VALUATION OF EXPROPRIATED PROPERTIES

Prepared by:
RAMON R. ALBEUS,IE,MM,ICCV,ALAF,REA
PRC Accredited Lecturer and Speaker on Real Estate Service
PRC Accreditation No. 194 issued on Feb. 18,2014
EXPROPRIATION:
Expropriation is the process by which private property may be taken from the owner for a public purpose
under the right of eminent domain.
RIGHT OF EMINENT DOMAIN
The right of eminent domain is usually understood to be the ultimate right of the sovereign power to
expropriate, not only to the public but the private property of all citizens within the territorial jurisdiction for
public purpose. It is a power inherent in sovereignty. Hence, it is a power which need not be granted by any
fundamental law.
The right of eminent domain is inherent in the government (as long as the exercise of it is done under due
process and payment of just compensation to the owner).
Just compensation is the market value of the property at the time of the taking, considering the highest and
best use of the property.
All types of real estate may be subject of expropriation.
Note : Personal property is not subject to expropriation. (hence, it is the responsibility of the appraiser to
indicate clearly what are properties included in the expropriation).
Art.III,Sec.9, Phil. Constitution
Article III, Section 9 of the 1987 Constitution provides that Private Property shall not be taken for public
use without just compensation.

There are two (2) Constitutional limitations on the power of eminent domain:
the purpose of the taking must be for public use, and
(2) just compensation must be given to the private owner.
Public Use, Purpose or Welfare

Socialized housing;
Construction or extension or roads, streets, sidewalks, viaducts, bridges, ferries, levees, wharves, or piers;
Construction or improvement of public buildings; maintained and operated by the government for public
use such as nurseries, health center, or hospitals. Building of research, breeding, or dispersal centers for
animals
Establishment of parks, playgrounds, or plazas;
Establishment of public market places
Construction of artesian wells or water supply systems;
Establishment of cemeteries or crematories;
Establishment of drainage systems, cesspools, or sewerage systems;
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Construction of irrigation canals or dams;
Establishment of nurseries, health centers, or hospitals; and
Establishment of abattoirs.
Requisites for a Valid Eminent Domain
The requisites for a valid exercise of the power of eminent domain by LGUs are:

An ordinance must be passed authorizing the local chief executive to subject a certain property to a local
governments units power of eminent domain or to expropriation;
The power must be exercised for public use purpose or welfare for the benefit of the poor and the landless;
There must be payment of just compensation; and
A valid and definite offer to buy the property must have been previously made to the owner but the offer was
not accepted. (Pimentel, 1993)
Definition of Terms:

Public Use - means public usefulness, utility, or advantage, or what is productive of general benefit, so that
any appropriating of private property by the State under its right of eminent domain, for purposes of great
advantage to the community, is a taking for public use.
Just Compensation described as the just and complete equivalent of the loss which the owner of the thing
expropriated has to suffer by reason of the expropriation.
Consequential Damages-damages to other interests of the owner that can be attributed to the
expropriation.
Market Value price agreed upon by the buyer and seller in the open market in the usual and ordinary
course of legal trade and competition; the price and value of the article established or shown by sale, public
or private, in the ordinary way of business; the fair value of property as between one who desires to
purchase and one who desires to sell; the current price; the general or ordinary price for which property
may be sold in that locality.
Consequential benefits the increase in the value of the other interests of the owner that can be attributed
to the new use to which his former property will be put by the expropriating authority.
Executive Order No. 132
Executive Order No. 132, dated 22 December 1937, which since then has undergone several amendments,
authorized the creation of Appraisal Committees which are tasked generally to determine the real or
market value of the property to be acquired. Referral to the Appraisal Committee is necessary only if
negotiations with the owner fail.
Composition of Appraisal Committee

PROVINCIAL/CITY APPRAISAL COMMITTEE E.O. 132 (as amended):

Chairman - Provincial/City Assessor
Member - Provincial/City Engineer
Member - Provincial/City Treasurer

