Basic Principles of Ecology

Basic Principles of Ecology

ž In the early 1970s, ecologist Barry Commoner wrote the book “The Closing Circle”, in which he
discussed the rapid growth of industry and technology and their persistent effect on all forms of
life. He suggested that we can reduce the negative effects by sensitizing, informing and
educating ourselves about our connection to the natural world.

ž Commoner summarized the basics of ecology into what he termed “laws of ecology.”

1ST Law of Ecology

Everything is connected to everything else.

2nd Law of Ecology

Everything must go “somewhere” or There is no such thing as “away”!

3rd Law of Ecology

Nature knows best.

Left undisturbed, ecosystems become more stable in later stages of succession.

Organisms adapt to survive and make better use of an ecosystem’s resources.

4th Law of Ecology

There is no such thing as “free lunch” (tinstafl)

ž Everything we eat, wear and use during our lifetime has an environmental cost as well
as a peso cost.

ž Environmental costs can include: contaminated water supplies, loss of wildlife habitat,
soil erosion, air pollution, extinction of animal and plant species, depletion of the ozone
layer, acid rain and waste disposal.
5th Law of Ecology

Everything Has Limits.

¡ The resources available to us, both renewable and non-renewable, have limits.

¡ With non-renewable resources, once they are gone, they can never be replaced.

¡ Renewable resources will be available only if we conserve and replace them

faster than we use them.

¡ We must learn to balance our use of natural resources with their availability and
renewability.

Philippine Laws on Environment

ž PD 984 Pollution Control Law (1976)

¡ Prohibited the disposal into any of the water, air and/or land resources of the
Philippines any organic or inorganic matter or any substance in gaseous or liquid
form that will cause pollution

¡ Required securing a permit from the National Pollution Commission for the
discharge of all industrial wastes and other wastes which could cause pollution.

ž Presidential Decree (PD) 1151 (1977)

¡ The country’s statutory framework requiring Environmental Impact Assessment

(EIA) for all projects that will affect environmental quality

ž PD 1586 Philippines Environmental Impact Statement System (1978)

¡ Sets a systematic EIA System to ensure that the Filipino people will enjoy a
“balanced and healthy ecology” in the midst of intensive economic development

ž RA 6969 Toxic Substances and Hazardous and Nuclear Wastes Control Act (1990)

¡ Controlled toxic substances and hazardous and nuclear wastes by way of

regulating, restricting or prohibiting the importation, manufacture, processing,
sale, distribution, use and disposal of chemical substances and mixtures that
present unreasonable risk and/or injury to health or the environment.

¡ It also prohibited the entry, even in transit, of hazardous and nuclear wastes and
their disposal into the country.
ž RA 7586 National Integrated Protected Areas System Act (1992)

¡ Act providing for the establishment and management of National Integrated

Protected Areas System

ž RA 8550 Fisheries Code (1998)

¡ Local government units, especially municipal governments, shall have jurisdiction

over municipal waters.

¡ Municipal governments, in consultation with the Fisheries and Aquatic Resource

Management Councils (FARMCS) shall be responsible for the management,
conservation, development, protection, utilization and disposition of all fish and
fishery/aquatic resources within their respective municipal waters.

¡ NGOs, people’s organizations and the coastal community should be involved in

the consultation process.

ž RA 8749 Philippine Clean Air Act (1999)

¡ The Clean Air Act promoted cooperation and self-regulation and pollution
prevention as well as encouraging public participation to air quality planning and
monitoring.

¡ It advanced the formulation and enforcement of a system of accountability as

regards environmental impact of a project, program or activity and converted the
Environmental Management Bureau (EMB) as a line bureau and created the
EMB Regional Offices.

RA 9003 - Ecological Solid Waste Management Act (2000)

¡ This Act maximized the utilization of valuable resources and encouraged

resource conservation and recovery.

¡ It promoted solid waste avoidance and volume reduction.

¡ RA 9003 place the primary enforcement and responsibility of solid waste

management with LGUs and encouraged cooperation and self-regulation among
waste generators.

ž RA 9275 – Philippine Clean Water Act of 2004

¡ The Clean Water Act advanced the prevention, control, and abatement of
pollution in water resources.

¡ It encouraged that water quality management issues should not be separated

from concerns on water sources and ecological protection, water supply, public
health and quality of life.
 ¡ The Act thus endorsed management programs to address water pollution.

Certificate of Non-Coverage (CNC)

ž A certification issued by the EMB certifying that, based on the submitted project
description, the project is not covered by the EIS System and is not required to secure
an ECC.

Environmental Compliance Certificate (ECC)

ž A certificate of Commitment to which the Proponent conforms to, after DENR-EMB

explains the ECC conditions, by signing the sworn undertaking of full responsibility over
implementation of specified measures which are necessary to comply with existing
environmental regulations or to operate within best environmental practices that are not
currently covered by existing laws.

ž It also provides guidance to other agencies and to LGUs on EIA findings and
recommendations which need to be considered in their respective decision-making
process. The process that involves evaluating and predicting the likely impacts of a
project (including cumulative impacts) on the environment during construction,
commissioning, operation and abandonment.

ž It also includes designing appropriate preventive, mitigating and enhancement measures

addressing these consequences to protect the environment and the community’s
welfare.

Environmental Impact Assessment (EIA)

ž The process that involves evaluating and predicting the likely impacts of a project
(including cumulative impacts) on the environment during construction, commissioning,
operation and abandonment.

ž It also includes designing appropriate preventive, mitigating and enhancement measures

addressing these consequences to protect the environment and the community’s
welfare.

7 Major EIA Report Types

For New Projects Covered by PEISS

¡ Environmental Impact Statement (EIS),

¡ Programmatic EIS (PEIS),

¡ Initial Environmental Examination Report (IEER)

 ¡ IEE Checklist (IEEC)

¡ depending on project type, location, magnitude of potential impacts and project

threshold.

ž For non-covered projects in Groups II and III

¡ Project Description Report (PDR)

ž For operating projects with previous ECCs but planning or applying for clearance
to modify/expand or re-start operations, or for projects operating without an ECC
but applying to secure one to comply with PD 1586 regulations)

¡ Environmental Performance Report and Management Plan (EPRMP) for single

project applications or a

¡ Programmatic EPRMP (PEPRMP) for co-located project applications.

GIS

G EOGRAPHIC

I NFORMATION

S YSTEM

GEOGRAPHIC - physical features of region, city, mucipality, town, etc. in relation to

human population

SYSTEM - a method of organizing or working or storing data

INFORMATION - facts and DATA

GEOGRAPHIC INFORMATION SYSYEM (GIS),

Geographical Information System, or

Geospatial Information System

- is a system designed to capture, store, manipulate, analyze, manage and present all
types of geographically referenced data. In the simplest terms, GIS is the merging of
cartography*, statistical analysis and database technology.

Cartography - is the design and production of maps, or visual

representations of spatial data

In a GIS, the features are indicated as points, lines, and polygons or as small squares in
a grid. Attribute information regarding these features may also be attached.
With GIS, a number of operations and analytical processes can be performed both on the
geographic data and on the tabular / attribute data.

