The Practice and Regulation of

Real Estate Consulting ( Module 1 )

1.1. Development of Real Estate Consulting Practice

In the U.S, the real estate consulting practice, may have been formally recognized as a
distinct real estate practice by the organization of a society of counselors in l953 by a group
of Realtors, which affiliated itself with the National Association Realtors in l954. This society
was founded for the purpose of meeting the public need for competent, disinterested, and
independent real estate advice and guidance rendered by qualified experts on a fee basis.
In recognizing its obligations to the public, this society of counselors invited into its
membership only Realtors who have demonstrated their integrity and are qualified by
experience, training, and knowledge to develop and express sound judgment on diversified
problems in real estate business. In addition, the members subscribe to and pledge
themselves to abide by the society’s standards of professional practice and code of
professional ethics.

In the Philippines, the development and recognition of the professional consulting practice
may have been inspired by the U.S. experience, with the organization of the Philippine
Association of Realtors’ Boards (PAREB) in 1960, and of the Institute of Philippine Real Estate
Consultants (IPREC) in 1976 as an affiliate. This development of the practice was later on
supplemented by the organization of the Philippine Association of Realty Consultants and
Specialists (PARCS) in 1992. There is one significant difference, though, between the U.S.
practice and that of the Philippines: the Philippine consulting practice is subject to licensing
regulations, while that of the U.S. counterpart is generally not.

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 and validated, 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 an 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 as a property
manager interested in retaining management of the client’s property, might conflict with the
client’s need for objective unbiased advice pertinent to his problem or objective.

The consultant’s relationship with his client tends to be more confidential and professional
than that of the other real estate practitioners. Realty consulting is for persons who will
approach the service on a professional basis.

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Relationship of Valuation To Consulting

Valuation studies are primarily microeconomic analyses because they focus on valuing
identified interests in specified real estate as of a given date. On the other hand, consulting
may include macroeconomic analyses, microeconomic analyses, 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
marketplace. 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.

1.2. PUBLIC PRACTICE OF REAL ESTATE CONSULTING

Realty Consulting: Definition and Coverage of Consulting Services

Real estate consulting is generally defined as the provision of advice, guidance, and support
in real estate matters, on a fee basis by qualified professionals, who subscribe to a suitable
code of ethics. It is the giving of competent and objective (disinterested and unbiased)
advice and judgment on diversified problems in the broad field of real estate, delimited only
by the client’s needs.

Legal definition of real estate consultant (as defined under Article I, Sec. 3, g(1) of R.A. 9646
Real Estate Service Act of the Philippines) is a “duly registered and licensed natural person
who, for a professional fee, compensation or other valuable consideration, offers or renders
professional advice and judgment on: (1) the acquisition, enhancement, preservation,
utilization, or disposition of land or improvements thereon, (2) the conception, planning,
management and development of real estate projects”.

Consultancy is a form of professional service that answers the need for a completely
detached but well considered advice harmonized with the interest of the person seeking
advice.

The characteristics of professional real estate consulting are:

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.

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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.

The consulting services may involve any of the following specific studies:

1. Feasibility studies 13. Highest and Best Use (HBU) studies

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

Problems and Issues Addressed In Realty 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 questions 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?

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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?

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 contemplated, 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 the 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 partnership 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 proposed zoning revisions, particularly with regard to 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 in 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.

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11. Use study The owners of a downtown loft building that has been vacated by its
principal tenant need to know whether the building should be demolished, left
vacant, or rented on a temporary basis while redevelopment 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 businesses? 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 lessee seek a consultant mutually acceptable to help
them ascertain the fair market rent by agreement or establish a procedure by which
they can reach a rental amount without going to court.

14. Needs assessments A growing law firm requires larger offices. Each of its 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 eighteenth year of a twenty-year lease is
required to pay all of the real estate taxes. He wants professional assistance to
determine whether the taxes being charged are excessive.

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 after-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 a suitable facility might be rented, and
what the after-tax implications of these various possibilities would be.

20. Use study A developer has optioned a parcel of land suitable for development and
wants advice on the type of development best suited to the parcel, the likely pricing
of the units built, the probable rate of sales, and trends that are likely to affect the
success or failure of the project.

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21. 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, and subdivide the more usable properties after demolishing
the buildings. Some of the investors wish to sell; others wish to enter into joint ventures.

