Real Estate Consulting

History of Real Estate Consulting Practice Before PRC - Department of Trade and Industry
1953 – Organization of a Society of Counsellors in (DTI)
the US July 30, 2009 - under the Professional Regulation
1954 – National Association of Realtors (NAR) Commission (PRC)
1960 – Philippine Association of Realtors Boards July 21, 2010 - Implementing Rules and
(PAREB) Regulations (IRR) RA 9646
1976- Institute of the Philippine Real Estate
Consultants (IPREC) Terminologies
1992- Philippine Association of Realty Consultants  Consulting – provision of advice,
and Specialists (PARCS) guidance, and support in real estate
matters, on a fee basis by qualified
professionals, who subscribe to a suitable
US Practice – no licensing regulations
code of ethics. It is the giving of
Philippine Practice – with licensing regulations competent and objective (disinterested
and unbiased) advice and judgment on
History of Real Estate Consulting Practice diversified problems in the broad field of
real estate, delimited only by the client’s
Act 2728 (1938) – Philippine Legislature – to
needs.
regulate the real estate practice to protect public
 Consultancy – a form of professional
interest.
service that answers the need for a
July 29, 1939 – Commerce Administrative Order completely detached but well considered
No. 3-6 – first licensing regulation for real estate advice harmonized with the interest of the
brokers. person seeking advice.
April 28, 1960 – Commerce Administrative Order  Real Estate Consultant – duly registered
No. 60-1 revised CAO No.3-6 to require written and licensed natural person who, for a
examination for Brokers and Appraisers. professional fee, compensation or other
Trade Administrative Order No. 75-1 – amended valuable consideration, offers or renders
CAO No. 60-1 to include Real Estate Consultants professional advice and judgment on
the acquisition, enhancement,
1985 – codified under Ministry Order No. 39
preservation, utilization or disposition of
- Ministry of Trade and Industry lands or improvements thereon, and in the
- Rules and Regulations Governing the conception, planning, management and
Licensing and Supervision of Real development of real estate projects.
Estate Salesmen, Brokers,  Real Estate Developer - refers to any
Appraisers, and Consultants and natural or juridical person engaged in the
Realty Service Organizations. business of developing real estate
1995 – DOJ Opinion No. 113, Series of 1995 development project for his/her or its
own account and offering them for sale or
- realty service is a profession limited to
lease.
Filipino Citizens.

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Fundamentals of Consulting
Real Estate Consultant Body of Knowledge
 Knowledge of the market – Understand the intricacies of real estate assets and markets.
 Real estate norms and generally accepted principles
 Difference between land, real estate, and real property.
 Execution of informed decisions
 Special knowledge and skill: investment analysis, operations research, statistics, construction
management, real estate economics and finance, and income tax planning. - broad experience and
good judgment

Real Estate Consulting Relationship With and as Distinguished From Other Real Estate Service
Practices
Consulting is the giving of objective and independent expert advice to a client, frequently before
decision is made concerning a real estate matter. Such advice is systematically researched, even to the
extent of engaging the services of other specialists. The relationship between the consultant and the client is
similar to that of the CPA or lawyer and his client. The consultant, with his broad experience and knowledge in
real estate, enters into the decision-making process of the most sophisticated problems in the real estate field.
The consultant is NOT in competition with the broker, appraiser, property manager, or with other realty
specialists. The consultant is in fact usually himself on expert in one or more such service practices, but he
recognizes that his relationship with the client as broker working for a commission, as an appraiser bound to an
objective opinion of value, or an as property manager interested in training management of the client’s property,
might conflict with client’s need for objective unbiased advice pertinent to his problem or objective.
The consultant’s relationship with his client tends to be more confident and professional than
that of the other real estate practitioners. Realty consulting is for persons who will approach the service on a
professional basis.

Relationship of Valuation to Consulting

Valuation studies are primarily microeconomic analysis because they focus on valuing identified interests in
specified real estate as of a given date.
Consulting may include macroeconomic analysis, microeconomic analysis, or a combination of both.
Just as appraisers must distinguish between valuation and consulting works, consultants must also distinguish
between market value and investment value:
Market value is the value in the market place.
Investment value is the specific value of goods or services to a particular investor or class of investors based
on individual investment requirements or objectives

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CHARACTERISTICS OF PROFESSIONAL REAL ESTATE CONSULTING

1. Consultation advice and opinion are documented with reasoning in a written report (or supported
by an oral report), and for an agreed fee.
2. The consulting service is a separate and distinct undertaking, completely distinguished from that
of a broker, appraiser or an agent; the service he sells is the product of his mind out of right
experience and judgment, supported by facts.
3. In consulting, advice means considered judgment arrived at after careful investigation and
deliberation with the client, never given off-the-cuff, intuitively, gratuitously or impulsively.
4. The consultant treats each client or problem individualistically. His conclusion and opinion are not
generally applied, except to the particular client or problem at hand.
5. The consulting success is measured by the extent of acceptance and utilization of his services by
the client

Consulting Services may involve any of the following specific studies:

1. Feasibility studies
2. Development planning
3. Disposition planning
4. Evaluation of proposed transactions
5. Acquisition planning
6. Cost-benefit studies
7. Cost studies
8. Investment analysis
9. Risk analysis
10. Forecasting
11. Portfolio design and review
12. Technical analysis
13. Highest and Best Use (HBU) studies
14. Location analysis
15. Site selection analysis
16. Market analysis
17. Marketing assistance
18. Zoning assistance
19. Impact analysis
20. Property management review
21. Neighborhood/community analysis
22. Opinion testimony
23. Conflict management
24. Financial planning

