Quick Answer: Learn the 3 approaches licensed appraisers use to value land: market comparison, cost approach, and income approach. Based on Philippine Valuation Standards (PVS 105).

If you’ve ever wondered how banks, assessors, or licensed appraisers determine the value of land in the Philippines, you’re not alone. Whether you’re buying, selling, or applying for a housing loan, understanding how property valuation works can help you make smarter real-estate decisions.

According to the Philippine Valuation Standards (PVS 105), appraisers use three main approaches to value a property — the Market Approach, the Cost Approach, and the Income Approach. Each method provides a different perspective and is chosen depending on the type of property and data available.

🏘 1. Market Approach (Sales Comparison Method)

The Market Approach is the most common way to estimate land value. It determines the property’s worth by comparing it with similar properties that have recently sold in the same area.

Steps an appraiser follows:

  1. Gather at least three to five comparable sales within the last year.
  2. Adjust prices based on location, size, terrain, and property rights (titled vs. tax declaration).
  3. Apply a weighted average to arrive at the estimated market value per square meter.

Example: If a nearby 300-sqm residential lot sold for ₱6,000 / sqm but your property has better road access, the appraiser may add a +10 % adjustment, resulting in ₱6,600 / sqm.

💡 Best used for: residential, commercial, and vacant land where reliable sales data exist.

🏗 2. Cost Approach (Replacement Cost Less Depreciation)

The Cost Approach is applied when the property has improvements such as a house, building, or warehouse. It assumes that a buyer will not pay more than it would cost to build a similar property today.

Formula:

Property Value = Land Value + (Replacement Cost New − Depreciation)

Process:

  1. Estimate the current construction cost based on type (low-cost, medium, high-end).
  2. Subtract physical depreciation depending on the age and condition of the building.
  3. Add the land value from market or zonal data.

Example: A house that would cost ₱2 million to rebuild today but has 20 % depreciation has a building value of ₱1.6 million. Add the land value of ₱1.5 million and the total appraised value is ₱3.1 million.

💡 Best used for: newly built or unique properties where market comparables are limited.

💰 3. Income Approach (Investment or Capitalization Method)

Used mainly for commercial or rental properties, this approach values land based on the income it can generate.

Formula:

Value = Net Operating Income ÷ Capitalization Rate

Example: If a small apartment earns ₱30,000 per month, or ₱360,000 annually, and the area’s cap rate is 10 %, then: ₱360,000 × 0.9 (90 % occupancy) = ₱324,000 NOI → ₱324,000 ÷ 0.10 = ₱3.24 million.

💡 Best used for: rental apartments, commercial lots, and income-producing properties.

⚖️ Choosing the Right Approach

Licensed appraisers in the Philippines often use a combination of these methods to get a realistic value. For example:

The final value is then reconciled or blended to reflect the property’s highest and best use.

🏦 Why This Matters to You

Understanding how land value is computed helps you:

📚 Key Takeaway

Every appraisal is both a science and an art. While formulas provide structure, experience and judgment define accuracy. If you want to estimate your property’s worth, try a Philippine-based appraisal tool like Pinoy Pro Appraise — powered by PVS 105 and real local market data.

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