2023 年 12 月

不動産鑑定評価基準 英訳Japan Real Estate Appraisal Standards
English Translation

公益社団法人 日本不動産鑑定士協会連合会
国 際 委 員 会

○ 実務指針「実務指針」とは、指針の制定改廃に関する規程第 3 条第 2 号の規定に基づき、不動産鑑定士が不動産鑑定評価等業務に係る実務を行うにあたり指針とすべきものとして、かつ当該業務の適正さを確認するための指針として公益社団法人日本
不動産鑑定士協会連合会（以下、「本会」という。）が公表するもので、不動産鑑定士が当該業務を行う際には準拠するものとし、準拠できない場合又は他の方法に拠る場合は、その合理的な根拠を明示しなければならないものをいう。
○ 業務指針「業務指針」とは、上記規程第 3 条第 3 号の規定に基づき、不動産鑑定業者が不動産鑑定業を営むにあたり指針とすべきものとして、かつ不動産鑑定評価等業
務に係る実務の適正さを確認するための指針として本会が公表するもので、不動産鑑定業者が、不動産鑑定業を営む際には、原則として準拠しなければならないものをいう。
○ 研究報告「研究報告」とは、上記規程第 3 条第 4 号の規定に基づき、本会が調査研究して作成した成果物のことをいい、不動産鑑定士にあっては不動産鑑定評価等業務を行うに際して、不動産鑑定業者にあっては不動産鑑定業を営むに際して、それぞれ参考になるものとして本会が公表するものをいう。
本書は、上記の内、「研究報告」に該当します。

本研究報告策定の背景
我が国の不動産鑑定評価制度の根幹をなす「不動産鑑定評価基準」については、未だ英訳が整っていない。過去においては、英訳されたものが書籍等として販売されている（巻末の参考資料ご参照）が、現時点において、不動産鑑定評価基準の最新の内容が反映された英訳は存在しない。

グローバルに企業・投資家が活動する現在の社会において、日本の不動産鑑定評価基準の理解を促進し、日本の不動産鑑定評価・制度に対する信頼を確固たるものとするためには、
不動産鑑定評価基準の英訳は必須であると考える。

加えて、東南アジアを中心とした諸外国の不動産鑑定評価制度・基準の高度化を支援していく上でも、英訳をもってコミュニケーションを促進していく必要があると考える。

また不動産鑑定士にとっては、不動産鑑定評価基準の英訳が無償で誰にでも入手可能となることにより、海外顧客とのビジネス拡大に資することになると考える。さらに、不統一な英訳により発信された英文の不動産鑑定評価書等に関わる信用リスク・金銭的（損害賠償）
リスク管理の観点からも、不動産鑑定評価基準の英訳が整うことは、不動産鑑定業界全般の利益になるものと考える。

上の状況を踏まえ、不動産鑑定士協会連合会として、不動産鑑定評価基準の統一の英訳として発信することを念頭に、国際委員会・国際評価実務小委員会にて英訳を作成したものである。
以上

○ 不動産鑑定評価基準の制定者
Enactor of Japan Real Estate Appraisal Standards
国土交通省
The Ministry of Land, Infrastructure, Transport and Tourism○ 不動産鑑定評価基準の沿革
History of Japan Real Estate Appraisal Standards
平成 14 年（2002 年）7 月 3 日全部改正
Completely revised on 3 July 2002
平成 19 年（2007 年）4 月 2 日一部改正
Partially revised on 2 April 2007
平成 21 年（2009 年）8 月 28 日一部改正
Partially revised on 28 August 2009平成 26 年（2014 年）5 月 1 日一部改正
Partially revised on 1 May 2014
○ 英訳対象の不動産鑑定評価基準
Translated Japan Real Estate Appraisal Standards
平成 26 年（2014 年）5 月 1 日一部改正
Partially revised on 1 May 2014
平成 26 年（2014 年）11 月 1 日施行
Enacted on 1 November 2014
○ 英訳の作成者
Translation
公益社団法人 日本不動産鑑定士協会連合会（国際委員会・国際評価実務小委員会）
Japan Association of Real Estate Appraisers（International Committee・International Valuation Practices Subcommittee）○ 英訳の基準日Translation Date
令和 5 年（2023 年）6 月 1 日
1 June 2023

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONJAPAN REAL ESTATE APPRAISAL STANDARDSENGLISH TRANSLATIONCONTENTS
GENERAL STANDARDS (GS)CHAPTER 1. FOUNDATIONS OF REAL ESTATE APPRAISAL ................................................3
Section 1. Real Estate and Its Value .........................................................................................3
Section 2. Characteristics of Real Estate and Its Value ...............................................................3
Section 3. Real Estate Appraisals .............................................................................................5
Section 4. Responsibilities of Appraisers ..................................................................................6
CHAPTER 2. USE CATEGORY AND INTEREST CATEGORY OF REAL ESTATE.....................7
Section 1. Use Category of Real Estate.....................................................................................7
Section 2. Interest Category of Real Estate ...............................................................................8
CHAPTER 3. INFLUENCES ON THE FORMATION OF REAL ESTATE VALUE .......................9
Section 1. General Factors.......................................................................................................9
Section 2. Area-Specific Factors ............................................................................................11
Section 3. Property-Specific Factors ......................................................................................13
CHAPTER 4. PRINCIPLES OF REAL ESTATE VALUE ...........................................................16
CHAPTER 5. BASIC APPRAISAL PREMISES ........................................................................19
Section 1. Identification of the Subject Property......................................................................19
Section 2. Identification of the Date of Value ..........................................................................21
Section 3. Identification of the Type of Value or Rent in Appraisal ...........................................21
CHAPTER 6. AREA ANALYSIS AND PROPERTY ANALYSIS ................................................24
Section 1. Area Analysis .......................................................................................................24
Section 2. Property Analysis ..................................................................................................28
CHAPTER 7. APPRAISAL APPROACHES ..............................................................................30
Section 1. Appraisal Approaches for Determining Real Estate Value .........................................30
Section 2. Appraisal Approaches for Determining Real Estate Rent ..........................................45
CHAPTER 8. APPRAISAL PROCEDURE ................................................................................51
Section 1. Identification of Basic Appraisal Premise ................................................................51
Section 2. Identification of Client, Parties for Submission, and Conflicts of Interest ..................51
Section 3. Planning of Appraisal Procedures ...........................................................................52
Section 4. Confirmation of Subject Property ...........................................................................52
Section 5. Collecting and Organizing Documents ....................................................................53

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Section 6. Review of Documents and Analysis of Value Influence Factors ................................54
Section 7. Application of Appraisal Approaches ......................................................................54
Section 8. Reconciliation of Indicative Value or Indicative Rent ...............................................54
Section 9. Determination of Appraisal Value ...........................................................................55
Section 10. Preparation of Appraisal Report............................................................................55
CHAPTER 9. APPRAISAL REPORT ........................................................................................56
Section 1. Guidelines for Preparing an Appraisal Report ..........................................................56
Section 2. Report Contents ....................................................................................................56
Section 3. Appendix to Appraisal Report ................................................................................60

SPECIFIC STANDARDS (SS)
CHAPTER 1.APPRAISAL OF REAL ESTATE VALUE .............................................................61
Section 1. Land ....................................................................................................................61
Section 2. Building and Its Site ..............................................................................................67
Section 3. Building ...............................................................................................................71
Section 4. Appraisal Methods to Be Applied for Estimating Market Value Based on Special
Consideration .......................................................................................................................72
CHAPTER 2.RENT APPRAISAL .............................................................................................73
Section 1. Building Site ........................................................................................................73
Section 2. Building and Its Site ..............................................................................................75
CHAPTER 3.APPRAISAL OF REAL ESTATE VALUE FOR SECURITIZATION ......................76
Section 1. Basic Appraisal Premise for Properties for Securitization .........................................76
Section 2. Requirements on the Appraisal of a Building and its Site Yet to Be Completed for
Securitization .......................................................................................................................78
Section 3. Planning of Appraisal Procedures ...........................................................................78
Section 4. Investigation of Property-Specific Factors on the Subject Property for Securitization .80
Section 5. Application of the DCF method..............................................................................82
Supplementary Provisions.........................................................................................................86

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONGENERAL STANDARDS (GS)CHAPTER1. FOUNDATIONS OF REAL ESTATE APPRAISALIt is essential for a Licensed Real Estate Appraiser (LREA; hereinafter "Appraiser”) to fully
understand what is involved in the appraisal of real estate, why appraisals are necessary, the rolethat appraisals play in society, and what is required of Appraisers and Appraiser candidates.
Section 1. Real Estate and Its Value
Real estate ordinarily refers to land and improvements upon the land. Because of its utility,
land is indispensable for all human activity. Real estate reflects the relationship between thevarious uses people make of land as well as people’s lives and activities. This relationshipbetween people and land becomes tangible when it is based on what makes up real estate andthe ways it contributes to human needs.
The interaction of natural, social, economic, and governmental factors helps to determine theconfiguration of real estate, which accounts for its economic value. The economic value of realestate in turn represents the main criterion in the selection of its optimal configuration.
The value of real estate is typically indicated by economic value or a monetary amount that
results from the interaction of three elements:（1） recognized utility（2） relative scarcity（3） and effective demand.
The economic value of real estate is basically determined by natural, social, economic andgovernmental factors that influence the three elements listed above. The relationship between
real estate value and these four factors is two-sided: the value of real estate is formed under the
influence of these factors while at the same time the value itself influences these factors, since
the value also becomes a criterion for the selection of real estate.
Section 2. Characteristics of Real Estate and Its Value
Although the degree to which real estate contributes to the lives and activities of people isexpressed as its price, land has characteristics different from other ordinary assets:（1） physical aspect: fixed geographical location, immovability, durability, finite supply, andnonfungibility; land parcels cannot be substituted for or interchanged with one another.
（2） socioeconomic aspect: changeable social and economic utility and status (potential uses