22. Portfolio review The owners of a large collection of the office buildings, hotels,
apartment complexes, and industrial properties want to know what changes they
should make in their portfolio to improve its overall performance without increasing
investment risks.

23. 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.

24. 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.

Consulting Abilities to Provide Advice and Assistance to Clients

The solutions that real estate consultant presents and the methods by which he reaches
those solutions are just as 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 as 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:

Analyze property values and facilitate transactions

Evaluate management performance
Conduct research and Forecast investment outcomes
Formulate plans to achieve objectives
Identify and define threats and opportunities
Investigate markets and Plan developments
Draw model of investment scenarios
Negotiate and arbitrate between parties
Provide expert testimony
Train others to provide real estate services
Understand and simplify complex situations

Is the consultant a specialist? Yes and no. As a specialist, he possesses, and renders
under separate assignment or engagement, particular skill or skills, 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

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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 efficient execution of a predetermined series of steps is the sought
consequence, 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.

Licensing Regulations

History of Licensing Regulation Act 2728 was passed by the Philippine Legislature in 1938
authorizing the Secretary of trade and Industry, then Secretary of Commerce, to promulgate
administrative orders to regulate the real estate practice, under its police power, to protect
public interest. The first licensing regulations were issued on July 29, 1939, under Commerce
Administrative Order No. 3-6 covering the licensing of real estate brokers.

The realty service practice regulations were revised by Commerce Administrative Order No.
60-1, issued on April 28,1960, which provided for the first time the licensing of real estate
appraisers by requiring written examinations for real estate brokers and appraisers. The
regulations were later amended by Trade Administrative Order No. 75-1 that extended the
specialization of real estate practice to include real estate consultants.

In 1985, the realty service practice regulations were codified under Ministry Order No. 39
(issued by the then Ministry of Trade and Industry) entitled Rules and Regulations Governing
the Licensing and Supervision of Real Estate Salesmen, Brokers, Appraisers, and Consultants
and Realty Service Organizations.

REALTY SERVICE IS A PROFESSION: DOJ Opinion No. 113, Series of 1995 In answer to queries as
to whether or not a foreigner may be accredited as a realty service practitioner, the
Department of Justice issued an opinion that a realty service practice is a profession, which is
limited to Filipino citizens.

After several decades being governed by the Department of Trade and Industry, the real
estate service practitioners will now under the Professional Regulation Commission (PRC)
effective 30 July 2009 by virtue of R.A. No. 9646 otherwise known as the Real Estate Service
Act of the Philippines (RESA) “An Act Regulating the Practice of Real Estate Service in the
Philippines, Creating for the Purpose a Professional Regulatory Board of Real Estate Service,
Appropriating Funds thereof and for Other Purposes”.

Pursuant to Section 42, Article V of RESA, the Professional Regulatory Board of Real Estate
Service (PRBRES) after the review and approval by the Professional Regulation Commission
(PRC), adopts, issues, promulgates the Implementing Rules and Regulations (IRR) to carry out,
administer, and enforce the provisions of R.A. No. 9646 on 21 July 2010.

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Qualification for Real Estate Consultants

Qualifications for Consultant’s License – Among other qualifications, an applicant for a real
estate consultant’s license must have at least ten years experience as a licensed real estate
broker or five years experience as real estate appraiser, and must pass an examination for
real estate consultants given by the Professional Regulation Commission (PRC).

The applicant for the licensure examinations must possess the other qualifications at the time
of filing of the application for the examinations as outlined under Section 14 of Rule III of the
Implementing Rules & Regulations (IRR).

Rule on Conflict of Interest – As provided for in the RESA under Section 35 of Article IV, the
Code of Ethics & Responsibilities, the engagement of a real estate consultant must not be
contingent or dependent upon reporting of pre-determined findings or recommendations to
be made. Also, when the consultant or a relative within the fourth civil degree owns not less
than twenty percent propriety interest in the property subject of consultancy, he must
disclose such interest before accepting the consultancy engagement.

Violation of the rule on conflict of interest is a ground for revocation of a real estate
consultant’s license.

Continuing Professional Education – Under Section 36 of Article IV, PRBRES shall develop,
prescribe and promulgate guidelines on CPE upon consultation with the accredited and
integrated professional organization (AIPO) of real estate service practitioners, affiliated
association of real estate service practitioners and other concerned sectors, and in
accordance with such policies as may be have been prescribed by the PRBRES, subject to
the approval by the PRC. The primary purpose of the CPE is to maintain the high standards
and advancement of the real estate profession and for the realty service practitioners to
keep abreast of the development affecting their interest and of the industry.

