations. valuation claiming to $e prepared under International Valuation Standards $inds

the Valuer to follow this Code of Conduct.

&. Valuations prepared under these Standards would onl! normall! $e accepta$le to end users

when preapared $! a trained professional mm$er of a recogni5ed national professional $od! that

itself competence, experience, ethics, and disclosure n valuation. In those countries where the

infrastructure does not !et exist for a trained and regulated profession of valuation, primar!

responsi$ilit! lies with the client users to satisf! themselves as to the suita$ilit! of Valuers to

undertae the tas.

).0 ;efinitions

.1 $ssumptions are suppositions taen to $e true. ssumptions involve facts, conditions, or situations affecting the su$%ect of, or approach to, a valuation $ut which ma! $e capa$le or

worth! of verification. The! are matters that, once declared, are to $e accepted in understanding

the valuation. ll assumptions underl!ing a valuation should $e reasona$le.

ll valuations are dependent to some degree on adoption of assumptions. In particular,

The definition of Mar&et "alue incorporates assumptions to ensure consistenc! of approach and

the Valuer ma! need to mae further assumptions in respect of facts which cannot $e nown or

facts which could $e determined.

.& imiting -onditions are constraints imposed on valuations.

imiting conditions ma! $e imposed<

$! clients (e.g., where the Valuer is not permitted to investigate full! one or more of the

significant factors liel! to affect valuations)6

$! the Valuers (e.g., where the clients ma! not pu$lish the whole or an! part of the valuation

report or valuation certificate without the Valuer's prior written approval of the form and context

in which it ma! appear)6 or

$! local statutor! law

. "aluer is a person who possesses the necessar! #ualifications, a$ilit!, and experience to

execute a valuation. In some countries, licensing is re#uired $efore a person can act as a Valuer.

The Valuer shall $e a person of good repute who<

• has o$tained an appropriate degree at a recogni5ed center of learning, or an e#uivalent

academic #ualification6

• has suita$le experience and is competent in valuing in the maret and categor! of the

asset6

• is aware of, understands, and can correctl! emplo! those recogni5ed methods and

techni#ues that are necessar! to produce a credi$le valuation6

• is a mem$er of a recogni5ed national professional valuation $od!6


10/31

• pursues a programme of professional learning throughout his or her career6 and

• follows all the re#uirements of this Code of Conduct.

If, in an! countries, there are no appropriate academic #ualifications as stated a$ove, the Valuer

should have a sufficient level of training and experience in the valuation and $e either<

a mem$er of a recogni5ed national professional valuation $od!6

or licensed $! government or appointed $! the Courts or an uthorit! of an e#uivalent status.

in some countries, to practice s a Valuer a licence or certification $! an independent $od! is

re#uired $! law.

./ n Internal "aluer is a Valuer ho is in the emplo! of either the entit! that owns the assets or

the accounting firm responsi$le for preparing the entit!'s financial record and or reports. n

Internal Valuer is generall! capa$le of meeting all the re#uirements of independence and

professional o$%ectivit! re#uired under this Code of Conduct, $ut for reasons of pu$lic presentation and regulation ma! not alwa!s $ accepta$le to fill the role of independent Valuer in

certain t!pes of assignments.

.0 n E4ternal "aluer is a Valuer who, together with an! associates, has no material lins with

the client, an agent acting on $ehalf of the client, or the su$%ect of the assignment.

. Since all Valuers undertaing assignments under International Valuation Standards must meet

the re#uirements of impartialit!, professional o$%ectivit! and disclosure re#uired under this Code

of Conduct, such Valuers should meet the re#uirements for independence which ma! attach to

man! assignments. +ith some clients, and in certain countries, additional restraints on who ma!undertae a valuation for a specific purpose ma! $e applied $! regulation or law. It is not the

purpose of this Code to define different degrees of independence $e!ond the standard of

independence alread! re#uired under this Code.

/.0 +thics

Valuers should at all times maintain a high standard of honest! and integrit! and conduct their

activities in a manner not detrimental to their clients, the pu$lic, their profession, or their

respective national professional valuation $od!.

/.1 Integrity

/.1.1 Valuer must not ac in a manner that is misleading of fraudulent.

/.1.& Valuer must not nowingl! develop and communicate a report that contains false,

inaccurate, or $iased opinions and anal!sis.

/.1. Valuer must not contri$ute to, or participate in, a valuation service that other reasona$le

Valuers would not regard to $e ethical and %ustified.

/.1./ Valuer must act legall! and compl! with the laws and regulations of the countr! in which

he or she practices or where an assignment is undertaen.

/.1.0 Valuer must not claim, nowingl! let pass, erroneous interpretation of professional

#ualifications that he or she does not possess.

/.1. Valuer should not nowingl! use false, misleading r exaggerated claims or advertising in

an effort to secure assignments.

/.1.3 Valuer shall ensure that an! staff person or su$ordinate assisting with the assignment

adhere to this Code of Conduct.

.6 -onflicts of Interest

/.&.1 Valuer must not act for two or more parties in the same matter, except with the written

consent of those concerned.


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/.&.& Valuer must tae all reasona$le precautions to ensure that no conflicts of dut! arise

$etween the interests of his or her clients and those of their clients, the Valuer, his or her firm,

relatives, friends, or associates. -otential conflicts should $e disclosed immediatel!. If such

conflicts come to the attention of the Valuer after completion of the valuation, disclosure must $e

made within a reasona$le time.