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Problems and Issues addressed in Real Estate Consulting

Any one or more of the above services are sometimes informally provided by real estate brokers,
appraisers, real estate managers, mortgage bankers, and dealers, incidental to their main service relation.
However, they are considered consulting practice subject to licensing regulations when rendered in accordance
with a scope of work covered by prescribed standards and ethics, and on a professional fee basis, and NOT
when the services are rendered for salary, commission or profit. Consulting services answer diversified
questions related to real estate problems and issues from the standpoint of any party to a proposed
transaction. The following are examples of the subject of consulting:
1. What is the most appropriate mode of disposition of our acquired assets? Who are the prospective
buyers?
2. What impact will a pending change in the community have on my property?
3. How can I improve the income from the property? How well is my marketing program performing?
4. What events are likely to affect my property? Should I keep, sell or rent it?
5. Should the property be developed? When?
6. How should I market the property? What is the fair price for the property?
7. What costs and benefits will result from proposed development? How can I get permission to develop
the property?
8. What impact on the community will the proposed use have?
9. How much compensation must I expect from a condemnation action?
10. How should I resolve the conflict involving the property?

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Specific Consulting Cases

Real estate problems and objectives that can be the subject of consultation may come from property owners,
tenants, lenders, and administrators. In most instances, the client will ask the consultant for advice on
objectives and alternatives and how the client will decide about such problems as
1. Acquired asset - A guaranty company has foreclosed on a partially completed residential
condominium project.
2. Liquidation - The trust department of a small bank is required to dispose of an estate that includes
several large properties.
3. Development planning - An investor planning the purchase of a large tract is concerned about how
the property should be developed, what use or uses should be completed, how development should
be timed, how the finished product should be marketed and the most desirable way to acquire the
tract.
4. Management planning - A small investor has acquired an income-producing property. He is uncertain
about what the rent should be or how to draw up leases.
5. Development assistance - The owners of a vocational training center wish to convert it to a medical
building. They need help in selecting then architect, builder, and management and in arranging the
necessary financing.
6. Investment advice - An owner of a substantial landholdings in a distant province wants to know
whether to sell or hold the property, the tax consequences of a sale, and how to go about marketing
the property if he decides to sell.
7. Conversion services - A newly formed limited partnerships is interested in acquiring a luxury
apartment building for conversion into a residential condominium. It seeks guidance with regard to the
value and physical soundness of the building, the tenant policies that should be adopted, the amenities
that should be provided, the pricing of the converted units, and the kind of investment return that can
be expected.
8. Impact analysis - A city planning board is seeking advice regarding the economic impact of the
proposed zoning revisions, particularly with regard to the property tax revenue, employment, and
business development.
9. Management assistance - An apartment development in another city is suffering from high tenant
turnover. The owners ask for assistance is stabilizing the tenancy without reducing rents.
10. Sales consulting - The owner of the vacant lot in an urbanizing area wants to know whether he
should sell the lot, enter into a joint venture for development, develop the lot himself, or exchange all
or part of the lot for another property.
11. Use study - The owners of a downtown lot building that has been vacated by its principal tenant need
to know whether the building should be demolished, left vacant or rented on temporary basis while
development of the property for other uses is awaited
12. Assessing space needs - A bank requires new quarters. Should the building be adequate for just the
bank, or should it provide additional office space for rental to other business? If additional space is
provided, how much should there be, and how should it be designed?
13. Conflict resolution - A property owner and a lessee cannot agree on the rental to be paid over the
next ten years of a lease that contains a series of renewal every two years. The property owner and
the lessee seek a consultant mutually acceptable to help them ascertain the fair market rent by
agreement or established a procedure by which they can reach a rental amount without going to court.
14. Need assessments - A growing low firm requires larger offices. Each of ten partners seems to have a
different opinion about what would be the best office location.
15. Location analysis - A distributor of bottled drinking water wants to know where to locate a distribution
center in relation to the total expected market area. This will require an analysis of the alternative sites
realistically available to the client and for each site, an assessment of delivery times, toll fees,
expected growth patterns within the market area, delivery expenses, and the tax structures of each
competing locality.
16. Property taxes - A lessee who is in the eighteen year of twenty-year lease is required to pay all the
real estate taxes. He wants professional assistance to determine whether the taxes being charged are
excessive.

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17. Neighborhood analysis - The owner of an apartment complex is concerned about undesirable
changes in the neighborhood. She wants to know whether she should keep or sell the property and
whether it should be sold as an apartment complex or converted into condominium units and then
sold.
18. Evaluation - An investor has been offered an income-producing property and wished to know what
risks are involved, what tax cash flow is to be expected, how sound the property is, how the purchase
should be financed, and what advantages and disadvantages would be associated with rehabilitation.
19. Facilities planning - An industrial company needs to expand a plant and wants to know what it can
expect to get for the plant in the market, what it would have to pay for a suitable existing facility at
another location, how much it would cost to acquire a site and build a new building, what its moving
costs are likely to be, where suitable sites are likely to be available, where suitable facility might be
rented, and what the after-tax implications of these various possibilities would be.
20. Redevelopment planning - A group of investors wants to consolidate streets and sites in an old
downtown warehouse district in order to create a high-rise office and hotel site. All of the investors
agree that a plan should be worked out to close the streets, create larger parcels, subdivide the more
usable properties after demolishing the buildings. Some of the investors wish to sell; other wish to
enter into joint ventures.
21. Portfolio review - The owners of a large collection of the office buildings, hotels, apartments,
complexes, and industrial properties want to know what changes they should make in their portfolio to
improve its overall performance without increasing investment risks.
22. Cost-benefit studies - A community that is contemplating the offer of a property tax abatement in
order to attract a new downtown hotel wants to know whether the anticipated benefits justify the
revenue sacrifice being contemplated
23. Forecasting - The owners of a downtown office building wonder what effects current trends in office
building construction, office space design, local business patterns, and area population characteristics
will have on their investment. They want to know how long they should hold the property and what will
eventually become of it.

