Valuation Testing Module :

Study Guide on Valuation Testing

TEAM 6
SKILLS ENHANCEMENT TRAINING ON THE UPDATING OF SCHEDULE OF
MARKET VALUES (SMV)
SESSION LEARNING OBJECTIVES

To equip participants with the

knowledge and skills necessary to
conduct accurate and reliable
valuation testing.
Knowledge and Understanding:

Gain a solid understanding:

 principles,
 methodologies, and
 best practices related to valuation testing

They should be able to explain the importance of valuation testing,

identify appropriate statistical analysis techniques, and understand
how to interpret and communicate the results effectively.
Practical Skills:
They should be able to:

 Collect and prepare relevant data for analysis,

 Apply appropriate statistical techniques,

 Interpret statistical results, and derive meaningful insights.

 Be able to perform quality assurance measures and document

their testing process.
Application in Real-World Scenarios:

 Capable of conducting accurate and

reliable valuation testing.

 Use appropriate data sets and statistical

analysis techniques.
Confidence and Competence:

 Gain confidence in their ability to conduct

valuation testing and make informed decisions
based on the results.

 They should feel competent in their understanding

of the Mass Appraisal Guidebook, as well as their
ability to communicate their findings to
stakeholders.
Collaboration and Networking:

Opportunities for participants to:

 Collaborate with peers,

 Engage in group discussions, and
 work on practical exercises and case studies together.

This interaction can foster networking and knowledge

sharing among participants,
Feedback and Improvement:

Participants should:

 Receive feedback on their performance;

 Assessments of their understanding; and
 Application of concepts.
Overall

The expected outputs :

Equip participants with the necessary

knowledge, skills, and confidence
to conduct accurate and reliable
valuation testing in mass appraisal settings.
Handouts

1. Mass Appraisal Guide Book (MAG)

2. Philippine Valuation Standards (PVS)
3. Case Study Materials [SMV of the
Province of Zamboanga del Sur]
Resources Needed

1.Calculating and Computing Tools

2.Statistical Reference Materials
3.Manila Paper
4.Meta cards
PROCESS
Script: [AVP Facilitator]

[Start with a Prayer, Engage the participants

to swear oath of Participation]
ACTIVITY (What activity will you ask the participants to do?
Describe how you will conduct the activity, include step-step-
instructions)

CASE STUDY
The main goal of this case study would be to assess the reliability of the valuation
methods employed by the LGU in determining market values and explore how well
they align with the prevailing market conditions.
Case Study Methodology:

Participants SHOULD:
 Describe the research methods employed,
such as data analysis, valuation testing
techniques, and comparative studies.
 Explain the criteria used to select the LGU
and the specific time frame or assessment
cycle considered.
Legal and Policy Framework

 Familiarize yourself with the relevant laws, regulations,

and guidelines governing property assessment and
valuation in the Philippines.

 Pay particular attention to the provisions related to the

establishment of market values testing process and the
conduct of valuation testing.
Market Value Testing Process:

PARTCIPANTS SHOULD:
 Observe and Understand the step-by-step procedures followed
by the LGU in assessing and determining market values.

 Study the valuation methods and approaches used, such as the

sales comparison approach, income approach, or cost approach.

 Take note of any adjustments or factors considered to reflect

market conditions and property characteristics.
Comparative Analysis

Be ABLE to:

 Analyze the findings obtained from the valuation testing and

comparative analysis.

 Compare the assessed market values with actual market

transactions and available property sales data.

 Identify any disparities, trends, or patterns that emerge during the

SMV process.
Accuracy and Reliability of the Valuation Testing

 Evaluate the accuracy and reliability of the LGU's market

value assessments based on the results of the valuation
testing.

 Consider potential sources of error or bias in the valuation

process.

 Assess the effectiveness of the LGU's methods in reflecting

market conditions and property characteristics.
ANALYSIS (What questions will you ask to allow them to bring out their
insights or learning from the activity? Questions might help you lead to your
lecture/inputs)

Implications and Recommendations:

 Reflect on the implications of the findings for property

owners, tax revenue generation, and fairness in
taxation.
 Identify areas for improvement in the LGU's market
value assessment process based on your analysis.
 Propose recommendations for enhancing the accuracy
and reliability of market value assessments.
ABSTRACTION (What inputs will you provide?) Can be
a listing of the titles of your slides.