Geographic information is information about all those features that are possible to locate
to a position. In other words, GIS is a tool to link features with geographic location,
mostly presented on a map, together with other types of information such as tables and
templates, texts, images, drawings or video sequences.

GIS may be used in geography (GEOGRAPHIC MAP, LAND CLASSIFICATION MAP), land
surveying(LOT PLANS, LOCATION MAP, TOPOGRAPHY / SLOPE MAP), public utility
management (ROAD NETWORK MAP, TRAFFIC FLOW PLAN), natural resources
management (LAND COVER MAP, EROSION MAP), precision agriculture (IRRIGATION
PLAN), urban planning (LAND USE MAP, BARANGAY MAP), emergency management
(FLOODING HAZARD MAP), landscape architecture (LANDSCAPE PLAN), navigation,
among others.

`
EXAMPLE USING GIS IN A CARTOGRAPHIC MODELLING
GLOBAL POSITIONING SYSTEM (GPS)

- technology is an accurate method for GIS data input. GPS uses a network of 24
satellites above the earth transmitting signals, and receiving equipment on the
ground, to determine geographic location.

- As a data input device for GIS map making, a GPS unit can be used to find x,y
coordinates for geographic features by simply going to where the feature is and
collecting the positional information that is transmitted from the satellites

- GPS is a device to collect date, while GIS is the receiver of the said data and
integrates it other data stored to come up with a cohesive and almost accurate
layer available for interpretation

BEARINGS VERSUS GEOGRAPHICAL COORDINATES

Longitude – distance to the East or West direction in relation to the Prime Meridian-
MAX.DEGREE – 180

Latitude – distance to the North or South direction in relation to the Equator -

MAX.DEGREE – 90 deg

Latitude and longitude form a geographical coordinate system used for locating places
on the surface of the earth. They are angular measurements, expressed as degrees of a
circle measured from the center of the earth. The earth spins on its axis, which
intersects the surface at the north and south poles. The poles are the natural starting
place for the graticule, a spherical grid of latitude and longitude lines.

LATITUDE
Halfway between the poles lies the equator. Latitude is the angular measurement of a
place expressed in degrees north or south of the equator. Latitude runs from 0° at the
equator to 90°N or 90°S at the poles. Lines of latitude run in an east-west direction.
They are called parallels because they are equally distant from,
LONGITUDE
Lines of longitude, called meridians, run in a north-south direction from pole to pole.
Longitude is the angular measurement of a place east or west of the prime meridian.
This meridian is also known as the Greenwich Meridian, because it runs through the
original site of the Royal Observatory, which was located at Greenwich, just outside
London, England. Longitude runs from 0° at the prime meridian to 180° east or west,
halfway around the globe. The International Date Line follows the 180° meridian, making
a few jogs to avoid cutting through land areas

DEGREES, MINUTES, SECONDS

A degree (°) of latitude or longitude can be subdivided into 60 parts called minutes (').
Each minute can be further subdivided into 60 seconds ("). One degree of latitude
equals approximately 69 miles (111 km). One minute is just over a mile, and one second
is around 100 feet (a pretty precise location on a globe with a circumference of 25,000
miles). Because meridians converge at the poles, the length of a degree of longitude
varies, from 69 miles at the equator to 0 at the poles (longitude becomes a point at the
poles).
World Map Showing the longitude and latitude references

LOCATE THE BOUNDARIES OF A LOT WITH GEOGRAPHICAL COODTINATES AS

FOLLOWS:

USES OF GIS IN REAL ESTATE SERVICES

- APPRAISERS CAN LOCATE/IDENTIFY EXACT LOCATION OF PROPERTY EVEN

BEFORE GOING TO THE SITE, ESP. IN CASES OF LARGE SCALE APPRAISAL
WHERE THE PROPERTY TO BE APPRAISED IS IN HECTARES (e.g. Farmlot,
mining area, forested area)

- CAN EASILY VERIFY THE SHAPE/ FORM OF THE LOT CONSIDERING IT IS ONE OF
THE FACTORS FOR VALUATION

- YOU CAN IDENTIFY THE NEIGHBORING DEVELOPMENTS OF THE PROPERTY FOR

APPRAISAL

- And more….
Real Estate Ecology

Purpose

• To know important details for design concepts

• To learn green building investment aspect

• To identify sustainable property

• To positively influence environment through planning and implementation of these

concepts

• Environmental considerations have been an essential element in the real estate industry

• Environmental protection can be good to economy

Real Estate Ecology

Ecology

• the interconnections or mutual relations between living things - including humans - and
their environmen the social and cultural patterns that result from relationships
between people and resources.

Social Theory

LOCAL COMMUNITY

municipality is an administrative localarea generally composed of a clearly defined

territory and commonly referring to a “town” or village.

• neighborhood is a geographically localized community, often within a larger city or

suburb.

• planned community is one that was designed from scratch and grew up more less
following the plan.

• Explores ecological and economic aspects of green property on the relevant levels of 1.
inhabitant 2. building 3. community

• And interactions between these organisms

• In ECOLOGY a community is an assemblage of populations of different species,

interacting with one another

• The most common usage of community indicates a large group living in close proximity.

Definition of Ecology

• The term “ecology” originates from a Greek word, which means “house”

• It is part of science that involves the interdisciplinary study of the interactive processes,
which takes place between the organisms and the environment they live in.
Ecologist

• Would find out that the habitat and its health depends on various factors and if one thing
change in it, there would not be any achievement of the effect expected, as the factors
would be incapable of any detection. There are few principles and rules in ecology, with
certain expectations though this is complex and often creates doubt about the ecology,
and some consider this as myths.

• The Four Basic Principles The system of ecology is huge and contains a network of
interrelation and its parts.

• The interrelated network is inclusive of a “structure” that contains both the a-biotic
(living) and biotic(non living) composition.

• The network present in the ecological system has a control of the energy flow and also in
the inflow of nutrients.

• The energy from our solar system has a control over the of all the nutrients and energy.

Why Ecology is Important

• Ecology is the most important and vital aspects for all living species and this include
humans. All living beings, in fact we human beings are animals who are dependent on our
earth and this dependency is for everything, from food, shelter to water.

• The conceptualization of ecology and also the theory of evolution originate from life
history, natural selection, population, adaptation, inheritance and developments.
REAL ESTATE BROKERAGE PRACTICE

Real Estate Broker

As defined by MO #39, a real estate broker is any person, natural or juridical who is an agent for
another person and for or in expectation of a fee, commission or other valuable consideration,
shall perform any of the following acts: offers, advertises, solicits, lists, promotes, mediates,
negotiates, or effects (PLAMONES) the meeting of the minds on the sale, purchase, exchange,
mortgage or lease of; or joint venture or other transactions in real estate or any interest therein

Other Relevant Terms

n Real Estate Salesperson - A natural person who perform for and in behalf of a real estate
broker under whom he/she is licensed, any of the function of a real estate broker, for or
in expectation of a share in the commission, fee, compensation or other valuable
consideration.

n Principal - The entity (buyer or seller) on whose behalf a broker acts

n Prospect - A potential buyer or customer.