Education, Experience, Standards Of Practice And Ethics: Necessary

Background For Consultants

As required by the law, the consultant should have a college degree on Real Estate Service.
In order to be admitted to the licensure examination for real estate consultant, a candidate
shall, at the time of filing his/her application, establish to the satisfaction of the Board that
he/she possesses the following qualification:

 A citizen of the Philippines

 A holder of a relevant bachelor’s degree from a state university or college, or other
educational institution duly recognized by the CHED: Provided, that as a course
leading to a Bachelor’s Degree in Real Estate Service is implemented by the CHED,
the Board shall make this course as requirement for taking the “licensure
examination; and;
 Of good moral character, and must not have been convicted of any crime involving
moral turpitude: Provided, that an applicant for the licensure examination for real
estate consultants must show proof that he/she has at least ten (1) 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.

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For the consulting service practice, the BTRCP, under BUREAU ORDER NO. 03, S. 2006, has
prescribed a syllabus, based on the syllabus outline recommended by Realtor Domingo D.
de Vera in 2000. In January 2011, The Philippine Association of Realty Consultants &
Specialists, Inc. (PARCS) has made representation to PRBRES for the adoption of this syllabus
for real estate consultant’s comprehensive course for licensure examination.

The consultant must be analytical and intellectually curious about the current and future
trends and changes in the economic, social and political scene, both local and global.

The consultant’s experience, exposure and track record produce the kind of professional
image in the business community that leads to the enhancement of his stature of
competency and credibility to wider clientele. His experience in the various fields of real
estate is all-important, but may not necessarily draw all the answers and solutions to all real
estate problems.

As a necessary consequence of professional practice, and in order to assure the protection

of public interest, consultants (like licensed appraisers and certified public accountants) must
develop and observe standards of professional practice and ethics. PARCS has been the
proponent of a Uniform Standards of Professional Realty Consultants Practice (USPRCP) as
adopted by the BTRCP for real estate consultants practitioners. In January 2011, this USPRCP
has been submitted to PRBRES for implementation. This standard prescribes the rules of
development and reporting the consulting engagement and assignments, as well as the
minimum rules of ethics to be observed by the consultant.

1.3 Defining and Establishing the Consultant-Client Relationship

As noted earlier, consulting is not so 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. The 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 implement 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 its 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 explain to the client the

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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 indication 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 alternative courses of action 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 worked 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 this provision of the contract may affect materially the consultant’s quality
of work.

Defining the Client Problem, Objective and Needs

Considerable effort and imagination is needed to capture the client’s immediate

problems and needs and his long-term goals and objectives .The following situation
examples will help the consultant distinguish between the immediate problem and the
long-term goals of the client.

1. Immediate problem may involve a distressed property, a proposed project, land-use

conversion, highest-and-best use analysis of an existing property, or expanding an
existing residential subdivision. Such current or immediate problems must be hurdled
first before a focusing the effort to the long-term goals. However, the solution of the
immediate problems must somehow consider its effect to the long-term goals of the
client. The consultant must be always aware that short-term decisions can
significantly affect long-term goals (and vice versa) and may give rise to unexpected
new problems.

2. Long-range goal problem require more complex analysis than would short-term
problems. The long-time 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 for long-term 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.

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3. Cash flow and accounts receivable level are very sensitive assets that affect both
current and long-term prospects. Close watch is required, and consulting may be in
order if something grossly unexpected has developed or is developing. If not properly
handled, an immediate cash problem may trigger uncomfortable creditor actions
which may also jeopardize ongoing projects, and ultimately place in question the
client’s long-term goals. Certainly, the consultant’s final conclusions on immediate
problems would be meaningless unless he is cognizant of his 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 enough to recognize decisions and alternatives that are financially sound and
investment desirable but may be detrimental to the community, a situation that may
encourage him to withdraw properly from the engagement. The respect of the community
and the reputation for professional integrity is distinguishing marks of the consultant’s
practice.

PROFESSIONAL FEE ARRANGEMENTS: Fixed Fee, Modified Fee,

Performance Fees

The different fee arrangements are influenced by the nature of the engagement,
relationship with the client, expertise of the consultant in general and in relation to the
problem involved, the amount of time required, and the complexity and importance of the
problem involved. The long experience and exposure to diversified real estate problems are
usually factored in the fee arrangement acceptable to the client. The following are typical
fee arrangements that may be practiced in the industry.