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could be competitive or complementary; uses could also be changed), and physicaladaptability (land parcels can be divided or consolidated).
The social and economic utility of real estate depends on whether the characteristics of theland meet the specific physical and socioeconomic requirements for the intended use. The typeof use and the social and economic utility of real estate can vary based on changes in theserequirements.
In addition, because real estate shares common physical and socioeconomic attributes, allreal estate represents a component of a regional or local market, depending on orcomplementing other real estate in that market, competing with or supporting similar real estatein that market, and demonstrating its social and economic utility through these relationships(called the regionality of real estate).
Although regional and local real estate markets differ by size, composition, and function, allof these markets are identified by their land use and are based on the relationship to specificphysical and socioeconomic requirements in the same way as individual real estate. Whileregional and local markets have characteristics that distinguish them from other regional andlocal markets, they also maintain a mutual relationship with markets in other regions, andoccupy a social and economic position through a mutual relationship (called the characteristicsof the region).
Because of these characteristics of real estate, real estate price can be distinguished from theprice of other ordinary assets:（1） The value of real estate represents price in exchange, but real estate value is also
indicated by rent paid as compensation for the right to occupy and use a property. This
correlation between price in exchange and rent can be seen in the relationship between
capital and benefits.
（2） The price of real estate reflects the compensation paid for the ownership interest. The
right to use or occupy a leased fee estate is compensated in the form of rent, which
represents economic profit to the lessor. In situations where two or more property rights
are involved, or lessor profits derive from, the same real estate, the price (or rent) can
be formed for each property right as well as the lessor’s profit.
（3） Regional or local real estate markets are not static, but rather they are continuallychanging, expanding or contracting, concentrating or dispersing, growing or declining.
Judging whether or not the use of real estate is optimal requires continual review to see
whether or not the real estate is able to maintain optimal utility over time, even if it iscurrently under optimal use. So, the price (or rent) of real estate normally depends onlong-term considerations, extending from the past into the future. The current price (orrent) is an extension of yesterday, a reflection of tomorrow, and in the process of5Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION

continual change.
（4） The sale price of real estate is normally based on the specific circumstances of thetransaction. Moreover, the sale price is also influenced by the individual attributes of
the real estate. It could be extremely difficult for ordinary people to determine theappropriate value of real estate from looking at the sales price. For this reason, an
appraisal by an Appraiser, as an expert, is essential for determining the appropriate valueof real estate.
Section 3. Real Estate Appraisals
Because the characteristics of real estate differ from those of other ordinary assets, it isnecessary to rely on Appraisers to determine the appropriate value.
Real estate appraisals are estimates of the economic value of real estate as a monetary amount.
This process consists of determining an indication of the level of value and/or rent that the realestate is able to sustain within certain value parameters. Appraisals have these steps:（1）gaining an accurate perception of the real estate（2） effectively gathering and organizing all the required data
（3） fully understanding the factors that form the value of real estate, along with theprinciples related to real estate value（4） applying appraisal methods（5） while analyzing all related data that has been gathered and organized, and considering
the effects of natural, social, economic, and governmental factors on the real estate（6） and then reaching a final judgement of the economic value of the real estate in amonetary amount.
How well an appraisal is performed depends on the abilities of the Appraiser carrying out
the successive stages of the appraisal as well as how completely those abilities have been
applied. How well an appraisal is done also depends on the quality of the collection and theorganization of the required data plus the skill in analyzing and interpreting that data. So,
appraisals can only be rationally and objectively performed when they are done by skilled
specialists, having sophisticated knowledge, extensive experience, and proven judgement skills,
and who are also able to apply these abilities systematically and thoroughly.
The objective of real estate appraisal is to estimate the appropriate value or an indication of
the probable market value of real estate in a market operating rationally under a set of economic
circumstances. When performed by skillful experts, as demonstrated by the professional workof Appraisers, a real estate appraisal can be seen as the judgment or opinion of an expert on thevalue of real estate.
Since a real estate appraisal also reflects the value of a property within value parameters, an6Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION

appraisal’s social and public significance must be considered to be extremely wide ranging.
Section 4. Responsibilities of Appraisers
Land use and transactions must follow the requirements that are set out in the Basic Act forLand. In particular, land should not become the target of speculative transactions. Appraisers
must conduct real estate appraisals that follow this requirement.
Appraisers are recognized by the Real Estate Appraisal Act as being people charged withappraising real estate, who have the status of being capable and knowledgeable specialists, andwho have been granted that status by attaining certain qualifications. For these reasons,Appraisers are required to earn the trust and to meet the expectations of society. They must
understand the social and public significance of real estate appraisal, be aware of their own
responsibilities, and perform appraisals accurately and with integrity.
To accomplish these tasks, Appraisers have to make real estate appraisals impartially andfollow a strict ethical code and all legal requirements; they must not act in any way that could
damage the trust society has placed in them as specialized professionals. In addition, Appraisers
must not disclose to anyone, without proper cause, any confidential information that is learned
while carrying out their duties, and they must strive to maintain their reputation by strictly
observing these five guidelines:（1） Since accurate appraisals can only be developed through the systematic integration ofsophisticated knowledge, extensive experience and proven judgmental skills, appraisal
skills must be improved through continuing study and training.
（2） Appraisers must not only be able to provide clients with easily understandable andimpartial explanations of appraisal results, but they must make every effort to raise thelevel of trust in real estate appraisals by educating the public on real estate appraisals
and practices.
（3） During a real estate appraisal, the Appraiser must maintain a fair and reasonable attitude
regardless of his or her own interests or for any other reasons.
（4） During a real estate appraisal, the Appraiser must take special care as a professional.
（5） When appraisal assignments that are thought to exceed the limits of an Appraiser’s
abilities or that involve associations or special interests that might prevent reaching afair or impartial appraisal, the Appraiser should, as a matter of principle, not accept thesetypes of assignments.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONCHAPTER2. USE CATEGORY AND INTEREST CATEGORY OF
REAL ESTATE
When appraising real estate, it is necessary to analyze the real estate based on its area
characteristics, physical utilization and state of interests. It is important to consider on above
based on the type of real estate, which is characterized by its area.
The type of real estate represents compositive concepts or real estate, comprising from, the use
and interest categories. Since these two categories essentially determine the economic value ofreal estate, it is only possible to conduct highly accurate appraisals of real estate after first
analyzing from these two categories.
The use category of real estate refers to real estate classified with respect to its use, and theinterest category of real estate refers to real estate classified by its physical utilization and thestatus of interests.
Section 1. Use Category of Real Estate
Use Category of AreaI.

The use category of area can be classified into building site area, agricultural area,
forestland area, and similar.
A building site area refer to an area where it is considered reasonable from the natural,social, economic, and administrative perspectives to be used as a site for buildings andstructures for living, commerce, and industrial production, and can be categorized into
residential area, commercial area and industrial area. Residential area, commercial area
and industrial area can be further subcategorized according to their size, specificcharacteristics, and function.
An agricultural area refers to an area where it is considered reasonable from the natural,social, economic, and administrative perspectives to be used for cultivation for agricultural
production.
A forestland area refers to an area where it is considered reasonable from natural, social,economic, and administrative perspectives to be used for planting and growing trees,bamboo, or special forest products for forestry production.
Note that among building site area, agricultural area and forestland area, there are someareas that are undergoing conversion from one use category to another use category, andthat within building site area and agricultural area, there are areas that are undergoingtransition from one use subcategory to another use subcategory.
II.

Use Category of Land

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONThe use category of land is classified according to the use category of area. It isclassified into building site, agricultural land, forestland, land with prospective use, andland with transitional use, and are further classified into subcategories based on the use
category of the area.
The building site refers to land located in the building site area, which can further besubcategorized into residential, commercial, industrial, and other sub-categories.
Residential land refers to land in a residential area; commercial land refers to land in acommercial area; and industrial land refers to land in an industrial area.
Agricultural land refers to land in an agricultural area.
Forestland refers to land (excluding standing trees and bamboo) in a forestland area.
Land with prospective use refers to land in an area undergoing conversion from one use
category to a different use category between building site area, agricultural area andforestland area. It can be subcategorized into land with prospective use for a building site,land with prospective use for agricultural, and others.
Land with transitional use refers to land located within building site area or agriculturalarea that is undergoing transition from one use subcategory to a different use subcategory.
Section 2. Interest Category of Real Estate
The following provide examples of the interest category of building site and building and its
site:
I.

Building Site
The interest category of a building site can be classified into vacant land, the land
portion of a building and its site, leasehold interest in land, leased fee interest in land, andsectional superficies (air/underground rights) based on the physical utilization and status
of interest.
Vacant land refers to a building site on which no building or other improvements stands
and where there is no legal or deed restriction on use and earning a profit.
The land portion of a building and its site refers to a building site on which buildings
stand and where the buildings and the land are owned by the same owner.
Leasehold interest in land (shakuchiken) refers to leasehold interest in land (superficies(chijoken) for the purpose of owning building or leasehold interest in land (chinshakuken)
as defined in the Act on Land and Building Leases (Shakuchishakka-ho; including theLand Lease Law (Shakuchi-ho), before it was revoked).
Leased fee interest in land refers to ownership of a building site where leasehold interestin land exists.
Sectional superficies (air/underground rights) refer to superficies established9Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION

underground or in the air to own improvements.
II.