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Consulting Abilities to Provide Advice and Assistance to Clients

The solutions that the real estate consultant presents and the methods by which he reaches those
solutions are just diverse as the problems that confront real estate owners and users. Each problem requires
individualized treatment. To be really helpful, the consultant needs special knowledge and skill in such
fields of investment analysis, operations research, statistics construction management, real estate economics
and finance, and income tax planning. But it is the broad experience and good judgment of the consultant
that focus such special knowledge and skills on the client’s problem.

Clients can benefit from the consultant's ability to:

1. Analyze property values and facilitate transactions
2. Evaluate management performance
3. Conduct research and forecast investment outcomes
4. Formulate plans to achieve objectives
5. Identity and define threats and opportunities
6. Investigate markets and plan developments
7. Draw model of investment scenarios
8. Negotiate and arbitrate between parties
9. Provide expert testimony
10. Train others to provide real estate services
11. Understand and simplify complex situation

Is the consultant a specialist? Yes and no.

As a specialist, he possesses, and renders under separate assignment or engagement, particular skills or
skill, such as in brokerage, appraisal, town planning, architecture, or engineering. As a consultant, he
possesses special skills in rendering advisory service under a specific engagement for a fee, in the real estate
service practice and industry.
However, in the practical application of the consultant’s advisory service, the consultant applies his skill in the
art of orchestrating and coordinating the various special skills in real estate (development, marketing,
finance, taxation, town planning, land-use regulation, economics etc.) in this sense he becomes a
generalist.
The principal difference between the real estate specialist and the real estate consultant lies in what might
be called consequences. A specialist’s skill is based on his ability to perform about precisely the same series
of actions or steps, assignment after assignment. The outcome of the efficient execution of a predetermined
series of steps is the sought consequences, market value as in the case of an appraiser. Consultancy, on the
other hand, is a skillful combination of art and science. Especially when we consider the economic
characteristics of land and variations of the client objectives and investment standards, NO two situations
ever require exactly the same actions.

1.4 Licensing Regulations

R.A. No. 9646 or "Real Estate Service Act of the Philippines"
Qualifications:
a. A citizen of the Philippines;
b. A holder of a Bachelor's degree in Real Estate Management
c. Of good moral character, and must not have been convicted of any crime involving moral turpitude
d. at least ten (10) years experience as a licensed real estate broker or an assessor, or as a bank or
institutional appraiser or an employed person performing real property valuation, OR at least five (5)
years experience as a licensed real estate appraiser.
 Must submit a Feasibility Study
 Must pass the 100 pt. Consultant’s Exam

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 After passing the exam, applicant will have to pass the Revalida and defend the study submitted.

Continuing Professional Education (CPE in RESA), now CPD

Section 36 of Article IV, RA 9646
The Board shall develop, prescribe and promulgate guidelines on CPE upon consultation with the AIPO,
affiliated association of real estate service practitioners and other concerned sectors, and in accordance with
such policies as may have been prescribed by the Board, subject to the approval of the Commission.
CPE Council (1+2)
1 chairperson from PRBRES,
1 member from AIPO
1 member from the academe

Primary Purpose of the CPE:

1. maintain the high standards and advancement of the real estate profession and for the realty service
practitioners
2. keep abreast of the developments affecting their interest and of the Industry.

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Defining and Establishing the Consultant-Client Relationship

As noted earlier, consulting is not as much as a separate body of expertise or knowledge as a professional
relationship with the client. That relationship establishes the responsibility of the consultant to his client as well
as the client’s responsibility to furnish what the consultant needs in order to fulfill the consulting engagement.
Consultant’s Responsibility to the Client includes the following:
1. Know and understand the client’s business in relation to the subject of consultation,
2. Open the mind of the client as to the general nature of the client’s problem and the relevant and
related real estate aspects that may require third-party specialists, such as appraiser, broker,
builder, environmentalist, mortgage banker or lawyer.
3. Guide the client in defining the issues involved in the problem, suggest alternatives and recommend
solutions after adequate analysis and study, including necessary consultations with other specialists.
4. Implement the engagement and render the report in accordance with generally accepted standards
of consulting practice and ethics and with the contract of consulting engagement.
5. Assist the client with implementing the decision or alternative action recommended as may be
required by the contract on the matter

Client's Responsibility
Consulting is such a broad function that it’s understanding by the public and even by those involved in real
estate business and practice is often misused and misinterpreted. It is Imperative, therefore, that the consultant
explains to the client the information, data and documents needed by him that are only available from the client
such as the following:
1. Interview and qualify client. To determine if the client is willing, ready, and qualified to seek and
accept professional advice. Any indications that the client has ulterior motive to use his function
subjectively must discourage the consultant and avoid the consulting engagement which may result in
unethical relationship.
2. Necessary data and information. In order for the consultant to develop the right questions and
outline the nature of the problem and appropriate tools and techniques to be used to approach the
alternatives courses of actions and solutions. The client must be made to understand that such data
and information must be made available promptly to reduce the cost and time of obtaining the same
from other sources.
3. Confidentiality of the report, in whole or in part, must be observed by both the client and the
consultant. Any dissemination of the same must be mutually cleared beforehand so that both parties
can evaluate the merit or disadvantage of maintaining strict confidentiality of the report.
4. Necessary degree of trust and honesty, to avoid guesswork in obtaining information. The client
must furnish needed materials in a straightforward and sincere manner since the quality of the work of
the consultant is in direct relation to the quality and quantity of data and information obtained from the
client.
5. Compliance to the terms and conditions of the consulting engagement. Particularly the provision
on cost and expenses, and payment of progress and final billings. Client default on his provision of the
contract may affect materially the consultant’s quality of work.