Introduction to Valuation Testing

 Overview of the importance of valuation testing in mass

appraisal
 Understanding the purpose and benefits of valuation testing
 Introduction to the Mass Appraisal Guidebook and its
relevance to valuation testing
Principles of Valuation Testing

 Key principles and concepts underlying

valuation testing
 Different approaches and methodologies used in
valuation testing
 Understanding statistical analysis and its
application in valuation testing
Data Collection and Preparation

 Importance of data quality in valuation testing

 Identifying and collecting relevant data for testing
purposes
 Preparing data sets for analysis, including data
cleaning and validation
Statistical Analysis Techniques

 Introduction to commonly used statistical analysis

techniques in valuation testing
 Exploratory data analysis and descriptive statistics
 Regression analysis and its application in valuation
testing
Interpreting and Communicating Results

 Techniques for interpreting statistical results and deriving

meaningful insights
 Effective communication of valuation testing findings to
stakeholders
 Addressing potential challenges and limitations in
interpreting results
Practical Exercises and Case Studies

 Hands-on exercises using real-world data sets to perform

valuation testing
 Analyzing and interpreting results using statistical
software
 Reviewing case studies of valuation testing in different
appraisal contexts
Best Practices and Quality Assurance

 Best practices for conducting reliable and accurate valuation

testing
 Quality assurance techniques to ensure the validity and
integrity of test results
 Importance of documentation and record-keeping in
valuation testing
 APPLICATION (How can they apply what they learned from
the session either during the actual session or back home or
back in the office or field?)

Q&A and Wrap-Up

 Recap of key concepts and takeaways from the

training
 Open discussion and Q&A session to address
participants' questions and concerns
Lecture Demo:
Valuation Testing
Valuation Testing Module :
Study Guide on Valuation Testing

TEAM 6
SKILLS ENHANCEMENT TRAINING ON THE UPDATING OF SCHEDULE OF
MARKET VALUES (SMV)
DOWNLOAD LINK
 Oath of Participation

"I -------- state your name -------, do solemnly swear to actively

participate in this activity and dedicate my full attention for the
duration of the session. I pledge to maintain proper decorum, respecting
others and their contributions. I commit to staying engaged and
refraining from sleeping or engaging in activities that may distract from
the purpose of this session. I understand that my active participation is
crucial for the success of the activity and the collective learning
experience. I acknowledge that any necessary sanctions will be imposed
by the designated facilitator, and I accept their authority in maintaining
a conducive environment. So, with the support of my peers and the
guidance of the facilitator, I pledge to fulfill this oath to the best of my
abilities. So help me excel and contribute positively to this activity."
ACTIVITY
 CASE STUDY
To critique and evaluate the values in the "Schedule of Market Value (SMV) of
Zamboanga Del Sur," you can follow these step-by-step instructions:

Step 1: Familiarize Yourself with the SMV

Step 2: Understand the Purpose and Context
Step 3: Review Data Sources and Documentation
Step 4: Analyze Valuation Methods
Step 5: Compare SMV Values with Market Data (Assume Market Data)
Step 6: Evaluate Uniformity and Consistency
Step 7: Consider Local Market Factors
Step 8: Document Findings and Recommendations
CASE STUDY is for 10 Minutes
ANALYSIS
LECTRURE PROPER
Valuation Testing
Sample Lecture Slides

Training Workshop for Subject Matter Experts (SMEs) on Real Property Valuation and
Assessment
Valuation Testing
• Testing of results is essential in establishing the confidence factor in
any valuation process involving mass appraisal.

• Mass appraisal adopts uniform unit value for various elements

pertaining to a property and then applies this to other properties in
order to establish the value of a large number of similar properties at
one time.
• Hence, some property values would fall outside the accepted percentage of
error.
• The greater the accuracy of the appraisal, the lesser it would evoke
dissatisfaction and conflicts among taxpayers.
General Procedure in Valuation Testing:
• The Assessor must determine a tolerable margin of error and test benchmarks to
confirm the accuracy and uniformity of the appraisal to ensure the reliability of the
mass appraisal exercise.
• Adjoining LGUs with common boundaries should jointly set the accuracy level of
values since it is likely that they will have the same advantages and disadvantages.
• All completed work should be reviewed by the Assessor or Supervising
Appraiser to whom the final responsibility for uniformity and equity
rests.
• The supervisor’s field review should be conducted immediately after
receipt of the proposed base rates of value for the different property
types to ensure that accuracy and uniformity is maintained within the
group.
General Procedure in Valuation Testing:

• Adjustments or corrections can be made before the appraiser completes

other value types and before any dealings with the Provincial Assessor or
submission to the local council.