DUTIES OF A BROKER TO HIS PRINCIPAL

n The broker must be loyal to his principal. All relevant information within the knowledge
of the broker should be relayed to the principal. The broker should advise the principal
on anything that concerns the principal’s interest.

n The broker acts as a fiduciary. The broker should never hold any interest not beneficial
to the principal. He is prohibited from buying for himself or for relatives the seller’s
property without its prior knowledge.

n The broker must account for money deposits. In serving as an agency, the broker should
immediately remit and account for all money received in behalf of the principal such as
deposit or earnest money.

n The broker must obey the instructions of his principal. The broker should never deviate
from the instruction of the principal most especially on the terms of payment. If the seller
requires a cash down payment, the broker should accept nothing but cash from the
buyer. If he accepts a check then he violates the instructions of the principal.

n The broker must act in person. A seller employs a broker based on his confidence and
reputation of the broker. He relies on the personal services of the broker; thus, a broker
should never delegate the important and major tasks of the principal.

n The broker must not have a personal interest in the property for which he acts as broker
without full disclosure to the principal.

n The broker is prohibited from acting for both the buyer and the seller without full
disclosure. On some occasions that the broker need to represent both the buyer and the
seller and collect a commission from both parties, there should be full disclosure to both
and both should give their consent. Without which, the broker violates his agency if he
accepts commission from both parties.
DUTIES TO THE PROSPECT

n It is the duty of the broker to do his work effectively to satisfy the needs of the prospect
and he shall not earn commission unless the prospect is fully satisfied.

n The broker must not make any misrepresentations or false promises. If the broker states
that “I can sell this land for P500 per square meter more next year”, this is a false
promise; and it is in violation of his duties to the prospect.

LISTING DEFINED

n Listing is a legal contract between a property owner and a real estate broker where the
latter’s services, for a fee, is availed of by the former in connection with the sale, lease or
mortgage of a property. Among others, it contains the description of the property,
specified period of agreement, rate of commission and other provisions such as
“holdover clause”.

INFORMATION TO BE INCLUDED ON A LISTING AGREEMENT

n The names and appropriate signatures of the parties to the contract.

n A legal description of the real estate with at least street name included if applicable.

n The selling price and financing terms acceptable to the seller.

n A beginning and ending date of the listing agreement.

n The nature of the listing agreement – exclusive or open.

n The agreement to pay a stated commission and its basis.

n Description of personal properties included in the sale such as home appliances, if any.

1. STEPS FOR SECURING LISTING Contracting owner-seller

2. Inspection of property for details necessary for selling (location, size, improvement
utilities, etc.)

3. Determine reasonableness of seller’s asking price taking into consideration the

following:

§ Character of the neighborhood where the property is located

§ Favorable and unfavorable physical features of the property which may affect its
price.

§ Market date on nearby or comparable properties as obtained from registered

sales, offerings in the Multiple Listing Service, advertisements, etc.

4. Examination of titles and other documents as to liens, encumbrances, restrictions and

other information which may affect salability and value of the property.

5. Formalizing of listing contract.

 6. Prepare selling presentation, which include among others plans, pictures and maps.

SOURCES OF LISTINGS

n Acquired assets of commercial banks and government financial institutions

n Advertisements

n Multiple Listings

n Other brokers

n Developers

Personal contacts

TYPES OF LISTING AGREEMENTS

n AS TO EXCLUSIVENESS

n OPEN LISTINGS - a type of listing where the seller also list the property with
other and competing brokers on the belief that this type of arrangement best
serves his/her interest and that listing with more brokers produces more
prospects than does a single listing. The owner also reserves the right to sell the
property himself without incurring liability for a commission.

n Disadvantages:

n Owner may be subjected to commission claims by more than one

broker.

n Brokers are not willing to spend much time and effort on the
property because it can be sold anytime by other brokers.

n EXCLUSIVE AGENCY – Seller agrees to list the property to only one broker during
the listing period but retaining the right to sell his own property without need to
pay commission to the broker.

n EXCLUSIVE RIGHT OR AUTHORITY TO SELL – The real estate broker is granted

an exclusive right to sell the property during the listing term or period and a
commission is paid even if the property is sold by the owner himself.
Advantage – Brokers are more willing to spend for advertising and sales effort.

n AS TO FEE

n NET LISTING – Seller sets a minimum acceptable selling price. The broker has to
add his commission (over price) to the set net price as part of the sales price.

n PERCENTAGE LISTING – The seller and broker agrees to a certain percentage of

the selling price as commission.

n AS TO FUNCTION
 n SALES AGENCY – The objective of the agency is to find a buyer for the property.

n PURCHASE AGENCY – The objective is to find and buy a specified property.

n LEASE AGENCY – The objective is to lease the property of the principal or to find
a specified property that is for lease in behalf of the principal.

n EXCHANGE AGENCY – The objective is to find a specified property in exchange

for the principal’s property.

n LOAN AGENCY – The objective is to find a lender and secure a loan for the
principal.

n MULTIPLE LISTING The system of combining all properties offered into a common list
and made available to all broker participants. It occurs when a group of brokers agree to
share their Exclusive Right To Sell listing with each other, with the understanding that the
commission shall be shared in a pre-agreed manner, usually equal shares, between the
listing broker and the selling broker.

n It is important that the seller shall be informed beforehand that the property shall
be included in a multiple listing and his conformity shall be in writing or should
form part of the listing agreement. The advantage of multiple listing is that the
property is better advertised to more brokers at the soonest time possible.

n HOLDOVER CLAUSE

A provision in the listing agreement which stipulates that the broker is entitled to the
commission when the subject property, within a certain period after the lapse of the
period of authority, is ultimately sold to a prospective buyer that was registered by the
broker with the owner within the period of the authority.

MODES OF EXTINGUISHMENT OF AGENCY

(TERMINATION OF A LISTING AGREEMENT)

n By its revocation;

n By withdrawal of the agent (broker);

n By the death, civil interdiction, insanity or insolvency of the principal or of the agent
(broker);

n By the dissolution of the firm or corporation which entrusted or accepted the agency;

n By the accomplishment of the object or purpose of the agency;

n By the expiration of the period for which the agency was constituted;

n By mutual agreement or consent of the parties.

WHEN AGENCY CANNOT BE REVOKED AT THE PRINCIPAL’S WILL

n When a bilateral contract depends on the agency.

 n When the agency is the means of fulfilling an obligation already contracted.

n When the principal is obligated not to revoke (if he does, he can be held liable for
damages);

n When the revocation is done in bad faith.

REQUIREMENTS TO BE ENTITLED TO A COMMISION

n The broker must be the procuring cause of the sale.

n The broker must hold a valid license as real estate broker issued by the DTI.

n The broker must prove employment.

n The broker must meet the purpose of the agency – to find a willing and qualified buyer
who is agreeable to the terms of the seller.