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Defining the Client Problem, Objective and Needs

1. Immediate problem may involve a distressed property, proposed project, land-use conversion,
highest-and-best use analysis of an existing property, or expanding an existing residential subdivision.
Immediate problems must be hurdled first before focusing the effort to the long-term goals. However,
the solution’s effect to the long term goals should still be considered (and vice versa) as may give rise
to unexpected new problems.
2. Long-term goal problem requires more complex analysis than would short-term problems. The
consultant’s final conclusions on immediate problems would be only be beneficial if he is also
cognizant of the client’s long-term goals.
The long-term horizon involves necessarily more imponderables and assumptions, and constant
revisions in many aspects of the feasibility studies made. For example, a big tract of property mixed-
use development might involve solving current collateral problems sponsoring zoning ordinances,
encouraging public infrastructures and utilities, any indication of failure in solving these immediate
problems may alter the outcome of the long-term real estate investment goals and objectives.
3. Cash flow and accounts receivable level are very sensitive assets that affect both current and
long-term prospects. Close watch on cash flow is required as any time something unexpected can
suddenly happen. And if the consultant has not anticipated it, ongoing projects may be jeopardized,
and ultimately client’s long-term goals.
The consultant’s understanding with the client should enable him to recommend and appoint third
party specialists needed in the engagement. He should also be socially responsible make financially-
sound decisions and find alternatives to make an investment more environmentally friendly. If the
investment desirable but may be detrimental to the community, he should withdraw properly from the
engagement. The respect of the community and the reputation for professional integrity is
distinguishing marks of the consultant’s practice.

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PROFESSIONAL FEE ARRANGEMENTS

The different fee arrangements are influenced by the:
a. nature of the engagement
b. relationship with the client
c. expertise of the consultant in general and in relation to the problem involved
d. the amount of time required
e. the complexity and importance of the problem involved.
The long experienced and exposures to diversified real estate problems are usually factored in the fee
arrangement acceptable to the client.
1. The straight or fixed fee usually applies whenever the scope of an engagement is clearly quantifiable
and the fee tends to be a lump-sum amount.
The client’s needs do not change during the engagement. If at all, such change will not materially
affect the reasonableness of the fee.
2. The modified fixed fee is a modifications or additions to the straight or fixed fee to provide for
changes during the course of the engagement or for factors that must be considered for the proper
execution of the consultant’s responsibility.
Although the modified fee has many variations, it generally provides for a minimum and maximum
range that is acceptable to both parties, but should the engagement require more skill, expertise, and
time of the consultant, he may exceed the maximum range with authority from the client.
3. The performance fee considers a type of bonus or incentive payment, which bears no relation to a
commission payment, especially in a sale or financing transaction as the main subject of the consulting
engagement. This method of charging is supplemental to a minimum fee payable whether or not the
transaction goes through, plus against a performance fee.
In summary, the consultant may base his fee on the following considerations:
1. Intricacy of the problem
2. Urgency of the engagement
3. Professional skills required
4. Savings affected
5. Time expended
6. Personnel employed
7. Results obtained
8. Responsibility fee or profit

The variation in fee arrangement reflects the personal opinion of the consultant about the importance or
weight he gives to the different considerations enumerated above. A final and important consideration that will
definitely influence the amount of fee is the personal and business relation of the consultant with the client.
The consultant must NEVER accept an engagement fee on a wholly contingent basis, NOR must he share
his fee with a broker as a consideration in the procurement of a consulting engagement.

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Uniform Standard of Professional Realty a. General (not specific to a certain property)

Consultant Practice (USPRCP) b. Specific (relating to the subject property
and comparable properties in the
market),
Definitions As Integral Part of The USPRCP
c. Primary (gathered by the consultant
For the purpose of providing clarity in himself; information is not available in a
interpretation of the standards provision of published source),
the USPRCP, the following definitions d. Secondary (obtained from published
apply: sources).
ABSORPTION ANALYSIS: analysis of the amount DATE OF THE REPORT: The date on document
of space (usually expressed in sqm) or the number when it was prepared by the consultant. It may be
of units (absorption rate) that can be sold, leased, a date on the transmittal letter of a written report or
put into use or traded on the market during the date a written report lacking a transmittal letter.
a predetermined or estimated period of time The date of an oral report is the date it is
(absorption period), and at prevailing prices or communicated to or for the client. The date of the
rentals. report may or may not be the same as the effective
ADVICE: Considered judgment arrived at after date at which the analyses, opinion, and advice in
careful investigation and analysis, discussion a consulting service apply.
and deliberation with the client in a consulting ECONOMICALLY FEASIBLE: Refers to a real
engagement. estate project that is able to meet defined
BINDING REQUIREMENT: All or part of a financial investment objectives, the ability of a
standards rule of USPRCP from which departure project to produce sufficient cash flows to repay all
is NOT permitted. (SEE DEPARTURE the expenses involved in creating and marketing
PROVISION). the project plus provide a competitive return to the
CASH FLOW ANALYSIS: A study of the owner/developer. A criterion of highest and the
anticipated movement of cash into or out of an best use analysis (HABU).
investment. EFFECTIVE DATE: The date at which the
CLIENT: The party who engages a consultant by analyses, opinions, and advice in an appraisal,
contract in a specific engagement. review or consulting service apply.
CLIENT'S PROBLEM: Any question, doubt,
uncertainty, or difficulty arising from a historical
realty situation in which something has gone
wrong from a normal situation without yet available
explanation.
CLIENT’S OBJECTIVE: Any question or doubt
arising from historical or prospective realty
investment desire dealing with difficult decision on
available alternative courses of action, project, or
situation. This calls for the consultant’s decision-
making service.
CONSULTANCY: The provision of competent,
disinterested and unbiased advice, professional
guidance, and sound judgment on diversified
problems in the broad field of real estate, on a fee
basis, by qualified professionals who subscribe to
suitable standards of practice and code of
professional ethics.
CONSULTING: The act or process of providing
information, analysis of real estate data,
and recommendations or conclusions on
diversified problems in real estate, other than
estimating value in a disinterested manner. (See
REAL ESTATE CONSULTANT)
DATA: The information pertinent to a specific
assignment. Such data may be divided into four
different classes:

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EFFECTIVE DEMAND: The desire to buy to given community or other area classified by type of
satisfy need coupled with the ability to pay. When use, plus (in some cases) an analysis of the spatial
the word demand is used in economic writings, patterns of use revealed by this inventory. Land
effective demand is usually assumed. utilization studies do not embody the viewpoint of
 Willing to buy any particular investor nor do they focus on any
 Able to buy one parcel. Furthermore, no consideration of
 Has a need markets and feasibility is normally included.
FEASIBILITY ANALYSIS: A study of a proposed LETTER OF TRANSMITTAL: A letter
economic activity’s capability of being accompanying a consulting report that formally
accomplished under certain conditions and presents the report to the client who requested it
assumptions of marketing, technical, or financial and may include information such as: address and
aspects. Also, a study of the cost-benefit description of the property problem, or property
relationship of an economic activity. interest subject of consulting engagement,
statement that property inspection and all
FEASIBILITY STUDY: (See FEASIBILITY necessary analyses were completed by the
ANALYSIS) consultant, date of consulting report, summary
HIGHEST AND BEST USE (HABU): The conclusion and recommendations, any
reasonable and probable use that result in the extraordinary assumptions or limiting conditions,
highest present value of the land after considering consultant’s signature and reference to
all legally permissible, physically possible and accompanying consulting report.
economically feasible uses. LETTER REPORT: A shortened consulting
Capitalization rates or discounts rates for each report that states the conclusions and
feasible use should reflect typical returns expected recommendations of the consultant’s study and
in the market. Highest and the best use is usually analysis. A letter report typically contains a
determined under two different premises: as if the statement of the problem or issues of the subject
site was vacant and could be improved in the of consulting engagement, purpose of the
optimal manner or as the site is currently consulting engagement, a description of the
improved. analysis, the date of study and analysis, limiting
Highest and best use analysis for appraisal: conditions. Much of the data and reasoning are
a. Legal permissibility omitted. (See also REPORT).
b. Physical possibility LIMITING CONDITION: Specifications in a
c. Financial feasibility consulting report that restricts the assumptions in
d. Maximum productivity the report to certain situations, for example, date
In the latter premise, the highest and the best use and use of the consulting service, definition of
of the site will either be to keep the existing value, identification of real estate and property
building or to demolish the building and develop a rights being valued, definition of surveys used or
new building as long as it contributes to the value not used.
of the site. MARKETABILITY STUDY: A real estate analysis
INTENDED USE: The use or uses of a of a specific property that addresses the ability of
consultant’s reported consulting engagement, the property to be absorbed, sold or leased under
opinions and conclusions, as identified by the current and anticipated market conditions.
consultant based on communication with the client MARKET ANALYSIS: A study of the supply and
at the time of the engagement. demand conditions for a specific type of property in
INTENDED USER: The client and any other party the real estate market.
as identified, by name or type, as users of MARKET SEGMENTATION: The identification
the consulting report, by the consultant based on and analysis of sub-markets within larger groups
communication with the client at the time of the based on their economic, demographic and/or
engagement. psychographic characteristics (such as attitudes,
INVESTMENT ANALYSIS: A study that reflects habits, and lifestyle). This process aggregates the
the relationship between acquisition price and potential users of the subject property from the
anticipated stream of future benefits of a real general population, according to defined
estate investment. consumer characteristics.
LAND UTILIZATION STUDIES: An analysis of the REAL ESTATE: An identified parcel or tract of
potential uses of a parcel of land and a land including improvements, if any.
determination of the highest and best use for the REAL ESTATE CONSULTANT: “duly registered
parcel; a complete inventory of the parcels in a and licensed natural person who, for a professional

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fee, compensation or other valuable consideration, REPORT: Any written communication of a

offers or renders professional advice and judgment consulting service that is transmitted to the client
on: (1) the acquisition, enhancement, preservation, upon completion of an engagement.
utilization, or disposition of land or improvements SPECIFIC GUIDELINES: All or part of a standard
thereon, (2) the conception, planning, management rule of USPRCP from which departure is permitted
and development of real estate projects”. under certain conditions. (See DEPARTURE
REAL PROPERTY: The interest, benefits, and PROVISION)
rights inherent in the ownership of real estate. SIGNATURE: Personalized evidence indicating
REALTY: Refers to both real estate and real authentication of the work performed by the
property. consultant and the acceptance of the responsibility
RENT-UP PERIOD: The time period during which for content, analyses, and the conclusions in the
an income property is expected to this lease up to report.
a level stabilized occupancy. Stabilized occupancy STANDARD: The authoritative rule which serves
assumes rental achievement at market levels as as guide to achieve competent and ethical practice
well as physical occupancy at stabilized levels. in developing and reporting the consulting service.