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 In Provinces where no position for Provincial Engineer exists, the Public Works and Highways District
Engineer shall sit as member of the Committee, provided that if there are two or more Engineering
Districts in the Province, the Public Works and Highways District Engineer of the Engineering District
concerned shall sit as member of the Committee.
Appraisal Committee in MMA

City Appraisal Committee:

Chairman - MMDA Chairman
Member - City Assessor
Member - City Treasurer
Member - City Engineer
Member - District Engineer of the DPWH

Municipal Appraisal Committee of MMA:

Chairman - MMDA Chairman

Member - District Engineer of the DPWH
Member - City Assessor of the District
Member - Municipal Assessor
Member - Municipal Engineer
Member - Municipal Treasurer
Modes of Acquisition:

1.Negotiated Sale
2. Expropriation
Acquisition Through Negotiated Sale:
As an initial step, the government implementing agency/instrumentality concerned shall negotiate with the
owner of the land that is needed for the project for the purchase of said land, including improvements
thereon.

In the determination of the purchase price to be paid, the Department of Finance and the Provincial/City
Assessors shall extend full assistance and coordinate with the personnel of the government implementing
agency concerned in the valuation of current and fair market value declared by the owner or administrator of
the land, or such current market value as determined by the assessor, which ever is lower, prior to the
negotiation.
RA No. 8974

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A. O. No. 50 was already amended by R. A. No. 8974 making the zonal value the basis of the offer to acquire
property for public purpose less the additional 10% increase in the existing zonal value.
However, both A. O. No. 50 and R. A. No. 8974 do not provide for the basis and procedure for the
acquisition of building and improvements as well as the valuation of machineries and equipment to be
affected by the public project nor do they apply to the acquisition of properties by the Local government for
public purpose.
It is therefore necessary that appraisal committee be created in Local government units outside Metro
Manila for the appraisal of properties to be acquired for public purposes.
Acquisition by Expropriation
If the parties fail to agree to negotiate for the sale of the land , the government implementing
agency/instrumentality concerned shall have the authority to immediately institute expropriation
proceedings through the Office of the Solicitor General, the Government Corporate Counsel, or Provincial/City
legal officer as the case may be.
The just compensation to be paid for the property to be acquired through expropriation shall then be
determined by the court in accordance with the provisions of R. A. No. 8974.
Writ of Possession
Courts shall give priority to the adjudication of cases on expropriation and shall immediately issue the
necessary writ of possession upon deposit by the government implementing agency/instrumentality, the
amount initially proposed for just compensation as provided for under R. A. No. 8974;

Provided, That the period within which said writ of possession shall be issued shall in no case extend beyond
five (5) days from the date such deposit was made.
The LGU, may immediately take possession of the property, upon filing the expropriation proceedings and
upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the
property based on the current tax declaration of the property to be expropriated.
The amount to be paid for the expropriated property shall be determined by the proper court, based on the
fair market value at the taking of the property.
Determination of Just Compensation
In order to facilitate the immediate judicial determination of just compensation during the expropriation
proceedings, the expropriating agency or its duly authorized assessor in appraising the fair market value of the
private property intended to be expropriated must consider, among others, the well established factors and
the following relevant standards:

The classification and use for which the property is suited;

The developmental costs for improving the land;
The value declared by the owners;
The current selling price of similar lands in the vicinity;
The reasonable disturbance compensation for the removal and/or demolition of certain improvements on
the land and for the value of improvements thereon;
The size, shape or location, tax declaration and zonal valuation of the land;

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The price of the land as manifested in the ocular findings, oral as well as documentary evidence presented;
and
Such facts and events so as to enable the affected property owners to have sufficient funds to acquire
similarly-situated lands of approximate areas as those required from them by the government, and thereby
rehabilitate themselves as early as possible.
Factors to be considered in appraising buildings and improvements

The rise of the building and improvement affected.

The materials used, and
The age or depreciation of the building plus
Other factors.. Such as economic and legal obsolescence.

Procedures to be followed in the Acquisition of Private Property for Public Use (EO 132):

Secure complete data such as, deed of sale, declared under oath or affirmation, certification by the
municipal assessor to ascertain the real or market value of the property to be acquired for public use and to
ascertain the purchase price of the property to be acquired or of other property similarly conditioned in the
same vicinity.