.3 -onfidentiality

/..1 Valuer must at all times deal with client's affairs with proper discretion and

confidentialit!.

/..& Valuer must not disclose sensitive factual data o$tained from a client, or the results of an

assignment prepared for a client, to an!one other than those specificall! authori5ed $! the client

except when legall! re#uired to do so as in situations where a Valuer must compl! within the

certain #uasi9%udicial proceedings within the recogni5ed national professional valuation $od! of

which the Valuers is a mem$er.

/./ Impartiality

/./.1 Valuer must perform an assignment with the strictest independence, o$%ectivit!, and

impartialit!, and without accommodation of personal interests.

/./.& Valuer must not accept an assignment that includes the reporting of predetermined

opinions and conclusions.

/./. ;ees connected with an assignment must not depend on the predetermined outcome of an!

valuation or other independent, o$%ective advice contained in the valuation report.

/././. +hether the Valuer's fee is or is not contingent upon an! aspect of the report must $e

disclosed.

/./.0 Valuer must not rel! upon critical information supplied $! a client, or an! other part!,

without appropriate #ualification or confirmation from an independent source unless the nature

and extent of such reliance is specified as a limiting condition.

/./. Valuer should not accept an assignment to report on assumed h!pothetical conditions that

are unliel! to $e reali5ed in an! reasona$le timescale.

/./.3 :!pothetical conditions that are a reasona$le possi$ilit! ma! $e reported on provided the!

are accompanied $! some discussion $oth of the prospects of reali5ing the h!pothesis and a

consideration of value that reflects the true situation prevailing, e.g., a situation where a client

wants to now what the value of land will $e pending detoxification.

/./.? Valuer should not use or rel! on unsupported conclusions $ased on pre%udice of an! ind

or report conclusions reflecting an opinion that such pre%udice is necessar! to maintain or

maximi5e value.

/./.@ In reviewing another Valuer's report, a Valuer shall exhi$it impartial %udgment and %ustif!

his or her reasons for agreeing or disagreeing with the conclusion of the report.

.0 Competence

Valuer must have the nowledge, sill, and experience to complete the assignment efficientl!

in relation to an accepta$le professional standard. 2nl! those Valuers a$le to conform to the

definition of the Valuer set out in Eefinitions (para. . a$ove) should undertae wor in

connection with these Standards.

0.1 $cceptance of Instructions


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0.1.1 -rior to accepting an assignment or entering into an agreement to perform an! assignment,

a Valuer must properl! identif! the pro$lem to $e addressed and $e certain he or she has the

experience and nowledge, or in the event of an assignment overseas, will $e a$le to associate

with a professional possessing the experience and nowledge of the maret forces, language, and

law to complete the assignment competentl!.

0.& 7utside $ssistance

0.&.1 +hen engaging the services of outside assistance necessar! to complement a Valuer's own

sills, a Valuer should first esta$lish that those assisting have the re#uisite sills and ethical

principles.

0.&.& The client's consent should $e o$tained when outside assistance is re#uired, and the

identit! of the assistants and extent of their role should $e disclosed in the Valuer's report.

0. Efficiency and 8iligence

0..1 Valuer should act promptl! and efficientl! in carr!ing out the client's instructions and

should eep the client informed of the Valuer's progress.

0..& Instructions should $e declined where circumstances preclude sufficient diligent en#uir!,

#ualit! of wor, and completion within reasona$le time.

0.. Before the valuation is reported, written instructions should $e received from the client

and or confirmed in writing $! a Valuer in sufficient detail to avoid an! misinterpretation.

0../ Valuer should mae diligent en#uiries and investigations to ensure that the data for

anal!sis in the valuation are correct and can $e relied upon.

0..0 Valuer should prepare a wor file for each assignment which, upon completion, should

contain a true cop!, in paper or electronic form (suita$l! $aced9up), of all written reports,

correspondence, and memoranda plus ade#uate file notes which su$stantiate the Valuers opinion

$! wa! of en#uir!, o$%ective comparison, deduction, and calculation.

0.. The wor file for each assignment should $e retained for a period of at least five !ears after

completion of the assignment.

3.0 ;isclosure

It is essential that Valuers develop and communicate their anal!ses, opinions, and conclusions to

users of their services trough reports that are meaningful and not misleading reports that disclose

an!thing that might $e taen to affect o$%ectivit!.

.1 The Valuation report should set out a clear and accurate description of the scope of the

assignment and its purpose and intended use, disclosing an! assumptions, h!pothetical scenarios,

or limiting conditions that directl! affect the valuations and, where appropriate, indicating their

effect on the value.

.& The valuation report must provide sufficient information to descri$e the wor performed, theconclusions reached, and the context in which the! were shaped.

. Valuer must disclose an! direct or indirect personal or corporate relationship with the

propert! or compan! that is the su$%ect of an! assignment and that might lead to a potential

conflict of interest.

./ +here a Valuer is acting as an Internal Valuer, the relationship with the entit! controlling the

asset should $e disclosed in the valuation report.

.0 +here a Valuer is acting as an Axternal Value $ut also has wored in a fee9earning capacit!

for the client, such relationship must $e disclosed lest a third part!, having to rel! on thevaluation, deem the Valuer's o$%ectivit! compromised.


13/31

. n! limitations to the #ualit! of the service that a Valuer is a$le to offer must $e disclosed

whether this is due to externall! imposed constrains or peculiar to the Valuer or the assignment.