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 estimation of the
fee usually certain firm assumptions on the data available, the expertise required and
the time needed to complete the engagement. 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 modification of the straight or lump-sum fee to provide for
changes during the course of the engagement of for factors that must be considered
for the proper execution of the consultant’s responsibility. Although the modified fee
has man y variations, it generally provides for a minimum and maximum range.
Acceptable to both parties. Frequently, the fee may be based on a specific time and
expense arrangement, which may be coupled with a retainer fee. In some
engagements it is often found satisfactory to work on a time and expense basis, with a
compromise on the estimated and fixed maximum fee may provide for an estimated
maximum, not to be exceeded without further 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 or against a
performance fee.

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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 effected
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.

1.4 STANDARDS AND ETHICS

Uniform Standards of Professional Realty Consulting Practice

In performing real estate or real property consulting services, a consultant must be

aware of, understand, and correctly employ those recognized methods and techniques that
are necessary to produce a creditable result. (Standard 1, USPRCP)

The Real Estate Consulting Process is one method necessary to produce a quality consulting
service. This method is directed toward the substantive aspects of the performance of
consulting service.

The application of the Real Estate Consulting Process described herein must be guided by
the USPRCP initiated by this writer and observed by the Philippine Association of Realty
Consultants and Specialists.

The USPRCP prescribes specific standards in the development of consulting advice that the
consultant must observe when performing real estate or real property consulting services.
The development standards substantially consist of the following:

1. The consultant must (a) be aware of, understand, and correctly employ those
recognized consulting methods and techniques that are necessary to produce
creditable results, (b) not commit a substantial error of omission or commission that
significantly affects the results of a consulting service, (c) not render consulting service in
a careless or negligent manner, such as a series of errors that, considered individually,
may not significantly affect the results, but which, when considered in the aggregate,
would be misleading.

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2. The consultant must observe the following specific guidelines: (a) clearly identify the
client’s objective, (b) define the problem to be considered, define the purpose and
intended use of the consulting service, consider the extent of the data collection
process, adequately identify the real estate and/or property under consideration, if
any, describe any limiting conditions, and identify the effective date of the consulting
service.

3. The consultant must observe the following specific guidelines when a conclusion or
recommendation is required by the nature of the engagement: (a) identify alternative
courses of action to achieve the client’s objective and analyze their implications, (b)
identify both known and anticipated constraints to each alternative and measure their
probable impact, (c) identify the resources actually or expected to be available to
each alternative and measure their probable; impact, (d) identify the optimum course
of action o achieve the client’s objective.

4. The consultant must observe specific guidelines in performing a market analysis.

5. In developing cash flow analysis, the consultant must observe specific guidelines.

6. In developing a project feasibility study/analysis, the consultant must observe specific

guidelines.

7. In reporting the results of a consulting service, the consultant must communicate each
analysis, opinion, and conclusion in manner that is not misleading. (USPRCP has four
Standard Rules in reporting and definitions of terms applicable to the statements of
standards)

Based on the definition of realty consulting, the consultant must develop a work plan with
appropriate tools and techniques on how he can carry out his work in resolving problems
and investment objectives of the client. The following is a suggested consulting process that
serves as a broad framework and guide to assure the quality of service in consulting
engagements. Hopefully, a generally accepted Real Estate Consulting Process will be
adopted as a tool by the consulting practitioners as part of the Uniform Standards of
Professional Realty Consulting Practice (USPRCP).

USPRCP Reporting Standards

In reporting the results of a real estate or real property consulting service, a consultant
must communicate each analysis, opinion, and conclusion in a manner that is not
misleading. (Standard 2, USPRCP)

Standard 2 requires that in the consulting report a consultant must explain logically and
convincingly the reasoning that leads to his conclusions. The flow of information should be
orderly and progressive, leading from the broadest to the most specific level of analysis
possible. Those topics most critical to the consulting conclusions should receive the most
detailed emphasis.

Consultancy carries with it an implicit impartiality. For this reason, a consultant must exercise
extreme caution in undertaking engagements that involve the achievement of the specific
goals of the client. A clear and complete statement of the role being performed by the
consultant must be part of any written report that results from the acceptance of such an

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engagement. The disclosure must be stated in any transmittal letter, statement of

assumptions and limiting conditions, and executive summary. In this connection the
appropriate use of the Certification in Standard Rule 2-3 is also required, but it is not sufficient
in and of itself. A timely and complete statement is required in any oral report.