To hold public hearings and make such other investigation as may be deemed necessary.

Upon the completion of the investigation which shall not be longer than 60 days after the receipt of
notification by the chairman, submit a report to the provincial board, city or municipal council or National
government officials concerned with recommendation as to whether the property should be purchased at
the prices determined upon by the Committee and approved by the owner or condemnation proceedings
instituted.
Condemnation Proceedings:

If the recommendation of the Appraisal Committee is not acceptable to the government entity or to the
property owners concerned, steps should be taken to institute condemnation proceedings in accordance
with Section 12, Chapter 4, Book III of the Administrative Code of 1987 and the Rules of Court.

To determine the consequential benefits that may be derived from the construction of the proposed
improvements and the damage that may be caused by such improvements.

In arriving at a fair valuation as contemplated by law, if the estimated damages exceed the estimated benefits,
such excess should be added to the market value. On the other hand, if the estimated benefits exceed the
probable damages, the difference shall be disregarded and the market price considered the fair valuation.
Requirements for Condemnation Proceedings:

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In the case of all public improvements where it is necessary to acquire private property through
condemnation proceedings, construction work shall not be started unless the following requirements occur:

Bond to be filed by the government.

Authorized entry upon the property, and
Sufficient funds are obligated or set aside to cover a reasonable estimate of the cost of such private property.
Severance Damage
Severance Damage
the difference between the market value of the remaining property before the taking and the market value
of the property after the taking (being part of the integrated whole before the taking and considering the
propertys highest and best use).

Some specific benefits (accruing to the owner after the taking), may be offset against severance damage.
Example-wider frontage of removal of unsightly structures opposite the owners property. Such benefits
increase the market value of the remaining property.
The following are not compensable:
Negative effects or damages generally are not compensable when they are speculative, remote or
uncertain. In general, the following are not compensable:
1. Increase or decrease in the traffic (due to rerouting or diversion of traffic)
2. Noise and fumes caused due to increase in traffic.
3. Interruption of business during the construction of the government projects.
Annoyance and inconvenience suffered generally.
5. Loss of profit due to relocation to another site.
6. In general, moving expenses are not compensable.
In the event of dispute between the government agency and the owner as to the amount of just
compensation, appraisers must be employed by both sides to testify in court and help to negotiate for a
compromise.
The appraiser will testify in court as to the factors he considers in estimating the market value and the
manner in which he estimated the just compensation and severance damage, if any.
Appraisers as Court Witness:
1. Preparation for trial by the appraiser includes actual inspection of the subject property, assembling of data,
estimate of the just compensation (and damage), consultation with his employers attorney, preparation of
written appraisal report, with maps, charts, photographs, etc is advisable.

2. The appraiser will present his opinions and conclusions in direct examination, subject to cross-examination
by the opposing counsel.

3. An appraiser-witness may be disqualified if he appears to be lacking in his judgment, knowledge of his

subject or his competence is questionable.
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4. The appearance and conduct of the appraiser as court witness as well as his testimony are important in its
effect on the court. His reputation is at stake in every expropriation proceedings.
Appraisers Fee In Expropriation Proceedings:
An appraiser is free to make his own terms or fee for his services.
The appraiser must consider the time required for actual field inspection, report preparation, consultation
with his employer and attorney, and the appearance in court.
The appraisers fee in not contingent on the time that he actually testify in court, but depend on the amount
of fees prevailing in the market considering the appraisers general reputation, and the property involved.
Note: At present, there is no standard established as to the court fees of appraiser-witness.
Activities Preparatory to Acquisition of Property (EO 1035)
l. Feasibility Studies
Feasibility studies shall be undertaken for all major projects, and such studies shall in addition to the
usual technical, economical operational aspects, include the social, political, cultural and
environmental impact of the project.
2. Information Campaign