• If errors are found, more properties should be inspected to establish the

reasons for the discrepancies.

• Errors should be documented and reviewed with the appraiser so that

corrective action can be taken.
• Actual testing is…
• selecting a ‘sold’ property within the range being tested
• for which a market value sale price is known
• applying the proposed SMV rates to the components of the
particular property
• to determine how accurate the derived value is when
compared to market value.

• If there are no market level sales, the LGU may have to

conduct a proper and independent evaluation of a property
as a de-facto sale and test the mass appraisal result vs. the
substitute transaction.
Quality Control Measures

• The final stage in the mass appraisal process is the statistical

review and analysis of results.

• Statistical review requires an analysis to determine the level of

accuracy and degree of uniformity achieved in the appraisal
process (Ratio Studies).

• Ratio studies compare appraised values with relevant market

values determined from sales.
Quality Control Measures
Performance is measured by:

Accuracy
• The closeness of the valuation model (SMV) to the actual prices
• Utilizing the Median Value to Price Ratio (VPR)

Uniformity
• The consistency of the valuation model (SMV)
across various property values
• Utilizing the Coefficient of Dispersion (COD)
ELEMENTS Quality
Testing of
ACCURACY Values
the closeness of a valuation to actual prices

 Median Value to Price Ratio

 Acceptable Tolerance: Median VPR > = 90%

UNIFORMITY
measures the consistency of the level of accuracy

 Coefficient of Dispersion (COD) measures the average %

deviation of the Ratios from the Median Value to Price Ratio
 IAAO Standard: COD <=20%
For example, a valuer who values 3 properties each at 80%
of actual price, although uniform, is not accurate.
Accuracy and Reliability of Values
Accuracy is measured by comparing the values adopted vs. the actual sale prices of
those properties sold at a proper market level within the sub-market group.
– Value to Price Ratio (VPR) VPR = (Value/Price) x 100
– Example:
Sale Price = P 1,100,000 Value = P 1,020,000

VPR = (1,020,000/1,100,000) x 100 = 0.927 x 100

VPR = 92.7% or 93% (rounded)
Therefore, Assessor’s valuation is 93% accurate.

– Benchmark (Rule of Thumb)

• VPR of within the range of 90% to 110% = Good, generally acceptable
• Some adjustments need to be made for properties with <90% accuracy
• A result of < or = 85% could be acceptable for LGUs where information are scarce and
property types and condition vary substantially.
Testing Reliability of Values
Sale Price Value VPR Observation
Example: 1 1,220,000 1,065,000
List of sale prices and LGU 2 1,250,000 1,100,000
Proposed Values 3 1,350,000 1,200,000
4 1,450,000 1,350,000
If properties are outside the 5 1,100,000 1,020,000
10% accuracy range, the base
values/sq.m. rates
6 925,000 874,000
contributing to the value are 7 1,365,000 1,300,000
likely to be wrong , thus, 8 1,050,000 1,010,000
should be reviewed. Or the 9 1,150,000 1,100,000
accuracy requirement should 10 1,000,000 975,000
be reconsidered.
11 965,000 960,000
12 960,000 950,000
13 875,000 885,000
14 865,000 870,000
15 990,000 1,010,000
Testing Reliability of Values
Sale Price Value VPR
1 1,220,000 1,065,000 87.3%