Each written or oral consulting report must: (a) clearly and accurately set forth the consulting
service in a manner that will not be misleading, (b) contain sufficient information to enable
the person(s) who receive or rely on the report to understand in properly, (c) clearly and
accurately disclose any extraordinary assumption or limiting condition that directly affects
the consulting service and indicate its impact on the final conclusion or recommendation (if
any). (Rule 2-1)

A consulting report must be sufficiently comprehensive so the client can visualize the
problem and follow the reasoning through each step of the analytical process. It is essential
that throughout the report, the data, analyses, assumptions, and conclusions are logical and
adequately supported. Basic analytical and statistical principles, logical reasoning, and
sound professional judgment are essential ingredients of the report.

Each written consulting report must comply with the following specific reporting guidelines:
(a) define the objective to be considered, (b) state the purpose of the consulting service, (c)
identify and describe the real estate and/or property under consideration (if any), (d) set
forth the effective date of the consulting service and the date of the report, (e) describe the
overall range of work and the extent of the data collection process, (f) set forth all
assumptions and limiting conditions that affect the analyses , opinions, and conclusions, (g)
set forth the information considered, the consulting procedures followed, and the reasoning
that supports the analyses, opinions, and conclusions, (h) set forth the consultant’s final
conclusions or recommendations (if any), (i) set forth any additional information that may be
appropriate to show compliance with, or clearly identify and explain permitted departures
from, the requirements to Standard 1, j) include a signed certification in accordance with
Standard Rule 2-3. (Standard Rule 2-2)

The consultant must set forth all of the assumptions and limiting conditions under which the
consulting service is made, and support their validity. Specific assumptions or conditions
imposed by the client must be clearly set forth as part of the identification of the objective of
the consulting service. The consultant must investigate the validity of such assumptions or
conditions and give reasons for finding them realistic.

It is improper to omit any of the requirements from a consulting report transmitted to the
client without good cause. Any departure from normal procedures and the effect of any
unusual factors or conditions in connection with the objective or problem must be explained.
A misleading or fraudulent report violates the Ethics Provision as well as this Standard.

Each written report must include a certification that is similar in content to the following form:

I certify that, to the best of my knowledge and belief:

- the statements of fact contained in this report are true and correct.
- the reported analyses, opinions, and conclusions are limited only by the reported
assumptions and limiting conditions, and is my personal, unbiased professional
analyses, opinions, and conclusions.

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- I have no (or the specified) present or prospective interest in the property (if any) that
is the subject of this report, and I have no (or the specified) personal interest or bias
with respect to the parties involved.
- My compensation is not contingent on any action or event resulting from the
analyses, opinions, or conclusions in, or the use of this report.
- My analyses, opinions, and conclusions were developed, and this report has been
prepared in conformity with the generally accepted Uniform Standards of Professional
Realty Consulting Practice.
- I have made a personal inspection of the property (if any) that is the subject of this
report. (if more than one person signs the report, this certification must clearly specify
which individuals did and which individuals did not make personal inspection of the
property.)
- No one provided significant professional assistance to the person signing the report.
(If there are exceptions, the name of each individual providing significant
professional assistance must be stated.) (Standard Rule 2-3)

Definitions As Integral Part Of The USPRCP

For the purpose of providing clarity in interpretation of the standards provision of the USPRCP,
the following definitions apply:

ABSORPTION ANALYSIS: An analysis of the amount of space (usually expressed in square

meter) or the number of units (absorption rate) that can be sold, leased, put into use or
traded on the market during a predetermined or estimated period of time (absorption
period), and at prevailing prices or rentals.

ADVICE: Considered judgment arrived at after careful investigation and analysis, discussion
and deliberation with the client in a consulting engagement.

BINDING REQUIREMENT: All or part of a standards rule of USPRCP from which departure is not
permitted. (SEE DEPARTURE PROVISION).

CASH FLOW ANALYSIS: A study of the anticipated movement of cash into or out of an
investment.

CLIENT: The party who engages a consultant by contract in a specific engagement.

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 a suitable standards of practice and
code of professional ethics.

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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: general (relating to the economic and demographic background, the
region, the city and the neighborhood) specific (relating to the subject property and
comparable properties in the market), primary (information gathered by the consultant that
is not available in a published source, such as property dimensions and characteristics), and
secondary (published information such as census data). See also general data, primary
data, and secondary data.