+here outside assistance has $een sought the Valuer must disclose the identit! of the assistants,

the extent of reliance on, and the nature of, such assistance.

.3 Valuer must place a restriction against the pu$lication of a valuation or its conclusionswithout consent so that the Valuer can eep a measure of control over the form and context in

which his or her valuations are pu$licl! disclosed.

.? Valuer should disclose an! departures from the International Valuation Standards.

.?.1 Standards are devised for the generalit! of situations and cannot cater to ever! eventualit!.

There will $e occasions where departure from Standards is inescapa$le. +hen such situations

arise, departure would unliel! to constitute a $reach of these Standards, provided such departure

is reasona$le, complies with the principles of ethics and measures of competence, and a rationale

for such departure is provided in the valuation report.

7.0 *eporting of (alues

Valuation assignments ma! deal with one or more properties. The st!le of the valuation report

must $e tailored to the nature of the assignment and the needs of the client while meeting certain

minimum re#uirements as to content

3.1 This paragraph sets out the minimum contents of an! report or certificate. The following

items must $e included. (lso see para.0.1 of IVS , Valuation "eporting.)

• the identit! of the Valuer and the date of the report6

• the identit! of the client6

• the instructions, date of the value estimate, purpose and intended use of the valuation6

• the $asis of the valuation, including t!pe and definition of value6

• the identit!, tenure, and location (s) of the interest (s) to valued6

• the date and extent of inspections6

• the scope and extent of the wor used to develop the valuation6

• an! assumptions and limiting conditions, and an! special, unusual, or extraordinar!

assumptions6

• a compliance statement that the valuation has $een performed in accordance with these

Standards and an! re#uired disclosures.• The professional #ualification and signature of the Valuer6 and

• s re#uired in some countries, specific certification $! the Valuer in the prescri$ed form.

3.& The use of the valuation and the complexit! of the propert! determine the level of detail

appropriate to the report. +here a single or complex propert! is $eing reported, it ma! $e

appropriate for the report to go into greater detail on the date upon which the valuation is $ased

and the reasoning $ehind the conclusions. +here a report is $eing prepared for a portfolio of

properties for use in an audit functuion, the level of detailed data re#uired for each of the

properties within the portfolio ma! $e less extensive.

3. This section is not to $e taen to represent the en#uiries, research and anal!sis needed to

perform a proper valuation, merel! the minimum that must $e presented in the report.

Property #ypes

1.0 Introduction

"eal propert! represents a considera$le portion of the world's wealth, and its valuation is

fundamental to the via$ilit! of glo$al propert! and financial marets. "eal propert! has to $e

distinguished from other categories of propert!, namel! personal propert!, $usinesses, and

financial interests. +ithout further #ualification or identification, the word propert! ma! refer toall or an! of these categories. Because Valuers often encounter assignments involving propert!

t!pes other than real propert! or properties whose value includes several propert! categories, an


14/31

understanding of ach propert! t!pe and its distinguishing characteristics is essential. +hile the

customar! division of propert! into four discrete categories has long $een recogni5ed, new

entities and instruments have proliferated over recent decades. The accepted frame of reference

has readil! accommodated these new classes of propert! and familiarit! with speciali5ed

propert! t!pe and interests is $ecoming ever more integral to valuation practice. The

International Valuation Standards Committee recogni5es the following four propert! t!pes6 real

propert!, personal propert!, $usinesses and financial interests.

2.0 *eal Property

&.1 %eal Property is an interest in real estate. This interest is normall! recorded in a formal

document, such as a title deed or lease. Therefore, propert! is a legal concept distinct from real

estate, which represents a ph!sical asset. "eal propert! encompasses all the rights, interests, and

$enefits related to the ownership of real estate. In contrast, real estate encompasses the land

itself, all things naturall! occurring on the land, and all things attached to the land, such as

$uildings and site improvements.

Philippine 6.1

$ definition of immo!able or real property is pro!ided in $rticle )os. 1 /10 9 15. 'oo& II of

the -i!il -ode, %eference is made to real rights o!er immo!able property, ho#e!er no reference

is made regarding to interests in immo!able property. /see +upplementary Philippine :lossary.0

&.1.1 The term realty is sometimes used to distinguish either real propert! or real estate from

items of personal propert!, which in certain countries are legall! referred to as personalty.

&.& The com$ination of all the rights associated with the ownership of real propert! is sometimesreferred to as the bundle of rights. These can include the right to use, to occup!, to enter, to sell,

to lease, to $e#ueath, to give awa!, or to choose to exercise an! or none of the a$ove mentioned.

In man! situations, specific rights ma! $e separated from the $undle and transferred, leased, or

alienated $! the countr!.

&.&.1 "ights or interests in real propert! derive from legal estates. egal estates are defined $!

the laws of the countr! in which the! exist. egal estates are usuall! su$%ect to outside

limitations imposed $! the countr!, such as taxation (assessmentsratings), compulsor!

ac#uisition (eminentdomain compulsor! purchasecondemnation), regulation (police

powerplanning5oning), or appropriation $! government in cases of intestac! (escheat$onavacantia).

&.&.& $solute ownership su$%ect onl! to limitations imposed $! the countr! is nown as a fee

simple estate, or freehold.

&.&. eases are contractual arrangements, which create other estates in real propert!. Hnder a

lease, the landlord, or lessor, maintains the ownership interest, nown in some countries as the

leased fee estate, with the right of use and occupanc! $eing conve!ed or granted to a tenant, or

lessee. The interest which the tenant, or lessee, ac#uires under the lease, nown in some

countries as the leasehold estate, is the right of use and occupanc! for a stated term under certain

conditions.