2 1,250,000 1,100,000 88%

Sale 1
VPR = VALUE / SALE PRICE
= 1,065,000 / 1,220,000
= .87295 or 87.30%

Sale 2
VPR = VALUE / SALE PRICE
= 1,100,000 / 1,250,000
= .88 or 88 %
Testing Reliability of Values
Example: Sale Price Value VPR Observation
1 1,220,000 1,065,000 87.30 20% (3/15) are
List of sale prices and LGU 2 1,250,000 1,100,000 88.00 below the 10%
Proposed Values 3 1,350,000 1,200,000 88.89 accuracy range
4 1,450,000 1,350,000 93.10
If properties are outside the 5 1,100,000 1,020,000 92.73
10% accuracy range, the base 6 925,000 874,000 94.49
values/sq.m. rates 7 1,365,000 1,300,000 95.24
contributing to the value are 8 1,050,000 1,010,000 96.19 80% (12/15)of
likely to be wrong , thus, 9 1,150,000 1,100,000 95.65 properties are
should be reviewed. Or the 10 1,000,000 975,000 97.50 within the 10%
11 965,000 960,000 99.48 accuracy range
accuracy requirement should
be reconsidered. 12 960,000 950,000 98.96
13 875,000 885,000 101.14
14 865,000 870,000 100.58
15 990,000 1,010,000 102.02
Testing Reliability of Values
Graphical presentation: Assessed Value and Selling Price

Observations:

At higher transaction levels, the

discrepancies between assessed
values and selling prices are
more noticeable.

This could indicate hesitance to

apply full value of properties at
the upper end of the value scale.
Testing Reliability of Values

Coefficient of Dispersion:

• Measures the average percentage deviation of the ratios from the

median value to price ratio or average error.

• Low rate indicates better appraisal and more uniform spread of RPT

• Computed as:

COD = (Σ|VPR – Median VPR|/n)/Median VPR

COEFFICIENT OF DISPERSION
(COD) A B C D = C/B E = C-Median F = Abs(E)
Value Price Ratio Difference of VPR Absolute Difference of
Sale Sale Price Assessor's (VPR) from Median VPR VPR from Median VPR
Value
1 1,220,000 1,065,000 0.8730 E = .8730 - .9619
2 1,250,000 1,100,000 0.8800
3 1,350,000 1,200,000 0.8889
4 1,450,000 1,350,000 0.9310
5 1,100,000 1,020,000 0.9273
6 925,000 874,000 0.9449
7 1,365,000 1,300,000 0.9524
8 1,050,000 1,010,000 0.9619
9 1,150,000 1,100,000 0.9565
10 1,000,000 975,000 0.9750
11 965,000 960,000 0.9948

12 960,000 950,000 0.9896

13 875,000 885,000 1.0114
14 865,000 870,000 1.0058
15 990,000 1,010,000 1.0202
    Median = Total =
        Average (Mean) =
        COD =
COEFFICIENT OF DISPERSION 4: Get the
absolute value

(COD)
3: Subtract median of difference
from VPR

A B 1:CCompute D = C/B E = D - Median VPR F = Abs(E)

VPR=Value/Price Value Price Ratio Difference of VPR Absolute Difference of
Sale Sale Price Assessor's Value (VPR) from Median VPR VPR from Median VPR
1 1,220,000 1,065,000 0.8730
2 1,250,000 1,100,000 0.8800
3 1,350,000 1,200,000 0.8889
4 1,450,000 1,350,000 0.9310
5 1,100,000 1,020,000 0.9273
6 925,000 874,000 0.9449
7 1,365,000 1,300,000 0.9524
8 1,050,000 1,010,000 0.9619
9 1,150,000 1,100,000 0.9565
10 1,000,000 975,000 0.9750
11 965,000 960,000 0.9948 6: Compute the 0.0348
12 960,000 950,000 0.9896 mean0.0296
difference = 5: Total
0.0296the
total/no. of sales absolute
13 875,000 885,000 1.0114 0.0514 0.0514
differences
14 865,000 870,000 1.0058 0.0458 0.0458
15 990,000 1,010,000 1.0202 0.0602 0.0602
    2: Establish the Median = Total =
      median VPR   Average (Mean)=
        COD=

7: Compute COD =
average/median x 100
COEFFICIENT OF DISPERSION 3: Subtract median
4: Get the
absolute value