DATE OF THE REPORT: The date of the transmittal letter of a written report or the date a
written report lacking a transmittal letter is prepared by the consultant. The date of an oral
report is the date it is communicated to or for the client. The date of the report may or may
not be the same as the effective date at which the analyses, opinion, and advice in a
consulting service apply.

ECONOMICALLY FEASIBLE: Refers to a real estate project that is able to meet defined
financial investment objectives, the ability of a project to produce sufficient cash flows to
repay all the expenses involved in creating and marketing the project plus provide a
competitive return to the owner/developer. A criterion of highest and the best use analysis.

EFFECTIVE DATE: The date at which the analyses, opinions, and advice in an appraisal,
review or consulting service apply.

EFFECTIVE DEMAND: The desire to buy to satisfy need coupled with the ability to pay. When
the word demand is used in economic writings, effective demand is usually assumed.

FEASIBILITY ANALYSIS: A study of a proposed economic activity’s capability of being

accomplished under certain conditions and assumptions of marketing, technical, or financial
aspects. Also, a study of the cost-benefit relationship of an economic activity.

FEASIBILITY STUDY: (See FEASIBILITY ANALYSIS)

GENERAL DATA: Information that is not specific to a certain property, e.g., interest rates,
employment rates and census information.

HIGHEST AND BEST USE (HBU): The reasonable and probable use that result in the highest
present value of the land after considering all legally permissible, physically possible and
economically feasible uses. Capitalization rates or discounts rates for each feasible use
should reflect typical returns expected in the market. Highest and the best use is usually
determined under two different premises: as if the site was vacant and could be improved in
the optimal manner or as the site is currently improved.

In the latter premise, the highest and the best use of the site will either be to keep the existing
building or to demolish the building and develop a building as long as it contributes to the
value of the site.

INTENDED USE: The use or uses of a consultant’s reported consulting engagement, opinions
and conclusions, as identified by the consultant based on communication with the client at
the time of the engagement.

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INTENDED USER: The client and any other party as identified, by name or type, as users of the
consulting report, by the consultant based on communication with the client at the time of
the engagement.

INVESTMENT ANALYSIS: A study that reflects the relationship between acquisition price and
anticipated stream of future benefits of a real estate investment.

LAND UTILIZATION STUDIES: An analysis of the potential uses of a parcel of land and a
determination of the highest and best use for the parcel; a complete inventory of the
parcels in a given community or other area classified by type of use, plus (in some cases) an
analysis of the spatial patterns of use revealed by this inventory. Land utilization studies do
not embody the viewpoint of any particular investor nor do they focus on any one parcel.
Furthermore, no consideration of markets and feasibility is normally included.

LETTER OF TRANSMITTAL: A letter accompanying a consulting report that formally presents the
report to the person who requested it and may include information such as: address and
description of the property problem, or property interest subject of consulting engagement,
statement that property inspection and all necessary analyses were completed by the
consultant, date of consulting report, summary conclusion and recommendations, any
extraordinary assumptions or limiting conditions, consultant’s signature and reference to
accompanying consulting report.

LETTER REPORT: A shortened consulting report that states the conclusions and
recommendations of the consultant’s study and analysis. A letter report typically contains a
statement of the problem or issues of the subject of consulting engagement, purpose of the
consulting engagement, a description of the analysis, the date of study and analysis, limiting
conditions. Much of the data and reasoning are omitted. (See also REPORT).

LIMITING CONDITION: Specifications in a consulting report that restricts the assumptions in the
report to certain situations, for example, date and use of the consulting service, definition of
value, identification of real estate and property rights being valued, definition of surveys
used or not used.

MARKETABILITY STUDY: A real estate analysis of a specific property that addresses the ability
of the property to be absorbed, sold or leased under current and anticipated market
conditions.

MARKET ANALYSIS: A study of the supply and demand conditions for a specific type of
property in the real estate market.

MARKET SEGMENTATION: The identification and analysis of sub-markets within larger groups
based on their economic, demographic and/or psychographic characteristics (such as
attitudes, habits, and lifestyle). This process aggregates the potential users of the subject
property from the general population, according to defined consumer characteristics.

PRIMARY DATA: Information gathered by the consultant that is not available in a published
source.

REAL ESTATE: An identified parcel or tract of land including improvements, if any.