Building and Its Site
The interest category for a building and its site can be classified into an owner-occupied

building and its site, a tenant-occupied building and its site, a building and its leasehold
land, and a condominium unit and its site, based on physical utilization and status ofinterest.
An owner-occupied building and its site refers to a building and its site where thebuilding and the landowner are the same, and where there is no legal or deed restriction
for the owner to use and earn profit.
A tenant-occupied building and its site refers to a building and its site where the building
and the landowner are the same, but the building is leased.
A building and its leasehold land refers to a building and its site where a building exists
with the leasehold rights on the land.
A condominium unit and its site refers to an exclusively owned area as defined in Article
2, Paragraph 3 of the Law for Unit Ownership of Building (Tatemono no Kubunshoyu ni
kansuru Horitsu), co-ownership of the common area for the exclusively owned area asdefined in Article 2, Paragraph 4 of the same act; and the use right of the land (shikichiriyoken) as defined in Article 2, Paragraph 6 of the same act.

CHAPTER3. INFLUENCES ON THE FORMATION OF REALESTATE VALUE
Factors influencing the value of real estate (or value influence factors) refer to (1) those factorsthat affect the utility of the real estate, (2) its relative scarcity, and (3) the effective demand forreal estate. Although real estate value is formed as a result of the interaction of numerous factorsthat influence value, those value influence factors themselves tend to continually change. So,
when appraising real estate, it is necessary to clearly understand how market participants view
value influence factors, as well as to sufficiently analyze the changes, trends, and theinterrelationships among the value influence factors and to evaluate the effect of the influenceson the three factors listed above.
Value influence factors are classified into general factors, area specific factors, and property
specific factors.
Section 1. General Factors
General factors refer to factors that have an effect on the features of real estate within general

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economic society and on the price level. These are broadly classified into natural, social,economic, and administrative factors.
Following list shows examples of major general factors:
Natural Factors

I.
1.

geological and ground condition2.

soil and soil layer

3.

topography

4.

geographical location

5.

climate.
Social FactorsII.
1.

population

2.

family configuration and household formation3.

urbanization and public infrastructure development

4.

education and social welfare

5.

transactions, use, and earning practices of real estate6.

architectural styles

7.

development of informatization

8.

lifestyles.

III. Economic Factors
1.

savings, consumption, investment, and foreign trade balance2.

fiscal and monetary conditions

3.

commodity prices, wages, employment, and corporate activity

4.

taxation

5.

corporate accounting system

6.

technological innovations and industrial base7.

transportation system8.

globalization.

IV. Administrative Factors
1.

land use planning and regulations

2.

building codes and mandatory disaster prevention safeguards

3.

policies related to building sites and housing developments

4.

real estate taxation

5.

regulations that apply to real estate transactions.

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Section 2. Area-Specific Factors
Area-specific factors refer to factors that form area-specific characteristics for size,
composition, and function based on relationships with general factors and that have an overall
effect on the formation of the value of real estate in a specific area.
I.

Building Site Area
1. Residential area
Following list shows examples of major area-specific factors in residential area:（1） climate, including sunlight, temperature, humidity, and wind direction（2） street width and structure（3） distance from the city center and availability of transportation（4） nearness to commercial facilities（5） waterworks, city gas service, garbage disposal, and sewers（6） development of telecommunications infrastructure（7） location of public institutions and utilities（8） presence of nuisances, such as sewage treatment plants（9） risk of flooding, landslides and other natural disasters（10） noise, air pollution, and soil contamination（11） lot size, layout, and use（12） residences, hedges, landscaping, and street appearance（13） quality of the natural environment, including scenic views（14） land use planning and regulations.
2. Commercial Area
Following list shows examples of major area-specific factors of commercial areain addition to the area-specific factors listed above (section 1):（1） types, sizes, and concentration of commercial or service facilities（2） quality and size of trade and customer profile（3） availability of transportation for customers and employees（4） convenience for loading and unloading merchandise（5） street accessibility and additional features, such as covered arcades（6） business types and their competition（7） entrepreneurship and financial resources for business owners in the area（8） volume of automotive and/or pedestrian traffic（9） available parking（10） degree of governmental assistance and regulation.

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3. Industrial Area
Following list shows examples of major area-specific factors of industrial area in
addition to the area-specific factors listed above (section 1):（1） arterial roads, railroads, harbors, airports, and other transport networks（2） availability of a workforce（3） location of consumer market(s) and industrial suppliers（4） power, water, and drainage costs（5） location of related industries（6） risk of water and/or air pollution（7） degree of government assistance and regulations.
II.

Agricultural Area
Following list shows examples of major area-specific factors of agricultural area:
1.

climate, including sunlight, temperature, humidity, wind, and rainfall

2.

topography, including rolling hills, elevated highlands, and lowland areas

3.

soil

4.

water utilization and water quality

5.

risk of flooding, landslides, and other natural disasters

6.

condition of roads

7.

location to rural communities

8.

location to distribution center(s) and farms

9.

distance from consumer market(s) and availability of transportation

10. degree of governmental assistance and regulations.
III. Forestland Area
Following list shows examples of major area-specific factors of forestland area:
1.

climate including sunlight, temperature, humidity, wind and rain2.

altitude and topography

3.

soil and soil layers

4.

condition of forest roads

5.

availability of a workforce

6.

degree of governmental assistance and regulation

For an area undergoing conversion or transition from one use category to another, moreemphasis should be placed on area-specific factors after the conversion or transition.
However, if the conversion or transition is still in the early stages, more emphasis should

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be placed on area-specific factors before the conversion or transition.
Section 3. Property-Specific Factors
Property-specific factors refer to factors that provide real estate with individuality and form
the value of individual properties. Property-specific factors are classified according to land andbuilding category.
I.

Property-Specific Factors for Land
1.

Building Site
（1） Residential Land
Following list shows examples of major property-specific factors ofresidential land:① topography, geology, and ground soil
② sunlight, wind, dryness, and wetness③ lot width, depth, size, and shape④ difference in level, corner lot, or any other positioning to facing street⑤ width and condition of the facing street⑥ layout and network of the facing street⑦ distance from transportation⑧ proximity to commercial facilities⑨ proximity to public institution and utilities⑩ proximity to nuisances , such as sewage treatment plants⑪ condition of adjacent real estate and surroundings⑫ availability and usability of water supply, sewage system, and gas
services⑬ usability of telecommunications infrastructure⑭ presence of buried archeological artifacts and the condition ofunderground structures⑮ presence and extent of soil contamination⑯ regulations or restrictions specified in public laws and private deeds.
（2） Commercial Land
Following list shows examples of major property-specific factors ofcommercial land:① topography, geology and ground soil
② lot width, depth, size and shape③ difference in level, corner lot, or any other positioning to facing street

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⑦ proximity to main transportation systems⑧ location in conformity with customer flow
⑨ condition of adjacent real estate and surroundings⑩ availability and usability of water supply, sewage system, and gas
services⑪ usability of telecommunications infrastructure⑫ presence of buried archeological artifacts and condition of undergroundstructures⑬ presence and extent of soil contamination⑭ regulations or restrictions specified in public laws and private deeds.
（3） Industrial Land
Following list shows examples of major property-specific factors of industrialland:① topography, geology, and ground soil
② lot width, depth, size and shape③ difference in level, corner lot, or any other positioning to facing street④ width and condition of the facing street⑤ layout and network of the facing street⑥ proximity to main transportation systems used by employees forcommute⑦ location of arterial roads, railroads, harbors, airports and other transport
networks⑧ condition of electric other power resources as well as the difficulty inleading in⑨ availability and condition of drainage⑩ availability and usability of water supply, sewage system, and gas
services⑪ usability of telecommunications infrastructure⑫ presence of buried archeological artifacts and condition of undergroundstructures⑬ presence and extent of soil contamination⑭ regulations or restrictions specified in public laws and private deeds.

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Agricultural Land
Following list show examples of major property-specific factors of agricultural
land:（1） sunlight, dryness, wetness, and rainfall（2） soil condition（3） presence and condition of farm roads（4） irrigation and drainage（5） ease of cultivation（6） proximity to rural communities（7） proximity to shipping area（8） risk of disaster（9） regulations or restrictions specified in public laws and private deeds.

3.

Forestland
Following list shows examples of major property-specific factors of forestland:（1） sunlight, dryness, wetness, and rainfall（2） altitude above sea level and topography（3） soil condition（4） ease of carrying out and transporting lumber（5） ease of management（6） regulations or restrictions specified in public laws and private deeds.

4.

Land with Prospective Use and Land with Transitional Use
For land that is undergoing conversion or transition from one use category toanother, more emphasis should be placed on property-specific factors after theconversion or transition. However, if the conversion or transition is still in the earlystages, more emphasis should be placed on property-specific factors before theconversion or transition.

II.

Property-Specific Factors on Building
Following list shows examples of major property-specific factors of building that arecommon to all uses:
1. age of the structure (new structure, extension, reconstruction, etc., or relocation)
2. size, height, type of construction, and materials
3. functionality of design and equipment

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4. construction quality and dimensions
5. building quality for earthquake resistance, fire resistance, etc.
6. maintenance and management
7. presence of harmful substances and extent of contamination
8. conformity of building with its environment
9. regulations or restrictions specified in public laws and private deeds.
Note that property-specific factors that market participants focus on for transactions
vary by the building use.
III. Property-Specific Factors on Building and Its Site
In addition to the examples in I and II above, other major examples of property-specificfactors on building and building site include the layout of the building, parking lots,
pathways, and gardens within the site, overall compatibility between building and site
especially for the size of the building relative to the site, the quality of planned repairs andthe management program as well as the extent of their implementation.
In addition, property-specific factors on property for lease include how well the property
is operated. Major examples are indicated below:
1. status of the lessee and provisions in the lease contract
2. occupancy level of a leased property
3. type of ownership for structures, facilities, interiors, etc., and responsibility for repair
expenses, etc.