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Project Feasibility Study

PFS is through and systematic analysis of all the factors that affect the possibility of success of a
proposed project or undertaking. The findings presented in the PFS serve as the basis for deciding whether
the project is to be abandoned, revised or pursued. The PFS is a tool or technique in the unification or
synthesis of individual studies on the market, technical, financial, socio-economic, and management aspects of
the project
Here is a brief outline of what to check:
1. Property ownership documents.
The property must ideally have a clean title. Titles are verified at the local offices of the Land Registration
Authority (LRA), also known as the Registrars of Deeds (RD). Today, most of the RDs are fully
computerized and you can obtain certified true copies of titles for properties located anywhere in the
country. First step is to obtain certified true copies. Besides ascertaining the veracity of a title, it is
important to check if there are annotated liens and restrictions.
Some properties proposed for development may be in the name of parties other than the property owner.
It is best to ask for a copy of the proponent’s authority in the form of either an Agreement or a Special
Power of Attorney (SPA).
A property that is intestate (not having made a will before one died) may be owned by the heirs of a
decedent. In this case, it is essential that one of the heirs is duly authorized to represent the others.
There have been many cases where projects were contested by heirs even already during
construction stage.
2. Property surveys.
Unless it is a relatively new urban development, it is good practice to ask a Geodetic Engineer (formerly
called a Land Surveyor), to undertake a land boundary relocation survey. Many properties in the rural
areas have not been properly surveyed and numerous instances of disputes between neighbors due to
encroachments (unauthorized intrusion onto a neighboring property through the creation or extension of a
physical structure, including flora, above or below the surface of land) have impeded and delayed real
estate projects. The survey needed for legal feasibility is the “Property boundary Verification and
Monumentation Survey.” Based on the technical description of the property as seen in the title, the
Geodetic Engineer will lay out the property boundary and install property monuments at each corner of the
lot.
In doing this, the GE will be able to verify if adjoining properties encroach on the subject property.
Property surveys are usually excluded from the fee of the Real Estate Consultant and this can be
outsourced directly by the Client.
3. Legal restrictions.
The type of real estate project that can be built on a property is governed by the use allowed by the LGU.
This is obtained by going to the LGU’s planning department and obtaining a copy of its latest
comprehensive land use plan (CLUP). This document may look like a color-coded map with a legend
identifying allowed uses – such as Agricultural, Residential, Commercial, Industrial, Institutional,
Recreational.
To be assured of the zoning, the Consultant should apply for a “Zoning Certificate” with the concerned
LGU. Besides the certificate it is advisable to secure a copy of the corresponding zoning ordinance. This
document contains a detailed description of every zoning category and the allowed uses in such category. It
could also contain technical restrictions that will govern allowable floor area ratios (FAR), height limits,
and yard setback. The ordinance may also include special provisions describing how exceptions
or variances may be obtained for non- compliant locations.
4. Permits and Clearances.
A complete legal feasibility study can include a list of all required regulatory clearances and permits
applicable to the proposed project. This information, together with a brief description of relevant
procedures, will be very useful to the project proponent. Among such clearances and permits are those
from the following agencies:
• DHSUD - development permit for condominium projects, project registration, license to sell.
• LGU – development permit for subdivision projects, building permits, fire safety permit.
• DENR – tree-cutting permits, environmental compliance certificate (ECC) or certificate of non-
coverage (CNC).

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• LLDA – if the location is within the watershed of the Laguna Lake Development Authority, permits
may be required.
• DAR – clearances may be required for agricultural land that was subject to land reform and
converted to residential use.
Permits from other agencies, as applicable:
 DTI/BOI (Board of Investment) – for projects which will avail of tax incentives PEZA
(Philippine Economic Zone Authority) – guidelines on types of projects and preferred
locations for export-oriented development projects.
 PRA (Philippine Reclamation Authority) – reclamation projects
 CAA (Civil Aeronautics Administration) – restrictions for projects proximate to airport
runways.

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Chapter 1: Introduction to Real Estate Industry

1.1 Kinds of Professional Activity
Some of the reasons people look for properties (either to rent or to buy):
a. relocating for new jobs
b. growing their families
c. downsizing
d. investing in real property

Reasons People Choose to Rent Reasons People Choose to Buy

 do not have enough money for down  Increase equity
payment  Return on Investment – value of the
 do not qualify for a loan/ mortgage property appreciates in the long run
 others who CAN buy, prefer to rent  Personalization of Space
because of convenience  Privacy & Freedom (less rules)
 Perception – that it is cheaper to rent
 Does not want to commit to a long-term
contract -temporarily living in an area
and will relocate soon
 Will not be hassled to manage the
property

 Perception influences buying decisions, and education is important to help first time buyers
understand financing options available.