&.&..1 +ubleaseholds are created when the tenant or lease in a prior lease conve!s to a third

part!, a su$lessee, the interest that the tenant. 2r lessee, en%o!s, i,.e., the right to use and occup!

the propert!.

&.&..& Valuer anal!5es whether an! terms or conditions in a lease ma! affect propert! value.

&.&./ Besides restrictions $! the countr!, other lawful limitations ma! $e imposed upon the rights

inherent in the ownership of real propert!.

&.&./.1 8eed restrictions and restricti!e co!enants, which run with the land, ma! affect the use,

development, and conve!ance of ownership.


15/31

&.&./.& Easements are non9possessor! (incorporeal) interests in landed propert! conve!ing use,

$ut not ownership, of a portion of that propert!. "ights9of9wa! or privileges, ac#uired through

use or contract, to pass over a portion or strip of landed propert! owned $! another.

&.&.0 2ther important ownership and financial interests ma! $e associated with real propert!.

&.&.0.1 Partial or (ractional interests in real propert! rights are created $! legal divisions of the

ownership interest. ;or example, propert! is not onl! owned in sole proprietorships. It ma! also

$e held $! corporations (shareholders), partnerships, %oint tenancies, and tenancies, and tenancies

in common.

&.&.0.& Trusts create another t!pe of interest in real propert! rights. The interest of a $eneficiar!

under a trust is nown as the euitable or euity interest as opposed to the legal interest of the

trustee(s). ( $eneficiar! is said to hold e#uita$le title while legal title is held $! the trustee=s>).

&.&.0. Securit! or financial interests are created $! mortgage pledges where the propert! is used

as collateral to secure finance or a charge is taen over the propert!. n owners' e#uit! portion in

the propert! is considered a separate financial interest.

&. "eal propert!, in the terminolog! of accounting, usuall! falls into the categor! of fixed, or

long9term, assets. Sometimes, real propert! ma! $e considered a current asset, e,.g., where land

or improved real estate is held in inventor! for sale.

&..1 The asset is the interest held in the real estate, i.e., the asset is the real propert!.

&..& It is the ownership of the asset that is valued rather than the real estate as a ph!sical entit!.

&.. +here the ownership of an asset is purchased and sold in a maretplace, maret participants ascri$e specific values to ownership of particular interests in real estate. These

values ascri$ed $! maret participants form the o$%ective $asis for estimating the Mar&et "alue

of real propert!.

&./ Valuation of real propert! is undertaen for a variet! of reasons, which include the following

categories, financial reporting, transactions involving transfers of ownership, loans and

mortgages to $e secured $! propert!, litigation, tax matters, and counseling or investment

decision maing. +ith the exception of the last categor!, Mar&et "alue is the value $asis in all

the following groupings.

&./.1 Valuations of fixed assets prepared for financial statements and related accounts to reflect

the effect of changing prices or current values6

&./.& Valuations to assist a prospective $u!er in setting an offering, to assist a prospective seller

in esta$lishing an accepta$le asing price, or to help $oth parties in determining the sale price for

a proposed transaction6

Valuations to esta$lish the $asis for recogni5ing or merging the ownership of multiple

properties6

&./. Valuations re#uired to estimate the value of collateral propert! offered for a proposedmortgage loan or to esta$lish a $asis for insuring or underwriting a loan on the propert!6

&././. Valuations performed in compulsor! ac#uisition (eminent domaincondemnation

proceeding), in litigation or ar$itration involving disputes over contracts and partial interests, and

settlements of damages caused $! environmental accidents or violations6

&./.0 Valuations re#uired to estimate assessed valuerating6 to separate assets into deprecia$le

and non9deprecia$le items and, there$! estimate applica$le depreciation6 or to determine gift or

inheritance taxes6

&./. Valuations and ancillar! assignments performed for a $road spectrum of clients, e.g.,

investors, insurers, claims ad%usters, auctioneers or li#uidators, and 5oning $oards (on the

pro$a$le effects of planning proposals) as well as for a diversit! of purposes, e.g., maret or


16/31

feasi$ilit! anal!ses, cost$enefit anal!ses, determination of $oo value for new stoc issues (or

revision thereof), and the setting of prospective rent schedules and lease provisions.

&.0 In an! valuation of real propert!, the relevant characteristics of the propert! must $e

identified. -ropert! characteristics include<

&.0.1 The location, the ph!sical and legal description, and the economic or income producing

attri$utes6

&.0.& the real propert! interest simplefreehold, leased fee, leasehold, su$leasehold) to $e valued6

&.0. an! personal propert!, trade fixtures, or intangi$le items that are not real propert! $ut that

are included in the valuation (see para .& $elow)6

&.0./ an! nown easements, restrictions, encum$rances, leases, covenants, or special

assessmentsratings on the propert! or other items of similar nature6 and

&.0.0 +hether the su$%ect propert! is a partial or fractional interest or a ph!sical segment of a

larger land parcel.

&. The valuation of real propert! ma! influenced $! special considerations, such as<

&..1 re#uirement to anal!5e the merger of estates (+ynergistic "alue) or the separation of

propert! interests (-omponent "alue)6

&..& The effects of liel! 5oning changes and infrastructure development, e.g., the extension of

pu$lic utilit! s!stems or accessed corridors6

&.. Eepressed marets characteri5ed $! wea demand, oversuppl!, and few sale transactions,

where estimates of Mar&et "alue ma! $e difficult to support on the $asis of current or historical

evidence. In such circumstances, the focus of maret participants ma! shift to other indicators of

propert! value or performance.