CHAPTER4. PRINCIPLES OF REAL ESTATE VALUE
The value of real estate is made up of the interaction of several factors that affect the utility,
relative scarcity, and the effective demand for that real estate. When the process of value formationis studied, basic economic laws or principles are in play. At the heart of real estate appraisal is theinvestigation and analysis of the process of value formation. Therefore, to reach an appropriate
final judgment on the economic value of the real estate, it is necessary to recognize these rules as
guidelines that are required for an appraisal and to use the principles below that concretely express
them.
Although these principles are based on general economic rules, they are recognized andexpressed from the standpoint of an appraisal.
Note that these principles are not independent of one another, but rather are directly or
indirectly related.
I.

Principle of Supply and Demand

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While the value of a commodity is determined by the relationship between the supplyof and demand for that commodity, the value of that commodity could also have an effecton the supply and demand.
The value of real estate is determined by the relationship between supply and demand,
but real estate also has physical characteristics and socioeconomic characteristics thatdiffer from the attributes of other commodities. The effect of these additional
characteristics is reflected in the dynamics of real estate supply and demand and theformation of real estate value.
II.

Principle of Change
In general, the value of a commodity changes as the value influence factors change.
The value of real estate is also formed within a continual process of change that reflects

an array of various cause and effect relationships among the value influence factors. The
value influence factors themselves undergo constant change. So, when appraising realestate, the dynamic cause and effect relationships among the factors should be understood.
In particular, the process of change must be analyzed in order to determine the highest andbest use of the property (see paragraph Ⅳ below).
III. Principle of Substitution
In cases where two or more commodities are interchangeable, the value of thesecommodities is determined by the mutual effect they have on one another.
The value of real estate is also formed in relation to the value of other substitute realestate or commodities.
IV. Principle of Highest and Best Use
The value of real estate is analyzed on the premise of the potential best use of the realestate, i.e., the use under which the real estate will achieve its maximum utility (highest
and best use). The highest and best use is an objective indicator of that use, which underreal socioeconomic circumstances is both rational and legally permissible and that is also
practicable for someone having common sense and an ordinary ability to operate theproperty under that use.
Note that the actual use of a property is not necessarily the highest and best use for that
real estate. A use based on irrational or personal circumstances could result inunderutilization of the real estate.
V.

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It is necessary for the elements of real estate to be in balance in order to achieve that
real estate’s maximum profitability or highest amenity. So, in order to estimate the highest
and best use of real estate, it is necessary to analyze whether or not a balance of theelements has been achieved.
VI. Principle of Increasing or Decreasing Returns
When an investment is continually increased by a definite amount, the gross income
from the investment increases with each increment. However, although the income
corresponding to each increment increases up to a certain point, it eventually reaches thepoint of diminishing returns where it begins to decrease.
This principle applies to additional capital investment in real estate as well.
VII. Principle of Income Allocation
Gross income generated from the combination of land, capital, labor, and management(organization) should be allocated to each of these elements. Therefore, that portion ofgross income remaining after the other portions have been allocated to capital, labor, andmanagement (organization) can be attributed to the land, provided the allocation has been
made correctly.
VIII. Principle of Contribution
The degree that each component of real estate contributes to income generated by theoverall real estate has an effect on the total real estate value.
This principle is especially useful when considering the viability of additional
investment in the property when determining the highest and best use.
IX. Principle of Conformity
It is necessary for real estate to conform to the environment in order to achieve
maximum profitability or highest amenity. So, it is necessary to analyze whether or notthat real estate conforms with its environment when determining the highest and best use.
X.

Principle of Competition
In general, excess profit stimulates competition, while competition reduces excess profit

and could ultimately eliminate any excess. For real estate in particular, a competitive
relationship is also seen both among properties and between properties and othercommodities striving to gain excess profit through use. Therefore, the value of real estateis shaped by this competition.

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XI. Principle of Anticipation
The value of a commodity is determined in anticipation of future profitability.
The value of real estate is also influenced by the anticipation of market participants tothe changes in value influence factors.

CHAPTER5. BASIC APPRAISAL PREMISES
The identification of 1) the subject property, 2) the date of value, and 3) the type of value orrent are at the foundation of real estate appraisal.
Section 1. Identification of the Subject Property
When appraising real estate, it is necessary to identify the physical characteristics of the land
and/or building to be appraised as well as the property rights, i.e., fee simple and the otherinterests.
The identification of the subject property is required to clearly recognize and distinguish theproperty from other real estate, which should ultimately be verified by an Appraiser when
confirming that the actual use of the property conforms with the purposes and conditions of theappraisal.
I.

Requirements for the Subject Identification
1.

The items required for an identification of the subject real estate are defined as therequirements for the subject identification.
The requirements for the subject identification are what is needed to identify
physical characteristics, such as the location and dimensions of the property as wellas the status of interests in the property, e.g., fee simple and leasehold interest.
The following list shows the requirements that correspond to the purpose of an
appraisal:（1） When an appraisal is based on the "as is” condition, where the real estate
could be the land alone or a combination of the land and buildings.
（2） When real estate is a combination of land and buildings, only the land is tobe appraised, assuming the buildings did not exist. (The appraisal in this caseis referred to as the appraisal as if it were vacant land.)（3） When the real estate is a combination of land and building(s), either the landor the building is to be appraised as a component, based on the condition thatthe other component exists. (The appraisal in this case is referred to as acomponent appraisal.)

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to be appraised is real estate after the assemblage or subdivision. (Theappraisal in this case is referred to as assemblage or subdivision appraisal.)（5） For land where site construction has not been completed or for building
where construction (including new construction, extensions, or renovations)has not been completed, an appraisal is conducted on the assumption that theconstruction is complete. (The appraisal in this case is referred to as an
appraisal for a property to be completed, etc.)
In addition to those listed above ((1) through (5)), a property can be valued withdifferent conditions from the date of the value that are related to ownership or interests inthe property.

2.

When setting the requirements for identification, the validity of the requirements must
be confirmed in light of the purpose of the appraisal. Confirming the validity must be
done so that any of the benefits to any intended user of the appraisal report is not in
jeopardy after the investigation and approval of any matters related to the property.
Also, when conducting an appraisal for a property to be completed in addition toconsidering the requirements described above, it is necessary to collect architecture plansfor identifying any physical characteristics after completion based on the date of value
and construction agreements to confirm the identification of ownership and interests
associated with the completed property.
Finally, it is necessary to obtain any permits and approvals required by law and to

determine that completing construction is realistic in light of the ability of the builders tosecure financing.

II.

Assumptions for Area-Specific or Property-Specific Factors
Although there are cases where a client requests the Appraiser to make certain

assumptions or limiting conditions on the effect of area-specific or property-specificfactors for the property, these assumptions and limiting conditions imposed by the client
must be reasonable, realistic, and legitimate. The Appraiser must be objective, so thebenefits for any intended user of the appraisal report are not jeopardized.
In general, when the assumptions and limiting conditions for area-specific factors arereasonable, these are usually limited to matters provided by the official agencies with theauthority to alter, revise, or end planning projects as well as any regulations.
III. Conditions to the scope of investigation

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For the scope of a standard investigation by an Appraiser, when there are specific value
influence factors that make it difficult to confirm their impact on the value of the real estate,conditions on the scope of the investigation can be set based on any of the value influence
factors. However, the conditions on the scope of investigation should be adopted only
when it is determined that these conditions do not jeopardize the benefits for any intended
user of the appraisal report.
IV. Limitations on conditions when an appraisal has a significant impact on the benefits ofany intended user of the appraisal report
When an appraisal has a significant impact on the benefits of any intended user of theappraisal report, such as an appraisal of a property for securitization (outlined in Section
1 of Chapter 3 of the specific standards) and an appraisal of real estate for investment
under the Companies Act, in principle, any of assumptions, limiting conditions, or any
condition to the scope of the investigation, related to any of the requirements for the subject
identification, area-specific or property-specific factors, which are different from theactual usage or situation of the subject property, must not be adopted.
However, if the appraisal of a property for securitization meets the requirements
outlined in Section 2 of Chapter 3 of the specific standards, an appraisal for a property to
be completed can be completed.
V.

Consent from client on additional conditions

1. The adoption of additional conditions must be in the appraisal contract and agreed
upon with the client.
2. When it is recognized that adopting additional conditions is not appropriate, it isnecessary to revise the conditions, after explaining this to the client.
Section 2. Identification of the Date of Value
Since value influence factors change over time, the value of real estate is only valid on the
day of the value. So, for a real estate appraisal, it is necessary to identify the reference date of
the valuation; this date is defined as the date of value. An additional benchmark, the date ofrent is the first day of each period of rental income.
The date of value can be current (a current date), in the past (a past date) or in the future (afuture date), based on the date when the appraisal has been completed.
Section 3. Identification of the Type of Value or Rent in Appraisal
Appraisals by Appraisers must contribute to establishing an appropriate price in the market

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by estimating the appropriate value of real estate.
I.

Value
The value determined by a real estate appraisal is essentially the market value. However,there are other defined values that might also be determined, depending on the conditions
corresponding to the purpose of appraisal such as an assemblage or component market
value, a market value based on special considerations, and a nonmarket value. Therefore,
the type of value to be estimated must always be judged and clarified following theconditions that correspond to the purpose of the appraisal. Note that there are cases where
the purpose of an appraisal requires an estimate of the market value of real estate based on
special considerations.
1.