STEPS IN CLOSING A REAL ESTATE TRANSACTION

n Securing listings

n Securing prospects

n Presentation and demonstration

n Negotiation

n Closing

COMMISSION RATE

Sellers and brokers are free to negotiate on the rate of commission. There is no law or rule
setting the commission rate on real estate transactions; it is whatever rate is agreed by the
seller and the broker

OWNERS AS AGENT/BROKER

n On several occasions, owners try to sell their property by themselves. Possible reasons
are:

n Trying to save on the commission expense is the primary reason.

n Some believe that they can sell faster without brokers or agents since prospects
will be able to talk and negotiate directly with them. Unfortunately, this seldom
happens.

ADVERSE EFFECT ON THE SALE

n The owner acting as agent/broker is not in a position or has no experience to distinguish

or qualify the prospects. His time would be wasted presenting the property to
speculators, or prospects who are financially unqualified and the likes.
 n The owner does not have the opportunity to pre-determine the needs and wants of the
prospects.

n It is difficult for the owner to counter buyer’s opposition to the property, as he will be
emotionally involved as owner.

ADVERSE EFFECT ON THE SALE

n Prospects sometimes hesitate in raising questions against the property, being aware that
they are talking to the owner himself. Most of the time, prospects just prefer to abandon
their desire for the property.

n Even though the owner successfully sold his property, saving the commission expense,
still there is the question of whether the savings is worth all the inconveniences, risks
and delays.

REAL ESTATE BUSINESS IN GENERAL

n Real Estate Brokerage practice in the right way offers limitless opportunities to earn
limitless income.

n If successful, it will pave the way to bigger business as a dealer and land developer.
It will also lead to higher real estate service
as an appraiser or consultant
PRACTICE BOARD EXAM QUESTIONS

TRUE OR FALSE

n Multiple listing is a cooperative arrangement among real estate board members for the
sale of real property in which commission is divided between the broker who has the
listing and the broker who made the sale.

¡ TRUE ¡ FALSE

Answer: TRUE

n In general, the broker is already entitled to a commission even if there is no payment yet
as long as he procures a ready, willing and able buyer.
¡ TRUE ¡ FALSE

Answer: FALSE (Commission accrues upon consummation of contract)

The procurement of loan secured by a real estate mortgage on behalf of a borrower is

also real estate brokerage.
¡ TRUE ¡ FALSE

Answer: TRUE

n In an exclusive agency contract, the broker is still entitled to commission even if the
owner himself sells the property.

¡ TRUE ¡ FALSE

Answer: FALSE

n When an exclusive right to sell is granted to a broker, the owner can sell the property
himself in which case the broker is no longer entitled to commission.

¡ TRUE ¡ FALSE

Answer: FALSE

n Under the law, the standard rate of commission of a real estate broker is ten percent.

¡ TRUE ¡ FALSE

Answer: FALSE (commission depends on agreement between seller and broker)

n Subdivision lot selling is real estate brokerage.

¡ TRUE ¡ FALSE

Answer: TRUE

n
 n A real estate broker receives a fee while a real estate dealer earns profit from his
investment. ¡ TRUE ¡ FALSE

Answer: TRUE

n A real estate broker earns profit while a real estate dealer receives a fee from his
investment.

¡ TRUE ¡ FALSE

Answer: FALSE

n Commission for the sale of real estate is determined by agreement between principal and
broker.

¡ TRUE ¡ FALSE

Answer: TRUE

n The standard commission rate of a real estate broker is fixed by the Department of Trade
and Industry.

¡ TRUE ¡ FALSE

Answer: FALSE

n An open listing can be given to more than two brokers.

¡ TRUE ¡ FALSE

Answer: TRUE

n The real estate broker is entitled to receive his commission from consummation, not
perfection of the contract.

¡ TRUE ¡ FALSE

Answer: TRUE

n An authority to sell in favor of a broker signed by the president of a corporation for the
sale of a property owned by the corporation does not require a board resolution.

¡ TRUE ¡ FALSE

Answer: FALSE

n The usual “open listing” provides for the payment of commission to the broker who lists
the property first and an additional compensation to the broker who sells it.

¡ TRUE ¡ FALSE

Answer: FALSE (seller pays commission only once which shall be shared by selling and
listing broker.)
 n The amount accompanying an offer to buy to show good faith on the part of the buyer,
known as earnest money, is not considered part of the price.

¡ TRUE ¡ FALSE

Answer: FALSE

n Under the law, the acceptance of earnest money by the seller from the buyer is not proof
of the perfection of contract.

¡ TRUE ¡ FALSE

Answer: FALSE

n A real estate broker in not entitled to commission when he closes the sale after the
period of his authority if his listing contains a provision known as holdover clause.

¡ TRUE ¡ FALSE

Answer: FALSE

n Option money is the consideration paid by the buyer to the seller for the reservation to
purchase the property within a stipulated period of time and for a stipulated price.

¡ TRUE ¡ FALSE

n Answer: TRUE An exclusive Right to Sell is the same as Exclusive Agency

Contract.

¡ TRUE ¡ FALSE

Answer: FALSE

n An agent does not guarantee title to the property he sells.

¡ TRUE ¡ FALSE

Answer: TRUE

n The act of the broker which is instrumental in effecting a meeting of minds between the
seller and buyer as to the price and terms is referred to as instrumental cause.

¡ TRUE ¡ FALSE

Answer: FALSE (Procuring cause)

n A right given for a consideration to purchase or lease a property within specified time:

a. Bill d. Time frame

b. Earnest e. none of the above (refer to option)
c. Plus factor

n e. none of the above (refer to option)

 n In the real estate business, another term for the owner is:

a. Customer c. Principal e. None of the above

b. Prospect d. Alter Ego

n c. Principal The position of trust assumed by the broker as an agent for the principal is
most accurately described as:

n a. Trusteeship relationship c. Fiduciary relationship

b. Trustor relationship d. None of the above

n c. Fiduciary relationship

n Which of the following listing affords the best production for real estate brokers?

n a. Open Listing d. Exclusive right to sell

b. Multiple Listing e. None of the above
c. Exclusive agency

d. Exclusive right to sell

n A real estate listing is:

a. A list of all estate properties held by one owner.

b. Employment of a broker by owner to sell or lease.
c. A written list of improvements on the land.
d. A rendition of property for valuation.

b. Employment of a broker by owner to sell or lease.

n The commission rate for the sale of real estate is determined by:

a. Standard rate approved by the brokers in a locality.

b. Fixed schedule of commission approved by the BTRCP
c. Discretion of the seller.
d. Agreement between seller and broker.
e. None of the above.

n d. Agreement between seller and broker.

n As an agent, the broker is usually authorized to do all the following except:

a. Advertise the listed property.

b. Place “for sale” sign on the listed property.
c. Cooperate with other brokers to facilitate the sale.
d. Bind the principal in a contract of sale.

n d. Bind the principal in a contract of sale.

