SUMMARY OF FORMULAS

MARKET DATA APPROACH

FMV = Value of Comparable (+)/(-) Adjustments
Sequence of Adjustment:
o Discount
o Time
o Location
o Physical
SP > CP = (+)
CP < SP = (+)
SP < CP = (-)
CP > SP = (-)
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COST APPROACH
FMV = RCN (Cost per unit x FA) - Depreciation
o Simple Age Life/Overall
Building Value = RCN - Depreciation
o Modified Age Life
Building Value = RCN Curable Depreciation Depreciation
o Observed Condition-Breakdown Method
Building Value = RCN Curable Depreciation - Incurable
Reproduction/Replacement Cost New
o Residential P20,000/sqm
o Commercial P15,000 P18,000/sqm
o Industrial P10-12,000/sqm
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Volume P9,000/cubic meter (L/W/H)

Depreciation
o Accrued Depreciation/ Past Depreciation Rate
Formula: Actual Age or Effective / Useful Life
o Future Depreciation Rate
Formula: Building Value / RCN
OR
Formula: 100% - Accrued Depreciation Rate
o Useful Life = Effective Age + Estimated Remaining Life
o Estimated Remaining Life = Useful Life Effective Age
o Effective Age = Useful Life Estimated Remaining Life
o Actual Age (history) = Effective Age
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 How to Compute RCN:

o Per Square Method (present practice of rates)
o By Component (benchmark cost per sqm; adjust per
component)
o Unit-in-Place Method
o Quantity Survey Method
How to Compute UNEARNED INCREMENT:
o FMV (appraisal) Net Book Value (accounting)

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INCOME APPROACH
VALUE = INCOME / RATE
o FMV = NOI / OAR
o NOI = FMV x OAR
o OAR = NOI / FMV
Operating Statement
o GPI vacancy = EGI operating expenses = NOI
Overall Rate (OAR) / Capitalization Rate:
o OAR = Recapture Rate + Interest Rate
o Recapture Rate = 100% / Remaining Useful Life
o Interest Rate = Income on Interest / Value of Land &
Building OR
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o Interest Rate = OAR Recapture Rate

LAND VALUE = SP Building Value
BUILDING VALUE = (refer to Cost Approach)
Income to Recapture = Building Value x Recapture Rate
Income to Interest = Value of Land & Building Income to
Recapture

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DIRECT CAPITALIZATION (equal amount of income)

1. Gross Income Multiplier Method (GIM Method)
a. FMV = EGI of SP x GIM
b. GIM = SP of comparable / EGI of comparable
2. Gross Rent Multiplier Method (GRM Method)
a. FMR = EGRM of SP x GRM
b. GRM = SP of comparable / EGRM of comparabe
3. Residual Methods
a. Straight Line (one year)
i. Land Residual
1. NOI Income to bldg. = Income to land
2. Income to land / interest rate = Land Value
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3. Land Value + Building Value = FMV

ii. Building Residual
1. NOI Income to land = Income to Building
2. Income to building / overall rate = Building Value
3. Building Value + Land Value = FMV
iii. Property Residual
1. Value = Income / Rate
b. Annuity Method (multiple years)
i. Land Residual (PWF)
1. Get PWF
2. NOI Income to Building = Income to Land
3. Income to Land / interest rate = Land Value
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4. Land Value + Building Value = FMV

ii. Building Residual (PWF)
1. Get PWF
2. NOI Income to Land = Income to Building
3. Income to Building x PWF = Building Value
4. Building Value + Land Value = FMV
iii. Property Residual (PWF & RF)
1. Get PWF (S-1 / S x i)
2. Get RF (1 / S)
S = (1+i)n
3. Present Worth of NOI = Value 1
4. Present Worth of Reversion = Value 2
5. Value 1 + Value 2 = FMV
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