Market Value
Market value refers to the probable value for real estate that satisfies the conditions
associated with a rational market under actual socioeconomic circumstances. A
market that satisfies the conditions considered rational under actual socioeconomic
circumstances means a market that satisfies these conditions:（1） The market participants must be acting on their own free will and be able toenter or leave the market and are motivated to maximize their returns withprudent and wise expectations and behavior. Market participants will satisfy
certain requirements, including:① no special motivation causing either a quick sale or purchase② having the ordinary knowledge and information required to conducttransactions regarding the subject property and the market to which thesubject property belongs③ has paid the labor and other costs normally considered necessary to
conduct transactions④ perceived the value of the highest and best use of the subject property⑤ ordinary access for purchasers to financing.
（2） The transaction does not have any special form that restricts market
participants or induces either a quick sale or quick purchase.
（3） The subject property must have been on the market for a suitable period of
time.

2.

Limited Market Value
Limited market value (LMV) refers to the value of marketable real estate in a

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limited market of buyers and sellers, which deviates from the market value as a resultof an assemblage or subdivision.
Examples of situations where limited market value is determined include:（1） transactions by a land lessee for consolidating land leasehold interests withthe land leased fee interest of the landlord（2） transactions for the purpose of making an assemblage with adjacent realestate（3） transactions for real estate where the subdivision of real estate is consideredagainst economic rationality.
3.

Market Value Based on Special Considerations
Market value based on special considerations refers to the appropriate economic
value of the marketable real estate under the purpose of appraisal with the backgroundof social demands by laws and ordinances that deviates from the market value as aresult of not satisfying all conditions on which the market value is premised.
Examples of cases where the market value is based on special considerations
include:（1） where the value of the investment profitability is based on valuation for atypical investor based on the purpose of appraisal regarding any property forsecuritization outlined in Specific Standards Section 1, Chapter 3（2） where the value determined is premised for an appraisal for a quick sale asdefined in the Civil Rehabilitation Law（3） where the value determined is premised on having an appraisal for thecontinuation of a business under the Corporate Reorganization Law or the
Civil Rehabilitation Law.

4.

Nonmarket Value
Nonmarket value refers to the appropriate economic value of generally
nonmarketable real estate, such as a cultural asset, based on the existing use of thereal estate.
Examples of situations where nonmarket value is determined include an appraisalthat emphasizes preservation of the structure designated as a cultural asset, as well asa religious building or public facility, whose operation is expected to continue in its
present state.

II.

Rent
The rent determined by real estate appraisal is generally either market rent or renewed24

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rent. However, since there are also situations in which limited market rent must be
determined (depending on the conditions that match the purpose of the appraisal specified
by the client), the limited market rent should be fully estimated and clarified.
1.

Market Rent
Market rent is an appropriate rent (market rent under a new lease) reflecting the
economic value of the real estate, which would probably be established in any newlease contract (to use or benefit from real estate based on leasehold, superficies, oreasement) under the same market concept as market value.

2.

Limited Market Rent
Limited market rent is a rent (under a new lease) reflecting appropriately the
economic value of the real estate, which would probably be established in any newlease agreement under the same market concept as limited market value.
Examples of situations where limited market rent are determined include leases
based on:（1） use in conjunction with adjacent real estate（2） the divided use of real estate against economic rationality.

3.

Renewed Rent
Renewed rent is a rent that indicates appropriately the economic value of the realestate, which would probably be established between the parties to extend the leaseterm of the real estate.

CHAPTER6. AREA ANALYSIS AND PROPERTY ANALYSIS
In performing area and property analyses of subject property, it is necessary to accurately
understand the specific effects of the general factors that are the basis for these analyses.
Section 1. Area Analysis
Purpose of Area Analysis

I.

Area analysis refers to analyzing and determining the type of area where subject
property is located, characteristics of the area, the characteristics of the market for the
subject property, and the influence these characteristics have on overall use and formationof value of properties within the area.
II.

Application of Area Analysis
1.

Area and Its Characteristics

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Areas of particular importance in an area analysis are those from the use
perspective (or area of use), for example subject neighborhood area and similar area
and the wider area that includes subject neighborhood area and similar area, which isthe same supply and demand area.
The characteristics of subject neighborhood area are usually embodied in thegeneral standard use of properties in the area. The standard use provides informationon the relative position of areas to each other based on their use patterns and theformation of value. Standard use is a strong indicator for determining the highest andbest use of each property in the area.
The area where the real estate is located is not fixed; area-specific factors thatcharacterize the area is constantly changing. Therefore, when performing an area
analysis and to determine the standard use, current and future trends of the areaspecific factors as well as standard use need to be analyzed together with the resultsof understanding the characteristics of the market for the subject property.
（1） Area of Use① Subject Neighborhood Area
The subject neighborhood area refers to the area of use where subject
property belongs, which is located within urban or rural area that are oflarger size and contents. This is an area that is regionally clustered around aparticular use for living and activities, such as a residential, commercial, or
industrial, and has characteristics that directly affect the formation of thevalue of the subject property. Subject neighborhood area will change
depending on how the area-specific factors that form the characteristics ofthe area change and evolve.
② Similar Area
A similar area refers to an area having features that are similar to subject
neighborhood area, and the real estate in that area is regionally cohesive,
centered on being used for a specific purpose. This area cohesiveness isdetermined by similarities to the characteristics of the subject neighborhoodarea.
（2） Same Supply and Demand Area
The same supply and demand area generally refers to an area where there areother real estates that can be substituted with the subject property, which
mutually influence the formation of each value. It is more extensive, including
subject neighborhood area, and defines the boundary of similar areas that are26

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related to the subject neighborhood area.
In general, regardless of whether the subject neighborhood area and a similararea within the same supply and demand area are adjacent, real estate as theintegral elements of an area are in a relationship of substitution, competition, etc.
based on the similarity of area-specific factors. As a result, both areas have an
impact on each other.
Even for real estate outside the subject neighborhood area and a similar areain the same supply and demand area, but inside the same supply and demandarea, a relationship of substitution, competition, etc., might be established withsubject property based on similar use, size, grade, etc.
Since the geographical scope of the same supply and demand area differs
depending on the preferences of users —according to the type, character, andscale of the property—it is necessary to make an appropriate judgement basedon an accurate understanding of the preference of users according to the type,character, and scale of the property.
Basic items that should particularly be noted when determining the same
supply and demand area are as follows:① Building Site
a. Residential Land
The same supply and demand area generally tends to correspond to thegeographical scope of a commute to the city center. However, local
preferences tend to narrow the geographical scope.
Note that the strength of preferences, based on regional prestige,
quality, etc. can have a particular impact on the geographical scope of thesame supply and demand area.
b. Commercial Land
The same supply and demand area for highly commercial land generally
tends to correspond to the scope of the area where a substitution can bemade for commercial revenues which is based on extensive commercial
backlot. Therefore, the scope of the area tends to be broadly formed
according to the characteristics of highly commercial land.
For ordinary commercial land, it generally tends to coincide with thescope of the area where a substitution can be made for commercial
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local preferences tend to narrow the geographical scope.
c. Industrial Land
The same supply and demand area for large factory land, such asindustrial land oriented towards industrial infrastructure with preference
for convenience for ports and high-speed transportation networks,
generally tends to correspond to the scope of the area where a substitution
can be made for advanced transportation facilities that enable large-scale
movement of raw materials, products, etc. Therefore, the geographicalscope tends to be nationwide.
For small and medium-sized factory land, such as industrial landoriented towards consumption area with preference for proximity for
distance to the consumption area and the scale of consumption, generally
tends to correspond to the scope of the area where a substitution can bemade for cost economics related to production and the sale of products.
d. Land with Transitional Use
The same supply and demand area generally tends to correspond to the
supply and demand area of the use category of the land to which thesubject land is expected to be transitioned. However, in cases of low
maturity, it tends to be the same as to the same supply and demand area
for the use category of the land before the transition.
② Agricultural Land
The same supply and demand area generally tends to correspond to thearea of possible agricultural production activities for each of the agricultural
management entities located within the area for possible and normal
agricultural production activities surrounding subject agricultural land.
③ Forestland
The same supply and demand area generally tends to correspond to thearea of possible forestry production activities for each of the forestry
management entities located within the area for possible and normal forestry
production activities surrounding subject forest land.
④ Site with Interim Use

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to be the same as to the same supply and demand area for the use categoryof land before the conversion.
⑤ Building and Its Site
The same supply and demand area tends to correspond to the same supply
and demand area according to the use of the subject land. However, there
are cases that it may not correspond to the same supply and demand area ofthe land because the geographical scope of real estate that can be substituted
for the building and its site as a whole could differ, depending on the use,
size, quality, etc.
2.

Market Characteristics of Subject Property
To understand the characteristics of the market for the subject property in an area
analysis, it is important to accurately understand the attributes that market participantsin the same supply and demand area have, from what perspective they select the use
structure of the real estate, and make decisions regarding the value influence factors.
It is also necessary to accurately understand supply and demand trends in the same
supply and demand market area.
In addition, the characteristics of the market that have been identified should bereflected in the determination of the standard use in the subject neighborhood area, as
well as in various judgement for applying appraisal approaches and reconciling theindicative value or indicative rent.

Section 2. Property Analysis
Purpose of Property Analysis

I.

The value of real estate is estimated based on its highest and best use. Therefore, whenappraising real estate, it is necessary to determine the highest and best use of the subject
property. Property analysis refers to analyzing the effect of property-specific factors on theuse and the formation of value of the subject property to determine its highest and best use.

II.

Application of Property Analysis
1.

Guidelines for Analyzing Property-Specific Factors

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Property-specific factors individually contribute to the formation of the market
value of the subject property. Therefore, when analyzing property-specific factors, it
is important to accurately understand which property-specific factors that typicalusers of the subject property would focus on for taking actions and how they would
evaluate the superiority and competitiveness of the subject property compared withproperties that could substitute for, or would be in competition with, the subject
property.
The result of the analysis of property-specific factors should also be reflected invarious judgements when applying appraisal approaches, reconciling the indicativevalue or indicative rent, and such.
2.