The professions that build, buy and sell real estate are all part of the greater real estate industry. Buyer’s
agents find properties, show them, negotiate prices and terms, and guide buyers through the purchasing
process. Seller’s agents work with sellers to list and market their property, negotiate prices and terms, and
guide sellers through the selling process.
Now, let’s discuss how it all comes together when buying a house
Let’s say the Smith family has decided to buy a house. One of the first things they might do is to look online to
see what’s available in the area they like. Studies show nearly 50% of buyers begin their search online. Then
they will find a real estate agent to work with, as the majority (88%) of buyers buy their home through an agent
or broker.
Next, they might go to a mortgage broker or banker to see what they qualify for, and to get pre-approved in
preparation for buying.
 Mortgage brokers and bankers provide financing for real estate transactions. While all-cash deals
happen, most of the time some type of loan is involved. The difference between a mortgage broker
and banker is that the mortgage banker is a direct lender, working for one institution, where a
mortgage broker can work with several different lending companies. If someone has credit issues,
they might find more options with a mortgage broker.
When they find the right house, they’ll sit down with their agent and write a purchasing contract. The knowledge
of the broker or salesperson results in a solid offer that protects the buyers while still being attractive to the
seller. There might be negotiations as to price, terms, or other details that the agent will coordinate.
When the seller accepts the offer, a home inspection will be ordered, along with an appraisal.
The real estate salesperson oversees the aspects of the sales process, keeps the buyers informed along the
way, and makes sure the progress is smooth.
Once each step of the sale is complete, the closing takes place and the property is officially transferred to the
Smiths.
Let’s now discuss how it all comes together when selling a house
When the Smith family decides to move, there’s a good chance they will contact the agent they had worked
with when they purchased, as 88% of buyers would use their agent again. Their agent or broker will research
similar homes to give the sellers a good idea of an appropriate listing price.

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The agent or broker will promote and advertise the property, arrange for it to be seen, and market it to find a
buyer.
Agents for the buyers will present offers and the selling agent will help the owners evaluate and negotiate the
best offer for them. When agreement is reached, the property will undergo inspection and appraisal, with the
possibility of contractors or even architects becoming involved if serious construction issues arise.
When all details are resolved to everyone’s satisfaction, the property will close and ownership transfers.

Real Estate Service Practitioners:

a. Real Estate Consultant
b. Real Estate Appraiser
c. Real Estate Assessor
d. Real Estate Broker
e. Real Estate Salesperson
Affiliate Professions:
a. Documentation Expert
b. Virtual Assistant
c. Mortgage Broker
d. Real Estate Professors
e. Real Estate Authors
f. Real Estate Bookkeepers and Accountants
g. Real Estate Attorney
h. Property Manager
i. Home Inspector
j. Civil Engineer
k. Geodetic Engineer
l. Environmental Planner
m. Architect
n. General Contractor

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Real Estate Market Participants:

a. Users - ‘End user’; People who purchase or rent a property to live in it or run their business in.
b. Owners - Real estate investors who do not occupy the property that they purchase, instead, they
lease it to others.
c. Renters - These participants are purely consumers who lease properties to occupy temporarily or
long-term.
d. Developers - They buy and develop raw land, to be leased or sold in the market.
e. Renovators - They flip or refurbish properties.
 Flipping - strategy where an investor purchases a property with the intention of selling it for a
profit
 Fit-out- refers to activities that make the interior space suitable for use
 Repair means to restore by replacing or putting together what is torn or broken, to restore to a
sound or healthy state. Refurbish is to brighten or freshen up. Overhaul is to repair, to
renovate, remake, revise, or renew thoroughly.
f. Facilitators: also called ‘procuring cause’, acts as the catalyst for the purchase and sale of RE. They
include banks, RE practitioners, lawyers, and more.

 Usually banks are involved in funding the developments and when pre-selling starts, that’s when RE
practitioners come in.

Niches in the Philippine Real Estate Industry

A. Project selling - this is where a raw land is subdivided into smaller lots for selling to
individual buyers. The development offers amenities and features to make the project an
attractive and sustainable community.
a. Subdivision selling
b. Condominium selling
c. Industrial selling
d. Club shares
e. Memorial/ Columbarium
B. General Brokerage
a. Rawland selling
b. Investor selling
C. Leasing
a. Commercial spaces
b. Airbnb
D. Foreclosed Properties - type of asset that has been repossessed by the lender or the local
government after the owner failed to keep up with the required payments or if its real
property tax has not been paid to the local government.
a. Bank
b. Pag-IBIG

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1.2 Factors Affecting Real Estate Markets

There are several factors that affect the real estate market, but they are all related in some way to supply and
demand. Demographics, interest rates, costs, pricing, and the economy each affect the market by changing the
balance.
Factors that Affect Supply:
a. Fixed supply of land in a given location or a given quality - In a subdivision where homes might
appear similar, there are differences in their specific location, such as a corner lot, or proximity to a
school or shopping center. That means two very similar homes might exist, one in a prime location and
the other in a place less sought-after, and the location will affect the demand and the price.
b. Construction costs - There are hard and soft costs that can push the price up. Hard costs are the
actual physical construction costs, such as excavating the land, grading the property, the cost of
materials, utilities, paving, and landscaping. Soft costs include engineering, architectural design,
project management, permits, insurance, and taxes. These costs can limit the number of homes built
or increase the price since the contractors pass them on to the end buyer.
c. Fiscal Policy can also affect the cost of real estate. In places where there are zoning issues, building
codes, land-use controls, there may be associated costs that increase the final price. For example, if
property in a certain zoning area is restricted, the demand goes up, and the price increases. If the
building codes put limitations on a popular development, this creates scarcity, and the price escalates.
On the other hand, tax credits and subsidies can encourage buying and increase demand.

