FAIR MARKET VALUE AND ESTIMATING IT

   “Fair market value” is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy, taking into consideration all uses to which the property is adapted and might in reason be applied.  The criterion established by the statute contemplates a hypothetical sale.  Hence, the buyers need not be actual and existing purchasers.

          As this Court stressed in Reyes v. Almanzor, assessors, in fixing the value of real property, have to consider all the circumstances and elements of value, and must exercise prudent discretion in reaching conclusions.  In this regard, Local Assessment Regulations No. 1-92 establishes the guidelines to assist assessors in classifying, appraising and assessing real property.

          Local Assessment Regulations No. 1-92 suggests three approaches in estimating the fair market value, namely: (1) the sales analysis or market data approach; (2) the income capitalization approach; and (3) the replacement or reproduction cost approach.

          Under the sales analysis approach, the price paid in actual market transactions is considered by taking into account valid sales data accumulated from among the various sources stated in Sections 202, 203, 208, 209, 210, 211 and 213 of the Code.

          In the income capitalization approach, the value of an income-producing property is no more than the return derived from it.  An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property.

          The reproduction cost approach, on the other hand, is a factual approach used exclusively in appraising man-made improvements such as buildings and other structures, based on such data as materials and labor costs to reproduce a new replica of the improvement.

          The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the estimated fair market value to be included in the ordinance containing the schedule of fair market values.

          Given these different approaches to guide the assessor, it can readily be seen that the Code did not intend to have a rigid rule for the valuation of property, which is affected by a multitude of circumstances which no rule could foresee or provide for.  Thus, what a thing has cost is no singular and infallible criterion of its market value.

Excerpts from Source :  Allied Banking Corporation vs. The QC Government G.R. No.  154126, October 11, 2005