Guidelines for Determining the Highest and Best Use
When determining the highest and best use of real estate, special consideration
should be given to the following points:（1） The use of the real estate should be done in a way that would be adopted bysomeone having common sense and an ordinary ability to operate the realestate under that use.
（2） The use of the real estate should allow for the sustainable generation ofrevenues over a reasonable period into the future.
（3） The point in time when utility can be fully demonstrated is not in theunforeseeable future.
（4） Since the highest and best use of individual real estate is typically subject torestrictions imposed by the characteristics of the subject neighborhood area,
it is especially necessary, when performing a property analysis, to estimate
and determine the interrelationship with the standard use of properties within
the subject neighborhood area. However, there is a possibility that the use of
the subject property could differ from the standard use depending on thelocation, size, environment, etc. In these cases, the highest and best use
should be determined after analyzing property-specific factors for each use.
（5） Value influence factors are constantly changing. So, it is necessary to
determine the highest and best use taking into consideration the possibility
that the use of the subject property could change, especially when changes
in area-specific factors affecting value formation can be predictedobjectively.
When determining the highest and best use of a building and its site, special
consideration should be given to the following points:

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and best use of the land as if vacant, it is necessary to consider the cost andother factors required to realize the highest and best use of the land as if
vacant. In these cases, the highest and best use of building and its site might
not be the same as the highest and best use of the land as if vacant.
（7） It is necessary to fully compare and consider the economic value ofcontinuing the actual use of the building, etc. and the economic value of
demolishing or changing the use of the building, etc., with appropriate
consideration of the cost of demolition or changing the use of the building,etc.

CHAPTER7. APPRAISAL APPROACHES
There are three approaches to real estate appraisal: the cost approach, the sales comparison
approach, and the income approach.
The cost approach focuses on the cost required to reproduce the real estate (called reproduction
cost new). The sales comparison approach focuses on sales data or lease data from the sale orleasing of comparable real estate. The income approach focuses on the income generated fromthe real estate. All of these approaches attempt to estimate the value of, or rent for, the real estate.
The approaches to real estate appraisal can be classified depending on the methods used toestimate real estate value or methods used to estimate real estate rent. The value or rent estimatedthrough the application of an appraisal method is referred to as the indicated value or the indicatedrent.
Section 1. Appraisal Approaches for Determining Real Estate Value
The basic appraisal approaches for estimating the value of real estate are divided into cost,sales comparison, and income capitalization approaches. There is also a fourth approach,development approach, which uses concepts from these three approaches.
I.

General Guidelines for Estimating Value Indications
1.

Correlation between General Factors and the Application of the Appraisal
Approaches
General factors are value influence factors that affect the formation of the overallvalue of the real estate. Not only must general factors be considered at each step in
the application of the appraisal approaches, but they must also be kept in mind whenreviewing the soundness of the value estimate.

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Gathering and Selecting Data
The data required for applying the appraisal approaches consists of construction
data in the cost approach, comparable sales data in the sales comparison approach,and income data in the income capitalization approach. (This type of data is called
comparable data). Comparable data should be gathered in an orderly way in a large
volume based on a rational plan appropriate for the application of each appraisal
approach. Note that it is not right to use comparable data for speculative transactions.
Comparable data should satisfy all of these requirements.
（1） Comparable real estate data that concerns:①

Real estate located in the neighborhood or a similar area within the same
supply and demand area, or when otherwise unavoidable, a vicinity near
the neighborhood. (These are generally known as a similar area within
the same supply and demand area).

②

Where the highest and best use of the subject property differs from thestandard use in the neighborhood, real estate located in the same supply
and demand area can be substituted for or is in a competitive relationshipwith the subject property. (This is called substitutive or competitive realestate in the same supply and demand area.)（2） Comparable data should reflect transactions closed under normal
circumstances or else should be able to be adjusted to reflect transactions
closed under normal circumstances.
（3） Comparable data should allow adjustments for changes in price levels andmarket conditions over time.
（4） Comparable data should allow for comparisons with area-specific andproperty-specific factors.
3.

Adjustment for Conditions of Sale
Comparable data must be adjusted when the transactions, from which thecomparable data were gathered, were closed under special circumstances that affected
the comparable property's value.
（1） For example, comparable sales data could reflect special circumstances fora quick sale or purchase. These special circumstances are attributable to thecharacteristics of the real estate market as well as the capabilities of theparties to the transaction and any special motivation those parties are acting
on. Nevertheless, the conditions under which the comparable real estates
were transacted must be thoroughly investigated.

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characterizing a rational market operating under an actual socioeconomic
environment. Market value is necessarily based on the existence of a rational
market.
4.

Time Adjustment
In situations where there is a possible change in the price level between the date ofa transaction from which comparable data was compiled and the date of value, theprice of the comparable data must be adjusted to the price level on the date of value.

5.

Comparison of Area-Specific Factors and Property-Specific Factors
The prices of comparable data reflect both area-specific and property-specificfactors. Therefore, it is necessary to compare area-specific and property-specificfactors on the subject property and comparable real estate when either the comparable
real estate is located in a similar area within the same supply and demand area or thecomparable real estate is a substitutive or competitive property in the same supply
and demand area. On the other hand, if the comparable real estate is located in thesame neighborhood, it is necessary to compare only property-specific factors on thesubject property with the comparable real estate.

II.

Cost Approach
1.

Concept
The cost approach is used to first estimate the reproduction cost of the subject
property on the date of value and then deduct any accrued depreciation from thereproduction cost. (The value derived by this approach is called the value indicatedby the cost approach.)
The cost approach is applied in situations where the subject property is a building
or a building and its site and it is possible to estimate the reproduction cost andappropriately estimate the accrued depreciation. Where the subject property is only
land, the cost approach can be applied if the reproduction cost of the land can be
estimated appropriately.

2.

Application Method（1） Concept of Reproduction Cost
Reproduction cost refers to the total cost required to reproduce a duplicate of

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the subject property on the date of value.
In situations where it is difficult to estimate the reproduction cost because ofchanges in building materials, construction methods, and other reasons, thereplacement cost with the equivalent utility to the subject property can beconsidered the reproduction cost.
（2） Methodology for Estimating Reproduction Cost
The reproduction cost is estimated by adding the ordinary incidental expenses
that are borne by the client to the standard construction costs paid by the clientto the contractor, assuming the contractor will deliver the completed building to
the client in a state that allows immediate use, based on the construction contract.
Note that this is different from the replacement cost. The replacement cost is
the total cost of constructing another property having equivalent utility to thesubject property. The replacement cost is estimated by adding the ordinary
incidental expenses, borne directly by the client, to the standard construction
costs paid by the client to the contractor.
Note that the incidental expenses in these cases might include ordinary
financing costs and the standard development risk equivalents borne by the client
until taking ownership of the completed building from the contractor.
① The reproduction cost of land is estimated by adding the standard site
preparation costs of the real estate plus the ordinary incidental expenses
borne by the client to the standard acquisition cost of the raw land.
When applying the cost approach to land, if a comparison is made to thearea-specific factors on the land between immediately after the buildingsite is prepared and on the date of value and if it is objectively recognizedthat changes in the social and economic environment affect the value ofthe land through the development of public or convenience facilities or theconstruction of housing, it is possible to add the increment in land valuethat corresponds to the changes in the area-specific factors.
② The reproduction cost of a building and its site is estimated by adding the
reproduction cost of the land (if the site is located in a built-up area where
the reproduction cost cannot be estimated, the value of the vacant land
including the ordinary incidental cost borne by the client can be
determined by the sales comparison and income capitalization
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ordinary incidental costs borne by the client for the reproduction cost of
the building.
③ Direct and indirect methods are used to estimate the reproduction cost.
Either method can be applied, depending on the degree of reliability of
the construction data gathered, or both methods can be used together.
a.

The direct method is a method for directly estimating the
reproduction cost of the subject property. The direct method
estimates the reproduction cost of the subject property by 1)
investigating the category, grade, and volume of materials used andthe kinds and duration of the required labor; 2) estimating the direct
construction costs based on the unit price on the date of value in thearea where the subject property is located; 3) adding to this estimate
all indirect construction costs and a general management fee that
includes a reasonable profit for the contractor; and 4) finally adding
the ordinary incidental expenses borne by the client.
There are cases where the circumstances are clear, including theprice of the raw land, direct and indirect construction costs required
to prepare the site for construction, general management expenses(including a reasonable profit for the contractor), incidental expenses
paid directly by the client, and their specifications (including category,
grade, volume, time and unit price). In these cases, it is possible toestimate the reproduction cost by analyzing, adjusting, and updatingthese specifications for changes over time, if necessary.

b.

The indirect method is a method for indirectly estimating the
reproduction cost of the subject property either from similar realestate located in the neighborhood or similar area within the same
supply and demand area or from other substitutive or competitive
real estate in the same supply and demand area.
There are cases for using the indirect method where thecircumstances are clear, including the value of the raw land, the direct
and indirect construction costs of the real estate, general management
expenses (including a reasonable profit for the contractor), incidental
expenses borne by the client, and the specifications (including
category, grade, volume, time and unit price) for comparable realestate. In these cases, it is possible to use the indirect method todetermine the reproduction cost of the subject property by analyzing,35

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adjusting, and updating these specifications for changes over time, if
it is necessary, and then comparing both area-specific factors andproperty-specific factors.
3.