).0 Personal Property

.1 Personal Property refers to ownership of the interest in items other than real estate. These

items can $e tangi$le, such as a chattel, or intangi$le, such as a de$t or patent. Tangi$le personal

propert! represents interests in items that are not permanentl! attached or affixed to real estate

and generall! characteri5ed $! their movea$ilit!. In some countries, items of personal propert!are legall! recogni5ed as personalty in distinction to realty (see -ropert! T!pes, para &.1.1)

-hilippine .1.1

$ definition of mo!able or personal properties is pro!ided in $rticle )os. 1*/60 9 1;. 'oo& II

of the -i!il -ode. /see +upplementary Philippine :lossary0.

.& Axamples of personal propert! includes interests in<

.&.1 Identifia$le, porta$le, and tangi$le o$%ects considered $! the general pu$lic to $e personal,

e.g., furnishing, collecti$les, and appliances. 2wnership of the current assets of a $usiness, tradeinventories, and supplies is considered to $e personal propert!.

.&.1.1 In some countries, a$ove are referred to as goods and chattels personal.

.&.& *on9realt! fixtures, also called trade fi4tures or tenant’s fi4tures ( fi4tures and fittings), are

attached to the propert! $! the tenant and used in conducting the trade or $usiness. easehold

impro!ements, or tenant’s impro!ements, are fixed improvements or additions to the land or

$uildings, installed and paid for $! the tenants to meet the tenant's needs. Trade or tenant's

fixtures are remova$le $! the tenant upon expiration of the lease. Their removal causes no

serious damage to the real estate. easehold or tenant's improvements are finishings or fittings,

such as partitions and outlets constructed on site. The useful life of tenant's improvements ma!


17/31

$e shorter or longer than the lease term, the tenant ma! $e entitled to compensation reflecting the

extent to which the leasehold improvements have increased the value of the rented premises.

.&.&.1 B! extension, the a$ove categor! ma! include speciali5ed, non9permanent $uildings,

machiner! and e#uipment.

.&.&.& In some countries, the term ;urniture, (i4tures and Euipment (;; J As) comprises $oth

of the categories descri$ed in para. .&.1 and .&.&

.&. *et woring capital and securities, or net current assets, are the sum of li#uid assets less

short9term lia$ilities. *et woring capital ma! include cash, mareta$le securities, and li#uid

supplies less current lia$ilities such as accounts pa!a$le and short9term loans.

.&./ Intangible assets are interest held in intangi$le entities. Axamples of intangi$le propert!

interests include the right to recover a de$t and the right to profit from an idea. It is the right, i.e.,

to recover or to profit, as distinct from the intangi$le entit! itself, i.e., the de$t or the idea, which

is the propert! and to which value is ascri$ed.

. valuation that includes $oth personal propert! and real propert! must identif! the personal

propert! and consider its effects on the value estimate given.

..1 Valuations of personal propert! can $e an element of a larger assignment. The definition of

value $! which the personal propert! is valued must $e consistent with the purpose of the

propert! valuation, whether that purpose is to sell, to renovate, or to demolish the propert!.

-ersonal propert! ma! $e valued according to its Mar&et "alue under various assumptions, e.g.,

that the personal propert! is included among the assets of a hotel that was sold as a going

concern, or that the personal propert! was among the assets of a hotel, which went out of $usiness, and conse#uentl! were to $e li#uidated or sold for salvage. (see IVS &, para. .@)

..& Valuer must $e a$le to distinguish personal propert! from real propert! and on occasion

ma! $e re#uired to exclude it, e.g., in assignments undertaen for government9related functions

such as taxation or compulsor! ac#uisition.

.. In a valuation of $usiness assets, the Valuer must consider whether such assets are to $e

valued as part of a going concern or as separate assets.

./ Valuer should $e familiar with local customs regarding whether an item is considered

personal propert! or real propert!. In certain circumstances, a securel! affixed item, normall!treated as personal propert!, ma! revert to real propert! upon termination of occupanc!,

especiall! if its removal and relocation would result in costl! damage to the item itself or the

$uilding in which it is located.

.0 The techni#ues used in the three valuation approaches ma! $e applied to the valuation of

personal propert!. (see * 0, Valuation of -ersonal -ropert!.)

.0.1 If a Valuer finds that personal propert! included in the propert! su$%ect to valuation is

either superior or inferior to the t!picall! found in compara$le properties, the Valuer should

mae allowance for the differing contri$utor! value of the personal propert!.

.0.& In certain assignments, a Valuer ma! have to determine the degree of ph!sical

deterioration, functional o$solescence, and externalK 2$solescence afflicting items of personal

propert!. Such a determination will also consider the remaining economic life of the $uilding(s)

with which the related personal propert! is associated.

/.0 5usinesses

/.1 business is an! commercial, industrial, service or investment entit! pursuing an economic

activit!. Businesses are generall! profit9maing entities operating to provide consumers with

products or services. Closel! related to the concept or $usiness entit! are the terms operatingcompan!, which is a $usiness that performs an economic activit! maing selling or trading a

product or service, and going concern, which is an entit! normall! viewed as continuing in


18/31

operation in the foreseea$le future with neither the intention nor necessit! of li#uidation or of

curtailing materiall! the scale of its operations.