Factors that Affect Demand:

a. Fixed supply of land in a given location or a given quality - People gravitate toward certain
locations, such as highly-urbanized cities. This results to more buyers competing for a limited quantity
of properties in the area, driving the prices up.
b. Perception – A homebuyer might think the market is great since there are so many available homes,
while the sellers think it’s terrible. Real estate is local, perception is important, and the market is
cyclical. This knowledge helps you be a better agent and serve your clients well.
 Perceived shortage - Whether there is truth to a shortage, the reaction of people hoarding
causes a real shortage, further increasing the demand
 Speculation - trading assets or financial instruments that have a substantial risk of losing value
but also hold the hope of gaining value in the near future.
 Real Estate Bubble of 2008
o Bubble - economic cycle characterized by a rapid expansion followed by an
immediate contraction; unexplained market phenomenon in which assets’ prices
surge to levels significantly above its fundamental value.
c. Demographics - In an area where there is an uptick in families and children, the demand for bigger
homes, larger backyards, or nearness to schools could increase. On the other hand, Baby Boomers
are a demographic that are currently entering retirement, hence are downsizing, creating a market for
smaller homes, condos or townhomes
d. Economy - Areas with an abundance of good jobs and wages draw people and increase home sales.
People want to set down roots. The opposite is also true. Areas where jobs are hard to find and the
income level is low, homes don’t move as quickly. The population can be transient as they travel from
place-to-place seeking employment. If people can’t find jobs, if they can’t earn a decent amount of
money, they can’t buy homes.
e. Interest rates - When interest rates rise, prices fall to increase demand. When interest rates are low
contractors can get more financing, so they build more homes, the supply increases, but demand
continues because people can qualify for bigger mortgages.

Another factor which affects the movement of real estate is the availability of financing, both for the supply
side or the developers, and the demand side which is the buying market.
Real estate financing involves generally the acquisition of property through loan financing source, which may
be sourced from the following:
 Borrowed Funds from Relatives/Friends
 Bank Financing
 Lending Companies

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 Assumption of Loan/Mortgages
 Government Financing
 Other source (in-house financing, etc)
Factors that Increased the Demand of Properties in the Philippines:
1. Rising urban population growth
2. Expanding middle class
3. Remittances from overseas Filipino workers (OFWs)
4. Housing needs of BPO (Business Process Outsourcing) employees
5. Influx of foreign investors
6. Establishment of technology companies and multinational corporations
7. Vibrant labor market

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Real Estate Investing:

a. Buying a property at a low price and selling or renting for a profit
b. Flipping - involves buying run-down homes, renovating them, and selling them for a profit in a
short period of time.
c. Rental Homes – Airbnb
d. Micro Businesses near a property

Factors that Affect Real Estate Investing

a. Demographics
 Age
 Race
 Gender
 Income
 Occupation/ Migration patterns
 Population growth
b. Economy
 Gross Domestic Product (GDP)
 Unemployment rate
 Inflation
d. Fiscal Policies
 Tax credit and incentives
 Penalty condonation and subsidies
e. Monetary Policies/ Availability of Financing

Real Estate Investment Trusts (REIT)

 a stock corporation established principally for the purpose of owning income-generating real
estate assets, such as apartment buildings, office buildings, medical facilities, hospitals, hotels,
resorts, highways, warehouses, shopping centers, railroads, among others.
 Type of investment instrument that provides a return to investors derived from rental income of
the underlying real estate asset
 Returns are distributed in the form of dividends
 Recurring revenue – portion of the company’s revenue that is expected to continue in the
future
 Unlike one-off sales, these revenues are predictable, stable, and can be counted on to occur at
regular intervals going forward with a relatively high degree of certainty.

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Benefits:
 Enables retail investors to partake in the ownership of properties at a fraction of their cost
 Offers stable and competitive dividend yields as well as the potential for price appreciation
Features:
 A REIT must engage an independent fund manager to implement its investment strategies and a
property manager to oversee its assets
 At least 90% of the REIT’s distributable income must be paid out annually as dividends
 Investors can only trade through Eligible broker, and are required to have a Name on Central
Depository (NoCD) account
 Proceeds from the IPO of REIT shares must be reinvested in the Philippines within one year
REIT Proponent Type Div. Est. Dividend
Payment Yield
AREIT Ayala Land Office, retail, Quarterly 6.36%
industrial
DDMPR Double Office Quarterly 7.87%
Dragon
FILRT Filinvest Office Quarterly 8.33%
RCR Robinsons Office Quarterly 7.44%
MREIT Megaworld Office Quarterly 7.26%
VREIT Vista Retail Quarterly 9.63%
CREIT Citicore Renewable Quarterly 7.58%
energy
PREIT Premier Energy Quarterly 9.43%
Island

Yield = annual rent/ total property cost

Things to consider before investing in REIT:
 Portfolio composition – what properties are included in the REIT
 Location of its properties – the geographical area will help you decide better especially if
it’s within the CBD (Central Business District), BPO hub, or a booming commercial
business area
 Dividend yield – can it beat inflation and is it higher than the 10-year government bond
rate?
 Tenants and long lease contract – who are the tenants and how long should they pay
rent
 Healthy financials – should have a good track record and strong balance sheet
 Bright outlook – are they expanding? Do you think the rental income will be stable and
continue growing in 10 years?
 Study the board of directors’ profile

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Homeowner's Insurance
 Property Insurance – provides protection against most risks to property, such as fire, theft, and some
weather damage.
Homeowners' insurance plans may cover the buildings, the contents, and/or liability in case someone is killed
or injured on your property. Depending on the type of home you have, its age and where you live, you may only
need one type of coverage, or you may need all three.
As a real estate agent working with potential home buyers, it is your responsibility to help them understand the
benefits of protecting their assets

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