Depreciation Adjustment
The purpose of adjusting the depreciation is to deduct the amount of depreciation
incurred—based on several factors for depreciation from the reproduction cost of thesubject property—in order to arrive at the appropriate value indicated by the cost
approach on the date of value.
When making depreciation adjustments, the amount of depreciation must be
estimated by analyzing and examining the subject property both partially andcomprehensively, focusing on the depreciation factors.
（1） Depreciation Factors
Depreciation factors can be categorized as physical deterioration as well asfunctional and economic obsolescence.
Note that these factors are not independent of one another, but rather are
mutually related and interactive.
① Physical Deterioration
Examples of physical deterioration include normal wear and tear fromusing the real estate, deterioration occurring over time or resulting fromnatural causes, and incidental damage.
② Functional Obsolescence
Examples of functional obsolescence affecting real estate include
incompatibility between a building and its site, poor design, outdated form,
and inadequate or inefficient facilities.
③ Economic Obsolescence
Examples of economic obsolescence include neighborhood decay,
nonconformity between the real estate and its surroundings, or a decline in
the marketability of the real estate compared with either real estate in a
substitutive or competitive relationship or other nearby real estate.
（2） Methods for Estimating Depreciation
There are two methods, used in conjunction with each other, to estimate theamount of depreciation for a property.
① Method Based on Useful LifeThe depreciation estimation method based on useful life is founded on

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the useful life period indicated as the sum of the actual age and theremaining economic life of the real estate on the date of value.
Several elements are especially important when applying the remaining
economic life method: the period during which the utility is consideredsustainable on the date of value depending on deterioration looking at
physical and functional factors as well as competitiveness measured byeconomic factors; the use category and actual condition of the subject
property; and the remaining economic life.
The method based on useful life consists of two standard ways for
estimating depreciation: straight line and declining balance. The applicationof either of the two ways for estimating depreciation should be decided by
the use category and actual condition of the subject property.
In situations where the subject property consists of two or more separable
components, each with a different age or remaining economic life, how thedepreciation for each component is estimated and how the salvage value isestimated at the end of the period should be decided based on the use
category and actual condition of the subject property.
Methods Based on Observation②

The depreciation method based on observation directly estimates theamount of depreciation by examining the actual condition of each
depreciation factor, such as design, functionality of facilities, state ofmaintenance and management, as well as the state of repairs and conformity
with the surrounding environment.
III. Sales Comparison Approach
1.

Concept
The sales comparison approach first gathers a large amount of sales informationfrom comparable real estate, then the most appropriate data is selected. The market
prices negotiated for the sale of comparable real estate is then adjusted for differencesin sales conditions or changes occurring over time, if necessary. Area-specific andproperty-specific factors are then compared to indicate value in the sales comparison
approach.
The sales comparison approach is applicable when real estate transactions are madeinvolving comparable properties in the neighborhood or a similar area within the same
supply and demand area or real estate transactions involving substitutive orcompetitive real estate in the same supply and demand area.

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Application Method（1） Collecting and Selecting Data
Since the sales comparison approach uses the sales of comparable real estatein the market as the basis for estimating value, it is necessary to first collect alarge amount of sales information on comparable properties.
Comparable sales information is collected from transaction data on properties
in the neighborhood or similar areas within the same supply and demand area or
located near the neighborhood, when necessary and unavoidable. In situations
where the highest and best use of the subject property differs from the standard
use in the neighborhood, information on comparable sales is collected fromtransaction data on real estate in a substitutive or competitive relationship within
the same supply and demand area. In any case, the sales information oncomparable real estate must satisfy all three of these requirements:① the data should reflect normal circumstances under which transactions areclosed or the data should be able to be adjusted to reflect normal
circumstances.
② the data should allow for adjustments for changes in price levels andmarket conditions over time.
③ the data should allow for comparisons with area-specific and propertyspecific factors.
（2） Sales Condition and Time Adjustments
An adjustment must be made when the sale of comparable real estate has any
special circumstances that affect the sale price. When some time has passed since
the sale of comparable real estate closed and a change in the price level has
occurred during that period, the sale price of comparable real estate must be
adjusted to the price level on the date of value.
When making a time adjustment, it is necessary to adjust the sale price after
estimating the rate of change in the value of land or buildings under the sameland use classification as the comparable real estate in the neighborhood or whena comparable area has a change in value similar to the neighborhood.
（3） Comparison of Market-Specific Factors and Comparison of PropertySpecific Factors
A sale price reflects both area-specific and property-specific factors where the38Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION

real estate related to the sale is located. Therefore, it is necessary to compare botharea-specific and property-specific factors for the subject property withcomparable real estate when the comparable real estate is in a similar area within
the same supply and demand area or when it is in a substitutive or competitive
relationship with the subject property and is located in the same supply anddemand area. On the other hand, if the comparable real estate is in the sameneighborhood, it is only necessary to compare property-specific factors with thecomparable property.
To simplify the comparison of area-specific factors and property-specificfactors, it is necessary to identify a benchmark site that has typical propertyspecific factors in each area.
（4） Allocation Method
Situations will arise where comparable sales data is selected from real estatewith two components, while the subject property has only one. The value of theextra component of the comparable property must be estimated at first, and thenmust be deducted from the overall sale price to generate a comparable price forthe subject property.
Alternatively, the allocation method may be used. Ratios between the valuesof property components, reflected by comparable sales, can be developed basedon sales prices or development costs. The sale price derived from the comparable
data is then multiplied by the percentage for the common component of thesubject and comparable properties. (This is called as the allocation method.)
IV. Income Capitalization Approach
1.

Concept
The income capitalization approach estimates the total present value (PV) of theadjusted net operating income or net cash flow (NCF) that the subject property is
expected to generate in a future period, (The value indication derived from thisapproach is called the value indicated by the income approach.)
The income capitalization approach is used for determining the value of leased
properties and for business properties other than those being leased.
Real estate value generally reflects its profitability, where income is the core of theeconomic value of real estate. So, the income capitalization approach should beapplied to all the real estate other than those that do not have general marketability,
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owner-occupied real properties based on the assumption that these properties wereleased.
Further, when there is a sharp increase in the sale price of real estate, a significant
difference between the sale price and the value indicated by the income approach canbe the result. In these situations, the income capitalization approach should be used
to verify sale prices, which tend to be speculative.
2.

Methods for Determining Value Indicated by the Income Approach
There are two basic methods for determining value indicated by the income
approach. One method, called direct capitalization, applies a capitalization rate
directly to net cash flow (NCF); the other method, discounted cash flow (DCF),
discounts the net cash flow (NCF) generated over the typical holding period together
with the reversionary value at the end of the holding period. Each income stream is
discounted to the present value (PV) at the time the income is generated. All the
discounted income streams are then added up.
These methods are calculated using the following formulas:（1） Direct Capitalization MethodaP＝ ―R
where:
P = subject property value indicated by the income approacha = net cash flow (NCF) for one period
R = capitalization rate（2） DCF Method
n

P ＝ Σ
k=1

ak
P
―――――＋―――――(1 ＋ Y)k(1 ＋ Y)nwhere:
P = property value indicated by the income approachak = net cash flow (NCF) for each period
Y = discount raten = holding period (or analysis period in cases where resale is not assumed,
as is understood hereafter)
PR = reversionary value

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONThe reversionary value refers to the value of the subject property at the endof the holding period and is represented by the formula:an＋1
PR ＝―――
Rn
where:
an＋1 = net cash flow (NCF) for period n＋1
Rn = capitalization rate at the end of the holding period (terminal
capitalization rate)
3.

Application Methodology（1） Net cash flow (NCF)①

Concept of Net Cash Flow
Net cash flow (NCF) is the income from the real estate, or the remaining

value after deducting the distribution to capital (excluding the capital for thereal estate) as well as labor and management (organization) in proportion totheir contribution to total income from the total income generated from the
combination of real estate used for income-generating purposes, the capital
involved (excluding the capital for the real estate), and labor andmanagement (organization).
②

Calculation of Net Cash Flow
The net cash flow (NCF) of a real estate is calculated by subtracting thetotal expenses from the total income generated in one year. In addition, net
cash flow (NCF) varies depending on the way that gross income and total
costs are viewed: either as perpetual (level) NCF or non-perpetual (variable)
NCF, or as NCF before depreciation or NCF after depreciation. Note thatthe variability in NCF is closely related to the selection of the method (direct
capitalization or DCF) for determining value indications by the income
approach as well as the method for determining capitalization rates ordiscount rates.
Further, in the direct capitalization method, the net cash flow (NCF) used
might, in some cases, be the subject property’s first-year NCF or, in othercases, a stabilized NCF.
The net cash flow (NCF) should be estimated by carefully analyzing every

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line item looking at past transitions and future trends. The Appraiser's
analysis must be based on a direct understanding of the subject property’s
gross income and total related costs. Particularly in this case, the expected
limits on earnings growth must be carefully examined.
The discounted cash flow (DCF) method clearly indicates periodic orannual net cash flows (NCF), the reversionary value, and the timing forwhen these income streams are generated. So, it is necessary to thoroughly
investigate the outlook for net cash flow (NCF).
In the application of the direct capitalization method, the net cash flow(NCF) of the subject property might be indirectly determined based on the
net cash flow (NCF) of any property similar to the subject property, locatedin the same neighborhood or similar areas within the same supply anddemand area, or the NCF of real estate in a substitutive or competitive
relationship in the same supply and demand area. In these cases, it isnecessary to compare area-specific factors and property-specific factors
then adjust the net cash flow (NCF) of the comparable real estate.
a.