n It is a contract granting a person the privilege to buy or not to buy certain objects at any
time within the period at affixed price.
a. Solicitation d. Pacto de retro sale
 b. Option e. None of the above
c. Aleatory contract

n b. Option

n An agreement where the consideration of a contract is deposited with a third party who
is authorized to release the said consideration to the seller after the latter has complied
with certain condition is:

a. Option c. Contract to sell

b. Escrow d. Hold- over clause

b. Escrow

n For the “hold-over” clause to entitle the broker to commission even if he closed the sale
after the lapse of his authority, the broker must:

a. Register his property during his authority.

b. Submit written acknowledgement of his buyer
c. Register and negotiate with his prospect during his authority.
d. None of the above.

c. Register and negotiate with his prospect during his authority.

n The listing and selling brokers split the commission equally. If the commission rate is 6%
and the selling broker received P36, 000.00, what is the selling price of the property?

a. P3,600,000.00 c. P3,800,000.00
b. P2,600,000.00 d. P1,200,000.00

d. P1,200,000.00

Prepare an exclusive right to se Date____________________

Name and Address of Broker

I hereby give you for sixty (60) days from this date the exclusive right to sell my
property consisting of a vacant lot situated at______________________, described as Lot
No._______, Block No.________, under TCT No.___________, with an area of
______________square meters, for the price of P______________, on cash basis, and agree
to pay you a commission of 5% based on the total price obtained if the property is sold by
you, by me, or by any one else during the term of his authority, or if the property is sold
by me after this authority to a buyer whom you have registered with me in writing and
from whom you procured an offer to buy during the term of his authority.

Name, Address and signature of the seller

Conforme:

Signature of broker

ll with hold- over clause

Prepare a simple offer to purchase

I hereby offer to purchase you property located __________________and covered by TCT

No. ________ for the price of P______________, subject to the following terms and
conditions:

n Down payment in the amount of P_____________shall be paid upon your

acceptance of this offer and execution of a contract to sell.

n The balance of the price shall be paid on __________________ simultaneous to the

delivery by you to me of the owner’s duplicate certificate of title, free from any
liens and encumbrances and the deed of absolute sale;

n Realty taxes and utility bills shall be updated by you as of the date of full payment
of the price.

n Capital gains tax and documentary tax as well as broker’s commission, shall be
for the account of seller, while transfer tax and registration fees shall be for the
account of the buyer.

Prepare a simple option contract

For and in consideration of the sum of (Option Money), receipt whereof is hereby
acknowledged by the seller from the buyer, the former hereby grants the latter the
exclusive right to buy the property described below for the price (Purchase Price), on
cash basis up to (deadline period for exercising option).

Prepare an endorsement of listing or extension of authority

Date______________________

Name and address of Selling Broker

In accordance with your request, we hereby endorse our listing which you may
offer to your prospective buyers, as follows:

Location___________________________________________________

TCT No._________Lot Area_________sq.m. Frontage____________m.

Commission: Five (5%) percent to be split50-50 between listing and selling

broker.

It is hereby understood that you shall not advertise the property nor further
extend this authority to any broker; that all offers to your buyers shall be made thru us;
that tripping of your buyers shall be at your exclusive expense with prior notice to us, and
that you shall not secure a listing in your name from the owner of the property during the
period of our authority and that any listing on the property which you may secure after
the expiration of our authority shall entitle us to fifty percent share of the commission in
case of sale made by you.

Name, Address and Signature of Listing Broker

Conforme:

Signature of selling broker

 REAL ESTATE TAX BIR

(RA 8424 – TRA)

1. Capital Gains Tax

2. Creditable Withholding Tax

3. Estate Tax

4. Donor’s Tax

5. Documentary Stamps Tax

6. Value-Added Tax

Capital Asset Vs Ordinary Asset

CAPITAL ASSET

Refer to all real properties held by a taxpayer, whether or not connected with his trade or
business, and which are not included among the real properties considered as ordinary
asset.

ORDINARY ASSET

Shall refer to all real properties specifically excluded from the definition of capital assets;
namely

ü Stock in trade of a taxpayer or other real property of a kind which would properly
be included in the inventory of the taxpayer if on hand at the close of the taxable
year

ü Real property held by the taxpayer primarily for sale to customers in the ordinary
course of his trade or business

ü Real property used in trade or business of a character which is subject to the

allowance for depreciation.

ü Real property used in trade or business of the taxpayer.

o What is Ordinary Asset? Composition:

n Properties constituting inventories for sale; and

n Properties used in connection with trade, business or source of income

o Sale is subject to withholding tax

o
 o APPLICABLE TAXES ON SALE, EXCHANGE OR OTHER DISPOSITION OF REAL
PROPERTY (BIR)

IN CASE OF INDIVIDUAL CITIZENS/RESIDENT ALIENS

ü Capital gains presumed to have been realized from the sale, exchange, or other
disposition of real property located in the Philippines classified as capital assets, shall be
subject to the six percent (6%) capital gains tax imposed under Sec. 24(D)(1) or 25(A)(3)
of the Code, as the case may be, based on the gross selling price or current fair market
value as determined in accordance with Sec. 6(E) of the code whichever is higher.

ü The sale of real property located in the Philippines, classified as ordinary assets, shall
be subject to the creditable withholding tax (expanded), based on the gross selling price
or current fair market value as determined in accordance with Section 6(E) of the Code,
whichever is higher, and consequently, to the ordinary income tax based on the net
taxable income.

Capital Gains Tax

o A tax imposed on the gains presumed to have been realized by the seller from the sale,
exchange, or other disposition of capital assets located in the Philippines, including
pacto de retro sales and other forms of conditional sale.

o Applicable to citizens, resident & non-resident aliens

o Capital Gains Tax

o Rate - 6%

o When filed and paid – within 30 days from date of notarization of Deed of Sale

n Installment sale of capital asset –rules on ordinary asset apply ð creditable

withholding tax

o Penalty – 25% of tax payable after said period

o CGT is a final withholding tax

Installment sale

o Installment sale – initial payments in the year of sale including down payment do not
exceed 25% of the selling price

o Deferred payment basis – payments in the year of sale exceed 25%

n Considered a cash sale and CGT is due

Basis for Valuation of Property

o Tax base - gross selling price (GSP) or FMV shown in SMV of Provincial/City Assessor or
ZV whichever is higher

o If no ZV – tax base is GSP or FMV shown in the latest tax declaration

 o If there is improvement in property – FMV per latest tax declaration

Tax Declaration

o If Tax Dec more than 3 years from date of sale or disposition, secure latest tax
declaration or certification from Assessor that the same tax dec is still the latest

Ante-dated Sale

o A deed of sale submitted beyond 90 days from date of notarization

o CGT based on rules applicable at time of submission of document plus penalty

o Delay only in presentation proved – CGT based on rules applicable at time of notarization
plus penalty

Who are considered habitually engaged in the real estate business?

o Real estate dealers or real estate developers who are registered with the Housing and
Land Use Regulatory Board (HLURB) or Housing & Urban Development Coordinating
Council (HUDCC)

o If not registered, proof by offer of satisfactory evidence of at least six (6) taxable
consummated sales during the year

o Registration as habitually engaged in real estate business with the Local Government
Unit or the Bureau of Internal Revenue, etc.