/.& Business entities are constituted as legal entities. $usiness ma! $e unincorporated or

incorporated.

/.&.1 Axamples of unincorporated entities include sole proprietorships, %oint ventures and general

and limited partnerships.

/.&.& Axamples of incorporated entities include closel! held corporations, or close companies,

and pu$licl!9held corporations, or pu$lic companies and some %oint ventures whose stoc are

availa$le to and held $! the pu$lic.

/.&. 2ther legal forms of $usiness entities include trust arrangements where$! control is vested

in either individual trustees or corporate trustees, and multiple entities com$ining parent and

associate or su$sidiar! corporations, partnership interests, and trusteeships.

/. Business entities cut across an extremel! $road range of economic activities, encompassing

$oth private and pu$lic sectors. Business activities include manufacturing, #holesaling,

retailing, lodging, health care, and financial, legal, educational and social ser!ices, among

others. Business entities esta$lished to provide infrastructures services to the pu$lic, i.e., pu$lic

utilities, are in man! countries set up as corporation controlled $ut not owned $! the government.

/..& -roperties such as hotels6 fuel stations6 restaurants6 and movie theaters6 or cinemas,

variousl! called properties associated #ith a business entity, properties #ith trading potential,

trade related properties or operational entities, are valued at 4aret Value, $ut their 4aret

Value includes value components constituting land, $uildings, personal propert!, intangi$leassets, and the $usiness itself. Because these properties are commonl! sold in the maret as an

operating pacage, separate identification of land, $uilding, and other values ma! $e difficult, so

additional care should $e taen to identif! the propert! components included in the valuation.

(see * 1&, Valuation of Trade "elated -ropert!.)

/./ Hnder the terminolog! of accounting, $oth tangi$le and intangi$le assets are included among

the assets of a $usiness entit!.

/./.1 Tangi$le assets include current assets, and long9term assets such as realt!, fixtures,

e#uipment, and tangi$le personal propert!.

/./.& Intangi$le assets, which are considered intangi$le personal propert!, include management

sill, mareting now9how, credit rating, an assem$led wor force, an operational plant,

goodwill, and ownership of various legal rights and instrument (e.g., patents, cop!rights,

franchises and contracts.)

/./.&.1 oodwill ma! include two distinct components, goodwill that is propert! specific, or

inherent within the propert! and transfera$le to a new owner on sale of the propert!, and

personal goodwill that is associated with the proprietor or manager.

/.0 The Valuation of $usinesses (see the uidance *ote on Business Valuation, * , para.0.D)is undertaen for a variet! of purposes including<

/.0.1 The ac#uisition of and disposition of an individual $usiness, a $usiness merger, or the

estimation of the value of the capital stoc owned $! the shareholders in the $usiness.

/.0.& Business valuation are often used as a $asis for allocating and reflecting the Value in Hse of

the various assets of a $usiness. Business valuations ma! also provide the $asis for estimating the

extent of o$solescence of specified fixed assets of a $usiness.

/. Business valuations ma! $e $ased on the Mar&et "alue of the $usiness entit!. The Mar&et

"alue of a $usiness is not necessaril! e#uivalent to the "alue in


19/31

satisfies or does not satisf! $oth Mar&et "alue and (air "alue definitions. (see Concepts

;undamental to enerall! ccepted Valuation -rinciples, para.?.1). Valuations of going concerns

(defined in -ropert! T!pes, para. /.1) are generall! $ased on Value in Hse. ;or financial

reporting purposes, "alue in


20/31

$ >oint !enture is a form of partnership and should thus be go!erned by the la# of partnerships.

/$urbach !s. +anitary ares Manufacturing -orp. 1?@ +-%$ 13@11A?A

0.1. n option is an agreement to eep open an offer to $u!, sell, or lease real propert! for a

specified period and at a stated price. n options creates a contractual right the exercise of which

is generall! contingent upon the fulfillment of specified conditions. The holder ma! or ma! notultimatel! choose to exercise the option. In this respect, an option differs from a contract to $u!

or sell a propert!. Purchase options ma! also $e written into leases. -urchase options often

contain the provision that certain parts of all rents paid ma! $e applied to the purchase price.

-hilippine 0.1..1

+ee +upplementary Philippine :lossary for definition cited in $rticle 136, 'oo& I" of the -i!il

-ode.

0.1./ "eal estate investment through the ownership of securities, or instruments securing $oth

de$t and e#uit! positions, represents an alternative to the direct ownership of propert!. Investors

are a$le to own and trade shares of an interest in a propert! or pool or properties in the same wa!

the! would $u! and sell shares of corporate stoc.

0.1./.1 The maret for such securities includes $oth a private, or institutional, sector

(partnerships, corporations, pensionsuperannuation funds, and insurance companies) and a

pu$lic sector (individual investors who trade in a securities maret.)

0.1./.& Securiti5ed investment instruments include real estate investment trusts ("AITs)

(propert! investment or unit trusts), collaterali5ed mortgage o$ligations (C42s), commercial

mortgage9$aced securities (C4BSs), real estate operating companies ("A2Cs), and separateand commingled accounts. (Such instruments are discussed in the IVSC +hite -aper, Valuation

of "eal Astate Serving as Collateral for Securiti5ed Instruments.)

0.& ;inancial interests are intangi$le assets and can include<

0.&.1 the rights inherent in the ownership of a $usiness or propert!, i.e., to use, to occup!, to sell,

to lease, or to manage.

