As applied to real estate appraisal, stripping is not porn.
Usually applied in mass appraisals, it is an application of the 4-3-2-1 rule. Simply stated, it means that the market value of a real estate is greatest as it is nearer the road, and reduces in market value as it is farther away from it.
Mass appraisal is “the process of valuing a group of properties as of a given date, using standard methods, employing common data, and allowing for statistical testing” (from Standard of Mass Appraisal of Real Property International Association of Assessing Officers). This is necessary for uniformity and consistency in ad valorem (Latin for “according to value” which means that we are taxed according to the value of our real and personal property) appraisals.
Wait a minute!
Are we also taxed for our personal property? Actually, yes, but it depends upon the laws your country!
Mass appraisals are usually used by assessors in computing our real property taxes. The trend nowadays is to computerize everything such as in the Computer Assisted Mass Appraisal (CAMA) and in the application of the multiple regression analysis to mass appraisal (but this is another topic for another blog!).
But What Of The 4-3-2-1 Rule?
This is a rule of thumb akin to the depth adjustments made to determine the value of properties bordering on roads and highways. This rule states that the front quarter of a parcel is worth 40% of the whole value, the second quarter 30%, the third quarter 20%, and the rear quarter 10% (see Figure A).
By way of example, suppose that you have four thousand square meters property bordering a street where the market value is established at P 10,000 per square meter.
In real estate appraisal, the standard depth of a lot in the area is established first (for example in Iligan City it is 20 meters). Then the lot is stripped by the standard depth as shown in Figure B (the percentages is usually fixed by a city or municipal ordinance):
In the Philippines, the Department of Finance released a “Manual On Real Property Appraisal and Assessment Operations” on January 2006, and has the following rules on appraisal using the Stripping Method above:
1. It is not to be used for commercial and industrial properties
2. It shall not apply to corner lots
3. For lands bounded by 2 streets that are not considered corner lots, the higher street value shall be applied, provided that the value per square meter for the last strip shall not be lower than the value per square meter of lots in the other street.
4. Subdivision lots are not subject to stripping
Real estate appraisal by Assessors is something that we usually put in the back burner, until the beginning of the year when we are assessed and required to pay our real estate taxes.
In the Philippines, a lot of cities and municipalities are now re-computing the real property tax in what is called the “general revision” based on Section 219 of RA 7160.
This will be applied in 2014!
Then at that time perhaps, we shall be more interested in the stripping (our real estate)!
PS: Next time we shall discuss about the 65/35 rule in valuing triangular lots.