REAL ESTATE CONSULTANT: As defined under Article I, Sec. 3, g(1) of R.A. 9646 Real Estate
Service Act of the Philippines is a “duly registered and licensed natural person who, for a

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professional fee, compensation or other valuable consideration, offers or renders professional

advice and judgment on: (1) the acquisition, enhancement, preservation, utilization, or
disposition of land or improvements thereon, (2) the conception, planning, management
and development of real estate projects”.

REAL PROPERTY: The interest, benefits, and rights inherent in the ownership of real estate.

REALTY: Refers to both real estate and real property. ( In some jurisdiction or usage, the terms
real estate and real property may have the same meaning. The separate definition
recognizes the tradition as two concepts in appraisal and consulting theory).

RENT-UP PERIOD: The time period during which an income property is expected to this lease
up to a level stabilized occupancy. Stabilized occupancy assumes rental achievement at
market levels as well as physical occupancy at stabilized levels.

REPORT: Any written communication of a consulting service that is transmitted to the client
upon completion of an engagement.

SECONDARY DATA: Data obtained from published sources that have not been collected by
the consultant, e.g., census information, demographic information and published interest
rates. See also data, primary data.

SPECIFIC GUIDELINES: All or part of a standard rule of USPRCP from which departure is
permitted under certain conditions. (See DEPARTURE PROVISION)

SIGNATURE: Personalized evidence indicating authentication of the work performed by the

consultant and the acceptance of the responsibility for content, analyses, and the
conclusions in the report.

STANDARD: The authoritative rule which serves as guide to achieve competent and ethical
practice in developing and reporting the consulting service.

In summary, the USPRCP prescribes the standards that must be observed by the real estate
consultant to achieve competency and ethics in his practice. A professional consultant must
arrive at and communicate his competent, disinterested and unbiased advice, professional
guidance, and sound judgment in a manner that will be meaningful to the client and will not
be misleading to the public.

The Ethics In Consultancy

The hallmarks of consulting are: (1) independence of action, (2) objectivity in analysis, (3)
respect for co-practitioners (4) concern for the public interest, (5) and a fiduciary relationship
with the client. These hallmarks are expressed in the Code of Ethics set forth in the Uniform
Standards of Professional Realty Consulting Practice initiated by Realtor Domingo D. De Vera
and adapted by the Philippine Association of Realty Consultants and Specialists.

The first decision facing the prospective client is the selection of a consultant whose
character is as sound as his professional competence.

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The following is a partial codification of the intents of the Code of Ethics referred to above:

CODE OF ETHICS FOR REALTY CONSULTANTS

A. The consultant must not accept any consulting engagement:

1. which gives rise to a conflict of interest, and must withdraw from any
engagement if an unavoidable conflict of interest arises after the
engagement has been agreed to, unless such conflict is fully disclosed in
writing.

2. which involves a violation of the law or of his specific ethical responsibilities,

and must immediately withdraw from an engagement if such violation is
perceived.

3. which do not permit his freedom and objectivity in performing the

engagement and rendering his advice thereon. Specifically, the consultant
must not accept any engagement which:
a. makes his fee contingent on the substance of the advice or
recommendation given.
b. calls upon the consultant solely to lend his professional
c. reputation or signature as a consultant to predetermined opinions or
positions.
d. precludes or limit his ability to develop factual and supportable
opinions, findings or conclusions.
e. is beyond the scope of his competence, knowledge and expertise
and when he is prevented from obtaining the needed knowledge or
expertise from other sources.

4. which involves no function other than the determination of the value of real
estate. However, the consultant may, in connection with other consulting
services, render value opinions provided they are covered by clear
statements that such opinions are preliminary and are not to be construed as
appraisals.

5. which requires him as an individual to perform concurrently and for

compensation other real estate services relevant to the consulting
engagement for the same client, unless such other real estate services are
agreed upon at the time the consulting engagement is accepted, or are
requested by the client on his own initiative.

6. which may require him to testify under oath unless his client understands such
oath supersedes the consultant’s obligation to preserve the confidential
relationship between them.

B. The consultant shall not testify in any proceedings regarding any engagement
except with the written consent of his client or in response to legal process, and will
cooperate in any efforts by his client to quash such process.

The value of consulting services depends on the personal integrity of the consultant. No
amount of knowledge and trade expertise, can replace the consultant’s lack of honesty,
fairness and objectivity.

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