§ Real Properties Acquired by Banks

§ IMPORTANT NOTE

Real properties acquired by banks through foreclosure sales are considered as their
ordinary assets. However, banks shall not be considered as habitually engaged in the
real estate business for purposes of determining the applicable rate of withholding tax.
Therefore, banks are liable for payment of the 6% capital gains tax.

Notes:

o In the case of taxpayer who changed its real estate business to a non-real estate
business, real properties held by these taxpayer shall remain to be treated as ordinary
assets.

o In the case of taxpayers who originally registered to be engaged in the real estate
business but failed to subsequently operate, all real properties acquired by them shall
continue to be treated as ordinary assets.
 Real Properties Not Used/ Abandoned or Have Become Idle

o Taxpayer engaged in real estate business

n Real properties formerly forming part of the stock in trade – treat as ordinary
assets

n Real properties formerly being used in the trade or business – treat as ordinary
assets

o Taxpayer not engaged in real estate business

n Real properties formerly being used in the trade or business – treat as ordinary
assets

o Automatically converted into capital assets upon showing proof that the
same have not been used in business for more than two years prior to the
consummation of the taxable transactions involving said properties

o In the case of involuntary transfers of real properties, including expropriations or

foreclosure sale, the involuntariness of such sale shall have no effect on the
classification of such real property in the hands of the involuntary seller, either as capital
asset or ordinary asset as the case may be.

Real properties classified as capital or ordinary asset in the hands of the seller/transferor
may change their character in the hands of the buyer/transferee. Rules:

o i) Real property transferred through succession or donation to the heir or donee who is
not engaged in the real estate business with respect to the real property inherited or
donated, and who does not subsequently use such property in trade or business, shall be
considered as a capital asset in the hands of the heir or donee.

o ii)Real property received as dividend by the stockholders who are not engaged in the
real estate business and who do not subsequently use such property in trade or
business, shall be considered as a capital asset in the hands of the recipients even if the
corporation which declared the real property dividends is engaged in real estate
business.

o iii) The real property received in an exchange shall be treated as ordinary asset in the
case of a tax-free exchange by taxpayer not engaged in real estate business to a
taxpayer who is engaged in real estate business, or to a taxpayer who, even if not
engaged in real estate business, will use in business the property received in exchange.

Conditionally exempt from CGT

Sale of principal residence of the individual taxpayer (natural person) provided;

o the proceeds thereof is used to acquire or construct a new principal residence within 18
months from the date of sale

o the historical cost or adjusted basis of the real property sold or disposed will be carried
over to the new principal residence built or acquired;
 o The Commissioner has been duly notified, through a prescribed return, within thirty (30)
days from the date of sale or disposition of the person’s intention to avail of the tax
exemption;

o Exemption was availed only once every ten (10) years; and

o If there is no full utilization of the proceeds of sale or disposition, the portion of the gain
presumed to have been realized from the sale or disposition will be subject to Capital
Gains Tax.

Duty of Buyer/Transfe ree of Principal Residence

o Withhold from the seller and deduct from the agreed selling price/consideration the 6%
capital gains tax

o Deposit CGT in cash or manager’s check in interest-bearing account with an Authorized

Agent Bank (AAB) under an Escrow Agreement between the concerned Revenue District
Officer, the Seller and the Transferee, and the AAB to the effect that the amount so
deposited, including its interest yield, shall only be released to such Transferor upon
certification by the said RDO that the proceeds of the sale/disposition thereof has, in fact,
been utilized in the acquisition or construction of the Seller/Transferor’s new principal
residence within eighteen (18) calendar months from date of the said sale or disposition.

o Buyer & Seller then file jointly the Final Capital Gains Tax Return with no amount stated
but indicating that the supposed CGT due is in an escrow account to satisfy future CGT
liability

New Principal Residence Not Acquired or Constructed

o If after 30 days after the lapse of the 18-month period, Seller/transferor fails to submit
documentary evidence that he has utilized the proceeds of sale or disposition of his old
principal residence to acquire/construct his new principal residence, he shall be treated
as deficient in payment of CGT and shall be assessed for deficiency CGT inclusive of
penalties and the 20% interest per annum computed from the 31st day after the date of
sale/ disposition of the said principal residence

Option Not to use 6% CGT

Sale of real property (capital asset) to the government or any of its political subdivisions or to
GOCC – seller has option to use the 6% final tax rate (CGT) or the graduated income tax rate

Other Exempt Transactions

o Sale of raw land

n Exemption allowed in socialized housing projects under the 1992 UDHA (RA 7279)

o Sale or disposition of property to

n An entity exempt from the payment of income tax under existing investment
incentives and other special laws
 n An individual or non-individual exchanging real property solely for shares of
stocks resulting in corporate control

n A government entity or government-owned or controlled corporation selling real

property

n If the disposition of the real property is gratuitous in nature

n Where the disposition is pursuant to the CARP law

o Quick Quiz

An individual taxpayer sold one of the lots he inherited for P1-M. How much should he
pay as capital gains tax?

Answer: P60,000.00

(P 1,000,000 x 6%)

o A taxpayer sold an office building where he conducts business for P5M. How much is the
capital gains tax?

Answer: NONE

- property is classified as ordinary asset;

transaction is subject to creditable withholding tax

o A real estate developer sold a subdivision house & lot package for P4-M. How much CGT
should he pay?

Answer: NONE

(property is classified as ordinary asset; transaction is subject to creditable withholding

tax)

Valuation of Condominium

o Ground floor of a condominium project shall be considered as commercial

o Additional 20% added to an established residential zonal value (BIR Ruling 2-98)

Sale of Vacant Lot

o FMV based on market value per Assessor’s AV or BIR zonal value, whichever is higher

o Documents required in paying CGT

n Original and 2 photocopies of the Deed of Sale

n Photocopy of owner’s certificate of title

 n Certified true copy of tax declaration

n Seller’s affidavit of no improvement

n Assessor’s certificate of no improvement

Foreclosure Sale

(1) In case the mortgagor exercises his right of redemption within one year from the
issuance of the certificate of sale, no capital gains tax shall be imposed because no
capital gains has been derived by the mortgagor and no sale or transfer of real property
was realized.

(2) In case of non-redemption the capital gains tax on the foreclosure sale shall become due
based on the bid price of the highest bidder but only upon the expiration of the one-year
period of redemption and shall be paid within 30 days from the expiration of the said one-
year redemption.