(COD) A B C D = C/B
from VPR
E = D-Median VPR
of difference
F = Abs(E)
Value Price Ratio Difference of VPR from Absolute Difference of
Sale Sale Price 1: Compute
Assessor's Value (VPR) Median VPR VPR from Median VPR
VPR=Value/Price
1 1,220,000 1,065,000 0.8730 -0.0870 0.0870
2 1,250,000 1,100,000 0.8800 -0.0800 0.0800
3 1,350,000 1,200,000 0.8889 -0.0711 0.0711
4 1,450,000 1,350,000 0.9310 -0.0290 0.0290
5 1,100,000 1,020,000 0.9273 -0.0327 0.0327
6 925,000 874,000 0.9449 -0.0151 0.0151
7 1,365,000 1,300,000 0.9524 -0.0076 0.0076
8 1,050,000 1,010,000 0.9619 0.0019 0.0019
9 1,150,000 1,100,000 0.9565 -0.0035 0.0035
10 1,000,000 975,000 0.9750 0.0150 0.0150
11 965,000 960,000 0.9948 0.0348 0.0348
12 960,000 950,000 0.9896 0.0296 the
6: Compute 0.0296
13 875,000 885,000 1.0114 mean0.0514
difference = 0.0514
5: Total the
14 865,000 870,000 1.0058 total/no. of sales
0.0458 absolute
0.0458
15 990,000 1,010,000 1.0202 0.0602 differences
0.0602
    Median = 0.9619 Total = 0.5648
2: Establish the
        Average (Mean)= .5648/15 = 0.0377
median VPR
        COD= .0377/.9619 = 0.0391 or
3.91%

` 7: Compute COD =
average/median x 100
 What if we add four
more additional VPRs?

What will be the calculated

COD?
Table 4: Value Price Ratio (with additional data)
A B C D E F
Sale Sale Price Assessor's Value Value Price Difference of VPR Absolute Difference
Ratio (VPR) from Median VPR of VPR from Median
VPR
1 1,220,000 1,065,000 0.87
2 1,250,000 1,100,000 0.88
3 1,350,000 1,200,000 0.89
4 1,450,000 1,350,000 0.93
5 1,100,000 1,020,000 0.93
6 925,000 874,000 0.94
7 1,365,000 1,300,000 0.95
8 1,050,000 1,010,000 0.96
9 1,150,000 1,100,000 0.96
10 1,000,000 975,000 0.98
11 965,000 960,000 0.99
12 960,000 950,000 0.99
13 875,000 885,000 1.01
14 865,000 870,000 1.01
15 990,000 1,010,000 1.02
16 972,000 1,220,000 1.26
17 1,000,000 1,300,000 1.30
18 1,050,000 1,375,000 1.31

19 950,000 1,275,000 1.34

    Median VPR Total 192
        Average (Mean) 10.09
        COD 10.29
Table 4: Value Price Ratio (with additional data)
A B C D E F
Sale Sale Price Assessor's Value Value Price Difference of VPR Absolute Difference
Ratio (VPR) from Median VPR of VPR from Median
VPR
1 1,220,000 1,065,000 0.87 -11 11
2 1,250,000 1,100,000 0.88 -10 10
3 1,350,000 1,200,000 0.89 -9 9
4 1,450,000 1,350,000 0.93 -5 5
5 1,100,000 1,020,000 0.93 -5 5
6 925,000 874,000 0.94 -4 4
7 1,365,000 1,300,000 0.95 -3 3
8 1,050,000 1,010,000 0.96 -2 2
9 1,150,000 1,100,000sales, the0.96
With 4 additional COD -2 2
10 1,000,000 975,000 0.98 0 0
increased to 10.29%. These sales
11 965,000 960,000 0.99 1 1
12 960,000 had a VPR950,000
>25%. A review of the
0.99 1 1
13 875,000 details of the 4 properties is
885,000 1.01 3 3
14 865,000 necessary.870,000 1.01 3 3
15 990,000 1,010,000 1.02 4 4
16 972,000 1,220,000 1.26 28 28
17 1,000,000 1,300,000 1.30 32 32
18 1,050,000 1,375,000 1.31 33 33
19 950,000 1,275,000 1.34 36 36
    Median VPR 0.98 Total 192
        Average (Mean) 10.09
        COD 10.29
Q&A and Wrap-Up

 Recap of key concepts and takeaways from the

training
 Open discussion and Q&A session to address
participants' questions and concerns
Damu nga Salamat
Daghang Salamat
Maraming Salamat
I Love you!

The Facilitators Release you from your Oath!