Every agency, office and instrumentality of the government proposing to implement a development project
which require the acquisition of private real property or right thereon shall first make consultations with the
local government officials, including the regional development councils having jurisdiction over the area where
the project will be undertaken to elicit their support and assistance for the smooth implementation of the
project.
The implementing agency/instrumentality concerned with the assistance of the local government officials and
representatives of the Office of the Media Affairs shall conduct an extensive public information campaign
among the local inhabitants that will be affected by the project to acquaint them with the objectives and
benefits to be derived from the project and thus avoid any resistance or objection to the acquisition of the
subject property.
3. Detailed Engineering Surveys
The implementing government agency/instrumentality concerned shall undertake detailed engineering,
including parcellary surveys to indicate the location and size of the sites and to determine ownership of the
land to be acquired, including the status of such land.
4. Project Cost/Funding

The estimated cost of a project shall have the following distinct components:

Pre-investment cost which shall include the cost of undertaking the feasibility study and public information
campaign;

Investment cost which shall include the cost of detailed engineering, cost of the property to be acquired and
cost of construction and construction supervision.

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The programming and budgeting of funds for the pre-investment and pre-construction phases, carried out in
that order, shall be undertaken well in advance of the scheduled commencement of construction.
The implementing agency/instrumentality concerned shall include in their respective proposals for annual
budgetary outlays provisions to finance these preparatory activities and the Office of the Department of
Budget and Management (DBM) shall consider such proposals in the light of the foregoing.

In the case of the infrastructure ministries, the necessary outlays for each phase of the pre-implementation
activities shall be made a distinct component of the annual infrastructure program which shall be released
by the DBM as scheduled.
Three (3) Valuation Approaches
Sales Comparison Approach
Cost Approach
Income Capitalization Approach

Sales Comparison Approach

Considers the sales of similar or substitute properties and related market data, and establishes a value
estimate by processes involving comparison.
Listings and offerings may also be considered as data.
Assumes that an informed buyer would pay no more for a property than the cost of acquiring an existing
property of similar nature. (Principle of Substitution)
Recognizes that property prices are determined by the market
Market Value can be calculated from studying market prices for properties that compete with one another for
market share
Method is applicable when there is an active market with sufficient number of verifiable transactions
General Procedure in Applying
Sales Comparison Approach
Assemble property facts and gather market data on current market sales and offerings.
Adjust sale prices of comparable properties to account for differences in date of sale, physical characteristics,
market condition, and terms of sale when compared to the subject property.
Adjust sale price of comparable property for differences relative to the subject property.
2. Cost Approach
Considers the possibility that, as an alternative to the purchase of a particular property, one could acquire a
modern equivalent asset that would provide equal utility.
Estimates the cost of acquiring an equivalent land and the cost of constructing an equivalent new structure
while adjusting for depreciation to reflect obsolescence.
Assumes that an informed purchaser would pay no more for a property than the cost of land improvements
required in reproducing a substitute property with the same utility as the subject property.
General Procedure in Cost Approach:
Gather Property Facts
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 Survey Materials, Supplies, and Labor Cost
Engineering Details and Estimates
Contractors Profit/Loss
Taxes, Fees for Building Permits/etc.
Other incidental expenses
Use Cost Estimating Process to develop a Reproduction Cost or Replacement Cost New
3. Income Capitalization Approach
Considers income and expense data relating to the property being valued and then estimates value through
capitalization process.
Applicable to income-producing properties.
Assumes that an informed purchaser would pay no more for a property than the cost of obtaining an Income
Stream of the same size embodying the same risk as that of the subject property.
Determines an income stream (annual net rent) on potential income stream or cash flow.
The approach expresses a fixed relationship between two factors of net income and capital value.
The approach is most applicable in the case of investment or commercial properties
General Procedure in Applying Capitalization Approach
Determine gross income
Deduct expenses/outgoings
Determine capitalization rate
Capitalize net income
Carry out a check on the property valued by capitalization
Valuation Techniques / Methods
Sales Comparison Approach
Sales Comparison Method
Extraction/Residual Method
Stripping Method
Cost Approach:
Civil Engineering or Quantitative Method
Unit-In-Place Method
Indexing Method
Comparative/Repricing Method
Income Capitalization Approach:
Net Rent/Rental Method
Hypothetical Development Method
Discounted Cash Flow Method

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