(3) Creditor bank as the statutory seller is liable to pay the CGT based on bid price

Other Cases:

o Exchanges of capital assets by the individual owners are subject to CGT

o Partition of estate among heirs is not subject to capital gains tax because there is neither
a sale, exchange or disposition of property

o Donation of land under CARP (RA 6657) is exempted from CGT

Certificate Authorizi ng Registration (CAR)

o Certification issued by the Commissioner or his duly authorized representative attesting

that the transfer and conveyance of land, buildings/ improvements arising from sale,
barter or exchange have been reported and the taxes due inclusive of the documentary
stamp tax, have been fully paid

Validity of CAR One (1) year from date of issue.

o In case of failure to present the same to the Registry of Deeds (RD) within the one (1) year
period, the same shall be presented for revalidation to the District Office where the CAR
was issued. The revalidation shall be good for another one-year period, after which the
CAR losses its validity. (RMO 15-2003)

Basic docs required in filing CGT

1. TIN of buyer & seller

2. Notarized Deed of Sale or Exchange

3. TCT/OCT/CCT

4. Tax Declaration on the lot and/or improvement during nearest time of sale
 5. “Certificate of No Improvement” issued by the Assessor’s office where the property has
no declared improvement, if applicable or Sworn Declaration/Affidavit of No
Improvement by at least one (1) of the transferees

6. Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable

7. Duly approved Tax Debit Memo, if applicable

8. “Sworn Declaration of Interest” as prescribed under Revenue Regulations 13-99, if the

transaction is tax-exempt

9. Documents supporting the exemption

REALTY TAXATION & ASSESSMENT

Taxation

• An inherent power of the State to impose & collect taxes for the purpose of raising
revenue to defray the necessary expense of government for its public needs

Basis of Taxation (2-Fold Doctrine of Taxation)

• Necessity – government cannot exist or survive and function without any means to pay its
expenses

• Reciprocal duties of protection and support between the State and its citizens or
inhabitants

Basic principles in taxation

• Ability to pay

• Benefit received

Taxes

• Enforced proportionate contributions imposed by the legislature upon a person, property

or interest within its jurisdiction for the purpose of raising funds to support the
government and all its public needs

Taxes Related to Real Property & Real Estate Transfer

1. Basic Real Property Tax

2. Special Education Fund Tax

3. Idle Land Tax

4. Special Levy Tax

5. Socialized Housing Tax

 REAL PROPERTY TAXATION

• RA 7160
(Local Government Code)

• Title II of the Local Government Code is the law that governs the administration,
appraisal, assessment and collection of real property tax (RPT)

Real Property

Real Property

– an asset which includes land, buildings, machineries, trees, and other

improvements thereof.

Real Property Tax

– An ad valorem tax on real properties

Ad valorem tax

A levy on real property determined on the basis of a fixed proportion of the value of the property

Duty of Person Acquiring Real Property or Making Improvement

• To prepare, or cause to be prepared, and file a sworn declaration of ownership and value
within 60 days after the acquisition of such property or upon completion or occupancy of the
improvement, whichever comes earlier.

Duty of Person Transferring Ownership

• Notify the provincial, city or municiapl assessors concerned within 60 days from the date
of such transfer.

• Notification shall include the mode of transfer, the description of the property aliened,
the name and address of the transferee.

Duty of Person Owning or Administering Real Property

• The owner or administrator shall file a sworn declaration of real property with the
assessor concerned once every three (3) years during the period from January first (1st)
to June thirtieth (30th) starting CY 1992

Authority of Assessor to Declare Property Previously Undeclared for Taxation Purposes

• When any person, natural or juridical, by whom real property is required to be declared
under Section 202 of RA 7160, refuses or fails for any reason to make such declaration
within the time prescribed, the provincial, city or municipal assessor shall himself
declare the property in the name of the defaulting owner, if known, or against an
unknown owner, as the case maybe, and shall assess the property for taxation in
accordance with the provision of RA 7160. No oath shall be required of a declaration thus
made by the provincial, city or municipal assessor.
 Properties Exempted from Real Property Taxes (Section 234, LGC)

• Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person/entity;

• Non-profit cemeteries and burial grounds;

Principles of Real Property Taxation

1. Real property is appraised at current and fair market value

2. For assessment purposes, real property shall be classified on the basis of its Actual Use

3. Real property shall be assessed on the basis of a uniform classification within each local
government unit

4. Appraisal, assessment, levy and collection shall not be let to any private person

5. Appraisal and assessment shall be equitable

6. Machinery & equipment used for pollution control and environmental protection;

7. All machineries & equipment that are actually, directly and exclusively used by local
water districts and GOCCs engaged in the supply & distribution of water and/or
generation and transmission of electric power.

8. Charitable institutions, churches, parsonages, or convents appurtenant thereto,

mosques, nonprofit or religious cemeteries and all lands, building, and improvements
actually, directly, and exclusively used for religious charitable or educational purposes;
• All real property owned by duly registered cooperatives under RA#6938;

Step 1. APPRAISAL

Principle

Real property shall be appraised at its current and fair market value

Appraisal – the act of determining the value of the property at a specific time and for a
specific purpose

Fair Market Value – the price at which a property may be sold by a Seller who is not
compelled to sell and bought by a Buyer who is not compelled to buy

Schedule of Market Value (SMV

• A schedular scheme that reflects the current and fair market value of different classes of
real property in the locality

• Purpose - to provide basis for a uniform appraisal on real properties for taxation
purposes
 • Enacted by ordinance of sanggunian concerned and published in a newspaper of general
circulation in the LGU concerned or in absence thereof, posted in the
provincial/city/municipal hall and two other conspicuous public places therein

• Amendment: Assessor may recommend to sanggunian amendments to correct errors in

valuation in the SMV

– Sanggunian concerned shall, by ordinance, act upon the recommendation within

ninety (90) days from receipt thereof

Who Prepares the SMV?

Municipalities in Metro Manila - Concerned Municipal Assessor

Municipalities outside Metro Manila – Provincial Assessor

Coverage of SMV

1. Unit Base Market Value for all Urban Land classified into residential, commercial,
industrial

2. Unit Base Market Value for all Agricultural Land classified into principal crop use (rice
land, corn land, coconut land, etc.)

3. Unit Base Construction Cost for Buildings classified into residential, commercial,
industrial, farm houses, etc.)

Establishment of Unit Base Market Value

• Land – based on Sales Data Analysis Approach or Market Data Approach sourced from
the records of the Register of Deeds, Realtors or Licensed Brokers, Notary Public or
Classified Ads

• Construction Cost of Buildings & Other Structures – based on replacement cost and/or
reproduction cost approach and Sales Data Analysis Approach

Determining Market Value of Real Property

MV = A x UV

Where: MV is the Market Value

A is the area of the real property

UV is the unit value provided in

the Schedule of Market

Value (SMV)
 Quick Quiz

Area of a property is 1,500 square meters, UV is P1,000/square meter. What is MV?

Answer: P1,500,000

MV is P2,300,000. UV is P5,750/sq.m. What is the area of the property?

Answer: 400 square meters

REAL PROPERTY TAXATION

Principles

2. For assessment purposes, it shall be classified on the basis of its Actual Use

ASSESSMENT

Basis of Real Property Assessment

• Real property shall be classified , valued and assessed based on its actual use not its
ownership, regardless of where located, whoever owns it, and whoever uses it (Section
217, Local Government Code).