0.&.& the rights inherent within a contract granting an option to $u!, or a lease containing a

purchase option, i.e., to exercise or not to exercise6 or

0.&. the rights inherent in ownership of a securit! issue (i.e., to hold or to dispose thereof.)

0. ;inancial interests re#uire valuation for a wide variet! of reasons.

0..1 financial interest ma! $e included among the assets of a partner. To esta$lish the total

value of assets owned $! the partner, the value of the financial interest must $e determined. 2r a

partner ma! wish to sell his or her interest, or the interest ma! have passed into an estate su$%ect

to inheritance taxes and pro$ate proceedings. general partner ma! also purchase interest for the

purpose of transferring them to a limited partnership.

0..& 2ptions to $u!, which are often o$taina$le for a small amount of mone!, createconsidera$le leverage, or gearing, the impact of which must $e considered in the final transaction

price. ease purchase options restrict the mareta$ilit! of the leased propert!, and ma! limit the

4aret Value of the leased propert! andor leasehold interest.

0.. Valuations of securiti5ed investment instruments are done for purposes of underwriting and

rating the securities prior to initial pu$lic offerings.

0./International ccounting Standard, IS &, ;inancial Instruments6 Eisclosure and

-resentation, para. 11, defines financial asset, financial liability, financial instrument, and euity

instrument2 IS &, para. &?, defines compound (financial) instrument. Hnder IS &, para. ?,an entit! shall disclose information a$out ;air Value for each class of financial assets and


21/31

financial lia$ilities, in a wa! that permits comparison with the corresponding carr!ing amount in

the $alance sheet, IS &, para. @&, summari5es the items an entit! is re#uired to disclose.

0./.1 financial asset is an! asset that is a) cash6 $) an e#uit! instrument of another entit!6 c) a

contractual right6 (i) to receive cash or another financial asset from another entit!6 or (ii) to

exchanged financial instruments with another entit! under conditions that are potentiall!favora$le6 or d) a contract that will or ma! $e settled in the entit!'s own e#uit! instruments and

is6 (i) a non9derivative for which the entit! is or ma! $e o$liged to receive a varia$le num$er of

the entit!'s own e#uit! instruments6 or (ii) a derivative that will or ma! $e settled other than $!

the exchange of a fixed amount of cash or another financial asset for a fixed num$er of the

entit!'s own e#uit! instruments.

0./.1.1 Common examples of financial assets representing a contractual right to receive cash in

the future are a) trade accounts receiva$le6 $) notes receiva$le6 c) loans receiva$le6 and d) $onds

receiva$le.

0./.& financial lia$ilit! is an! lia$ilit! that is< (a) a contractual o$ligation (i) to deliver cash or

another financial assets or entit!6 or (ii) to exchange financial assets or financial lia$ilities with

another entit! under conditions that are potentiall! unfavora$le to the entit!6 or ($) a contract

that will or ma! $e settled in the entit!'s own e#uit! instruments and is (i) a non9derivative for

which the entit! is or ma! $e o$liged to deliver a varia$le num$er of the entit!'s own e#uit!

instruments6 or (ii) a derivative that will or ma! $e settled other than $! the exchanged of a fixed

amount of cash or another financial asset for as fixed num$er of the entit!'s own e#uit!

instruments. ;or this purpose the entit!'s own e#uit! instruments that are themselves contracts

for the future receipt or deliver! of the entit!'s own e#uit! instruments. (n entit! ma! have a

contractual o$ligation that it can settle $! deliver! of cash or another financial asset, or $! pa!ment in the form of its own e#uit! instruments, either non9derivative or derivative.)

0./.&.1 Common examples of financial lia$ilities representing a contractual o$ligation to deliver

cash in the future are a) trade accounts pa!a$le6 $) notes pa!a$le6 c) loans pa!a$le6 and d) $onds

pa!a$le.

0./. financial instrument is an! contract that gives rise to $oth a financial asset of one entit!

and a financial lia$ilit! or e#uit! instrument of another entit!. ;inancial instruments range from

traditional primar! instruments such as $onds to various forms of derivative financial

instruments.

0./..1 Eerivative financial instruments give one part! a contractual right to exchange financial

assets with another part! under conditions that are potentiall! favora$le, or a contractual

o$ligation to exchange financial assets with another part! under conditions that are potentiall!

unfavora$le. :owever, the! generall! do not result in a transfer of the underl!ing primar!

financial instruments on inception of the contract, nor does such a transfer necessaril! tae place

on maturit! of the contract. (IS &, 1)

0./..& Eerivative financial instruments create rights and o$ligations, effectivel! transferring

$etween the parties to the instrument one or more of the financial riss inherent in an underl!ing

financial instrument. (IS &, 1).

0./..4an! other t!pes of derivative financial instruments em$od! a right or o$ligation to mae

a future exchange including interest rate and currenc! swaps, interest rate caps, collars and

floors, loan commitments, note issuance facilities, and letters of credit. (IS &, 1@.)

0./../ financial lease is regarded as a financial instrument $ut an operating lease in of not

regarded as a financial instrument. (IS &, @).

0././ n euity instrument is an! contract that evidences a residual interest in the assets of an

entit! after deducting all its lia$ilities.

0././.1 Axamples of e#uit! instruments include non9putta$le ordinar! shares, some t!pes of

preference shares, and warrants or written call options that allow the holder to su$scri$e for or


22/31

purchase a fixed num$er of non9putta$le ordinar! shares in the issuing entit! in exchange for a

fixed amount of cash or another financial asset (IS &, 1.)