Assessment

• The Provincial/City/Municipal Assessors shall undertake a general revision of real

property assessments every three years

• Reassessment – the assigning of new value to real estate as a result of the general or
partial or individual reappraisal thereof

Assessment of Real Property Declared for the First Time

• Real property declared for the first time shall be assessed for taxes for the period during
which it would have been liable but not more than ten (10) years prior to the date of initial
assessment; Provided, however, That such taxes shall be computed on the basis of the
applicable schedule values in force during the corresponding period

AUTHORITY OF ASSESSOR TO TAKE EVIDENCE

For the purpose of obtaining information on which to base the market value of any real
property, the assessor of the province, city or municipality or his deputy may summon
the owners of the properties to be affected or persons having legal interest therein and
witnesses, administer oaths, and take deposition concerning the property, its ownership,
amount, nature, and value.
Classes of Real Property for Assessment Purposes

RACIMTS

Classes of Real Property for Assessment Purposes (LGC)

• Residential – those exclusively devoted for habitation or residential purposes

• Agricultural – those principally devoted to agricultural activities and other aqua cultural
activities

• Commercial – those principally devoted for the object of profit

• Industrial – those principally devoted to industrial activity as capital investment

• Mineral – those lands in which minerals, metallic or non-metallic, exist in sufficient

quantity or grade to justify the necessary expenditures to extract and utilize such
minerals

• Timberland – those categorized as forest lands

• Special – all lands, buildings, and other improvements

• Actually, directly and exclusively used for hospital, cultural or scientific purposes

• Owned and used by local water districts, government-owned or controlled

corporations tendering essential public services in the supply and distribution of
water and/or generation and transmission of electric power

ASSESSMENT LEVEL

Assessment level to be applied to the FMV is fixed by the Sangguniang Panlalawigan,

Sangguniang Panlungsod or Sangguniang Bayan ordinance (Sec 218, Local Government Code)

(See pages 451 – 453 of reviewer for rates)

Rules in Determining Applicable ALs to Arrive at AV

• Lands located in commercial zones are valued as commercial of which the Commercial
Assessment Level (CAL) shall be applied. If the predominant actual usage of the existing
building is residential, the land shall still be valued as commercial but the Residential
Assessment Level (RAL) shall be used/applied;

Rules in Determining Applicable ALs to Arrive at AV

• Lands located in residential zones are valued as residential of which the Residential
Assessment Level (RAL) shall be applied. If the predominant actual usage of the existing
building is commercial, the land shall still be valued as residential but the Commercial
Assessment Level (CAL) shall be used/applied;
Rules in Determining Applicable ALs to Arrive at AV

• AL for lands with existing building of mixed uses will be based on the predominant actual
use of the building

• Vacant lots shall be valued on the basis of the applicable SMV. The AL to be applied is
based on the land use classification in the zoning ordinance.
 General Valuation
Concepts and Principles

Philippine Valuation Standards

What are Standards?

Principles or Regulations?

They ARE statements of:

Recognized principles and concepts

Best practice in procurement and reporting

Accepted definitions

They do NOT:

Describe different valuation techniques

Prescribe specific methods of valuations for different purposes

Tell valuers how to value!

Philippine Valuation Standards

The 3 ‘Core’ Standards

1. Market Value Basis of Valuation

2. Bases Other Than Market Value

3. Valuation Reporting

Philippine Valuation Standards

The 3 Valuation Applications

1. Valuation for financial Reporting

2. Valuation for Secured Lending

3. Valuation of public Sector Assets for Financial Reporting

Mass Appraisal

Mass Appraisal is the systematic assessment of groups of properties as of given date

using standardized procedures and statistical testing.

Land, Real Estate and Property

¨ The Ownership of real estate is called real property.

¨ Real property includes all the rights, interest, and benefits related to the
ownership of real estate.

¨ The combination of rights associated with the ownership of real property is

referred to as the bundle of rights.

Price, Cost and Value

ú Price is a term used for the amount asked, offered, or paid for a
good or service.

ú Price is generally an indication of a relative value placed upon the

goods or services.

Price, Cost and Value

¨ Cost is the price paid for goods or services or the amount required to create or
produce the good or service.

¨ The total cost of a property includes all direct and indirect costs of its
production.

¨ The cost may or may not be fully reflected in the property’s Market Value.

¨ A cost estimate of reproduction cost or replacement cost.

Price, Cost and Value

¨ Value is an economic concept referring to the price most likely to be concluded

by the buyers and sellers.

¨ Value is not a fact, but an estimate of the likely price to be paid for goods and
services at a given time in accordance with a particular definition of value.

Value is a hypothetical price, and the hypothesis on which the value is estimated is
determined by the valuation basis adopted
Asset

¨ An Asset is an accounting concept. Assets are resources controlled by an entity

as a result of past events and from which some future economic benefits are
expected to flow to the entity.

¨ An asset is recognized in the balance sheet when it is probable that the future
economic benefits will flow to the entity and the asset has a cost or value that
can be measured reliably. [IFRS, Framework, 89]

¨ An asset may be tangible or intangible, and may include property, plant,

machinery and equipment.

Market Value

¨ 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.

Market Value

The estimated amount –

refers to a price expressed in terms of money, payable for the property. It is the best
price reasonably obtainable by the seller and the most advantageous price reasonably
obtainable by the buyer.

a property should exchange –

refers to the fact that the value of the property is an estimated amount rather than a
predetermined amount or actual sale price.

On the date of valuation –

requires that the estimated Market Value is time-specific as of a given date.

between a willing buyer -

refers to one who is motivated, but not compelled to buy. This buyer is neither
over-eager nor determined to buy at any price.

a willing seller –

Is neither an over-eager nor a forced seller, prepared to sell at any price, or one
prepared to hold out for a price not considered reasonable in the current market.
in an arm’s-length transaction –

Is one between parties who do not have a particular or special relationship.

after proper marketing –

Means that the property would be exposed to the market in the most appropriate
manner to effect its disposal at the best price reasonably obtainable.

and without compulsion –

Establishes that each party is motivated to undertake the transaction, but neither is
forced nor unduly coerced to complete it.

Economic Principles

1. Supply and Demand

Value is determined by the interaction of the forces of supply and demand in the
appropriate market at the date of appraisal.

Economic Principles

2. 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.

3. Substitution

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.

The lowest cost of the best alternative, whether a substitute or the original, tends
to establish Market Value.

4. Contribution

The value of an element in production or a component of a property depends on

how much it contributes to the whole, or how much its absence detracts from the
value of the whole.

5. Competition

“…profit tends to breed competition and excess profit tends to ruinous

competition.”
 6. Increasing and Decreasing Returns

When successive increments of one or more factors in production are added to

fixed amount of the factors, there is a resulting enhancement in income up to a point of
maximum returns. Any incremental addition thereafter results in a diminishment of
income in relation to the capital being contributes.

7. Balance

Balance among the factors of production is achieved at the point of diminishing

returns, which is the point of maximum value.

8. Change

Change is inevitable and constantly occurring.

9. Anticipation

Value is created by the expectations of benefits to be derived in the future.

10. Conformity

Maximum value is realized when a reasonable degree of homogeneity and

compatibility is present.

11. Utility

Value is determined by the usefulness of the property.