0././.& purchased call option or other similar contract ac#uired $! an entit! that gives it the

right to reac#uire a fixed num$er of its own e#uit! instruments in exchange for delivering a fixed

amount of cash or another financial asset is not a financial asset of the entit! (IS &, 1/.)

0./.0 compound /financial0 instrument is a financial instrument that, from the issuer's

perspective, contains $oth a lia$ilit! and an e#uit! element.

0.0. The value of the assem$lage of all the various financial interests in a propert! ma! $e larger

or smaller than simpl! the sum of the individual interests in the propert!.

0.0.1 The value of the 1DDL ownership interest (inclusive of all shareholders or partners) in

income9generating properties held $! partnerships or s!ndications will liel! exceed the

aggregate value of minorit! interests in the properties. Similarl!, the value of a "AIT portfolio,

representing an assem$lage of various properties, is liel! to differ from simpl! the sum of the

values of all the properties that maeup the portfolio, a conse#uence attri$uta$le to the specific

assem$lage of properties in the portfolio andor the management of the portfolio.

0.0.& Valuer estimates the value of the entiret! or whole interest in the propert! $efore dealing

with the disaggregated or fragmented ownership interests.

0.0. In assignments involving financial interests, a Valuer must clearl! identif! the exact

ownership interest $eing valued, whether it $e a ma%orit! or minorit! ownership interest in a

$usiness or propert!, a contractual right, or a ma%orit! or minorit! ownership interest in

securiti5ed real estate investment. The Valuer must examine the contractual arrangements $etween parties or articles of association (articles of incorporation or articles of partnership) to

verif! the percentage share or stae that the financial interest in the propert! represents.

0. The valuation of financial interests involves highl! speciali5ed considerations. Therefore, a

Valuer must adapt the valuation approach or approaches to the nature of the financial interest

su$%ect to valuation.

0..1 ll three approaches ma! $e appropriate to the valuation of propert! held $! general

partnerships.

0..1.1 +hen compara$le sales are anal!5ed in the sales comparison approach, the Valuer determines whether non9realt! items were included in the purchase price. If non9realt! items

were included, the! should $e identified and their effect o value considered and estimated.

0..& In situations where a general partner has ac#uired interests in partnership or s!ndications

for sale as limited partnership interests, the Valuer considers the effect of non9realt! items on the

transaction price. These items ma! include special financing, guarantees of occupanc! or

income, and management services.

0.. 2ptions to $u! are considered at the cost to the $u!er when the option is exercised. Thus,

the cost of an option to $u! that has $een exercised is to $e added to the sale price of the realt!. Valuer considers the effect of the leverage, or gearing, produced $! a purchase option on the final

transaction price for a propert!. +hen a purchase option in a lease is exercised and past rent

pa!ments are credited to the purchase price, such pa!ments are treated as installment pa!ments.

0../ Hnits or shares in securiti5ed real estate investment are priced in marets where such

securities are traded. Valuations of real estate assets held as part of a pacage of investment

instruments ma! $e re#uired for underwriting or rating purposes prior to an initial pu$lic

offering. In such situations, a Valuer applies those approaches and methods consistent with the

income generating characteristics of the real estate.

.


23/31

;e"eloping and Communicating the (aluation

Valuations are developed on the $asis of the Mar&et "alue of an asset or on $ases other than

Mar&et "alue. Central to all valuations are the concepts of maret, price, cost and value. These

concepts are relevant $oth to valuations $ased on Mar&et "alue and those $ased on non9maret

criteria. 2f e#ual importance to the wor of Valuers is clear communication of the results of the

valuation and an understanding of how those results have $een o$tained. well prepared

Valuation "eport fulfills these functions. It is onl! appropriate, therefore, that the International

Valuation Standards should address each of these three fundamental aspects of valuation< IVS 1,

4aret Value Basis 2ther Than 4aret Value6 and IVS , Valuation "eporting.

5ases of (alue

1.0 Introduction

t the most fundamental level, value is created and sustained $! the inter9relationship of four

factors that are associated with an! product, service, or commodit!. These are utility, scarcity,

desire, and purchasing po#er.

1.1 The woring of the economic principle of suppl! and demand reflects the complex

interaction of the four factors of value. The suppl! of a good or service is affected $! its utilit!

and desira$ilit!. The availa$ilit! of the good or service is limited $! its scarcit! and effective

checs on the purchasing power of liel! consumers. The demand for a good or service is,liewise, created $! its utilit!, influenced $! its scarcit! and desira$ilit! and restrained $! limits

on purchasing power.

1.& The utilit! for which a good service is produced and the scarcit!, of the good or service are

generall! considered supply*related factors. Consumer preferences and purchasing power, which

reflect desire for the good or service and define the afforda$ilit! of the item, are generall!

considered demand*related factors.

2.0 arets

mar&et is an environment in which goods, services, and commodities are traded $etween $u!ers and sellers through a price mechanism. The concept of a maret implies the a$ilit! of

$u!ers and sellers to carr! on their activities without restriction.

&.1 The principle of supply and demand states that the price of a good or service, or commodit!

varies inversel! with the suppl! of the item and directl! with the demand for the item.

&.&. In propert! marets, supply represents the #uantit! of propert! interests that are availa$le for

sale or lease at various prices in a given maret within a given

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