Calculation of Gross Income and Commentary(a) When real estate is to be leased or for business other than a lease
The gross income for leased real estate is the total of the nominal
rent, interest earned on refundable deposits, interest earned andamortization of nonrefundable deposits, and other income, such as
revenue from parking (nominal rent and others). When applying the
DCF method to a property for lease, it is necessary to pay attention
to the provisions of the lease agreement(s) as well as changes in therents and the occupancy rates of the leasable space for each period.
The gross income for a property for business other than a lease isgenerally the sales amount. However, the gross income can be either
the amount based on the nominal rent and others for the real estate
among the sales amount or the nominal rent and others whenassuming the lease of the property.
When calculating the gross income from real estate leased by atenant who runs a business other than a lease and the gross income
from real estate for a business other than a lease, it is necessary to
be careful of the current state and future movements of the businessprovided by the real estate.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION(b) When the highest and best use of vacant land is for thedevelopment of a building for lease
The gross income that is likely to be generated by the building andits site is estimated by assuming that a building for lease is thehighest and best use.
b.

Calculation of Total Expenses and Commentary
The total expenses of the real estate for lease (see paragraph a-(b)above) include depreciation (excluded where net cash flow (NCF) isdetermined before depreciation), maintenance and management fees(including maintenance costs, management fees and repair expenses),real estate taxes (property tax, city planning tax), insurance premiums,
and other miscellaneous expenses.
Where the real estate being appraised is a property for business otherthan a lease, the total expenses of the property include the cost ofpurchases and sales as well as general and administrative costs. However,even if the real estate is used for business other than for a lease, when
the gross income is either the amount based on the nominal rent andothers related to the real estate among the sales amount or the nominal
rent and others in the case of assuming to lease the property, the total
expenses depend on the above example for calculating the value of thereal estate for lease.
When applying the DCF method, an Appraiser must pay special
attention to the timing that expenses, such as large-scale repairs, will
occur during the holding period.
（2） Capitalization and Discount Rates① Concept of Capitalization and Discount Rates
The capitalization rate and discount rate both reflect the profitability ofreal estate. Although they are both used in the income approach to determine
the indicated value, they are basically different, as is explained below.
The capitalization rate is used in the direct capitalization method where
the property value is determined from the net cash flow (NCF) for a single
period. In the DCF method, the terminal capitalization rate is applied toestimate the reversion or anticipated property value at the end of the holding

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period. Capitalization rates incorporate a component for the uncertainty
accompanying anticipated changes in future income.
The discount rate in the DCF method is used for estimating the present
value (PV) of income to be generated in the future. The discount rate
excludes any component for uncertainty, as well as any accompanying
anticipated change in the net cash flow (NCF) and reversions that are
forecast over consecutive periods based on the income outlook.
② Estimation of Capitalization Rate and Discount Ratea.

Considerations when Estimating Capitalization Rate and DiscountRate
It is necessary to investigate trends in the returns on real estate andother investments since both the capitalization rate and discount rate areclosely related to the profitability of comparable assets and investment
yields in the financial market.
Moreover, since the capitalization rate and discount rate tend to differ
by region, property type, and grade, both rates must be estimated by ananalysis of area-specific and property-specific factors that affect the
subject property.
b.

Methods for Estimating Capitalization Rates
Examples of the methods used to estimate capitalization rates include:(a) Estimation by Comparison with Comparable Sales for Similar
Real EstateThis method estimates the capitalization rate by making
adjustments to market-derived capitalization rates for differences
occurring over the time since the transaction involving a comparable
property was closed, for any special circumstances of the transaction,and for changes in area-specific and property-specific factors.
(b) Estimation by the Weighted Average of Loan and Equity
The capitalization rate can be estimated by the weighted averageof the respective capitalization rates for components of a capital
investment (loan and equity) required for acquiring the subject
property.
(c) Estimation from Capitalization Rates for Land and Building
Components

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Where the subject property includes a building and its site, thecapitalization rate can be estimated using the weighted average ofthe respective capitalization rates for physical components (land andbuilding) based on the respective ratios between the components.
(d) Estimation from the Relationship with the Discount Rate
The capitalization rate can be estimated by considering the growthrate in the net cash flow (NCF) of the subject property based on theapplied discount rate.
c.

Methods for Estimating Discount Rates
Examples of methods used to estimate discount rates include:(a) Estimation by Comparison with Comparable Sales of Similar Real
EstateThis method estimates the discount rate by making adjustments tomarket-derived discount rates for differences occurring since thetime the transaction was concluded as well as for the special
circumstances of the transaction and for changes in area-specific andproperty-specific factors. Adjustments are based on the discount rateestimated from comparable sales on the subject property and similar
real estate.
(b) Estimation by the Weighted Average of Loan and Equity
The discount rate can be estimated by the weighted average of therespective discount rates for components of a capital investment(loan and equity) required for acquiring the subject property.
(c) Estimation Based on the Uniqueness of the Real Estate Investment
Relative to Yields on Financial Assets
This method estimates the discount rate by considering theuniqueness of the subject property as an investment looking inparticular at risk, non-liquidity, management difficulty, and asset
security relative to yields on bonds and other financial assets.

（3） Application of Direct Capitalization or Discounted Cash Flow (DCF)
It is necessary to decide whether or not to apply the direct capitalization
method based on the availability of data, the title category of the subject property,
and the purpose of the appraisal or the discounted cash flow (DCF).

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Section 2. Appraisal Approaches for Determining Real Estate Rent
There are several appraisal approaches for determining the rent paid for real estate. Where
the rent is to be set for a new lease, acceptable ways include summation, rental data comparison,and income analysis approaches. Where the rent is to be set for a renewed lease, acceptableways include rents disparity analysis, yield, trend, and rental data comparison approaches.
I.

General Considerations for Determining Rent
In a rent appraisal, the Appraiser estimates the effective rent to be paid to the lessor of
the real estate over the period of the payments. However, it is possible to estimate thenominal rent in addition to the effective rent, if it is requested and the Appraiser is provided
with: 1) the specifics of the payment period and timing; and 2) information on paid
deposits, such as kenrikin, shikikin or hoshokin (either a nonrefundable or refundable
deposit for the subject space).
1.

Effective Rent and Nominal Rent
Effective rent refers to all reasonable economic compensation payable to the lessor
over the period of payments regardless of the type of rent. Effective rent represents
gross rent, or net rent plus miscellaneous expenses normally required to operate thereal estate (called operating expenses).
Nominal rent refers to rent paid at the time of each scheduled payment. In otherwords, nominal rentis the effective rent minus the interest on the deposits and theamortization of nonrefundable deposits, provided the lessor has received deposits,
such as kenrikin, shikikin, and hoshokin, specified in the lease contract.
Further, although it is a common practice for utility expenses, cleaning, andsanitation costs as well as heating and cooling costs to be paid each month in the formof “added” rent or as common area charges for leased space, portions of thesepayments can be equivalent to part of the rent.
2.

Estimation of Nominal Rent
When the lessee paid the deposits specified in the lease, the nominal rent isdetermined by deducting the interest earned on the deposits and the amortization of
nonrefundable deposits from the effective rent.
The interest earned and the amortization of nonrefundable deposits should bedetermined based on the circumstances, including changes in the value of the subject
property during the lease period.
It is possible to estimate the investment yield by comparing various investment
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rate, the interest on long-term deposits, the yield on government and corporate bonds,
and the interest paid on loans from financial institutions, while keeping in mind
differences in the kinds of deposits specified in the lease contract, the specific term
and rental payments negotiated, and the type and condition of the subject property.
3.

Calculation Periods for Rent
For leased building sites and leased properties that include buildings and building
lots, a one-month unit is generally used to calculate the rent determined by anappraisal. A one-year unit is used for calculating rent for other types of land.

4.

Estimation of Renewed Rent
It is possible to estimate the renewed rent, based on the current rent, by carefullycomparing the background of lease contracts, the background of the rent revision, andthe content of lease contracts in addition to property taxes, land and building prices,
rents in the neighborhood area or a similar area in the same supply and demand area,
or a change in rent for a substitutive and competitive property in the same supply anddemand area, after the time the current rent was agreed on and applied between thecontracting parties, in consideration of the fairness between the contracting parties.

II.

Appraisal Approaches for Determining Market Rent under a New Lease
1.

Summation Approach（1） Concept
The summation approach at first estimates the base value of the subject
property on the date of value. The base value is then multiplied by the anticipatedyield and operating expenses are added to the resulting amount to arrive at thegross rent. (The rent estimated by this method is called rent indicated by thesummation approach.)
The summation approach is applicable where the base value of the subject
property, the anticipated yield, and the operating expenses can be accurately
estimated.
（2） Application① Base Value
The base value is the real estate’s value that is used for estimating theindicated rent by the summation approach. The base value is estimated by
the cost and the sales comparison approaches.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION② Anticipated Yield
Anticipated yield is the ratio between the anticipated net cash flow (NCF)
to the capital invested in the leased real estate.
The method for estimating anticipated yield is the same as the method for
estimating the capitalization rate in the income capitalization approach. In
this particular application, special attention should be paid to thecharacteristics of the rent.
③ Operating Expenses
Examples of expenses included in the total estimate of operating expenses
for leased real estate include:a.

depreciation (not applicable in the use of any anticipated yield forthe net cash flow before depreciation)b.

maintenance and management fees (including maintenance costs,
management fees, and repair expenses)

c.

real estate taxes (including property taxes and city planning tax)d.

insurance premiums (including premiums for fire, machinery,
boilers, and other insurance)2.

e.

allowance for collection lossf.

vacancy allowance

Rental Data Comparison Approach（1） Concept
The rental data comparison approach at first collects a large amount of rental
data on new leases in order to select actual effective rents (which refers to thetotal economic compensation to the real estate as reflected in the rent). Then, if
necessary, adjustments are made to the comparable rents for lease condition andthe time factor. Finally, for the subject property being compared with the rent
comparable real estate, area-specific and property-specific factors must be
considered to arrive at the indicated rent. (This approach is called rent indicatedby the rental data comparison).
The rental data comparison approach is used when real estate leases arecompared with similar properties in the neighborhood or a similar area within
the same supply and demand area, or real estate leases involving substitutive orcompetitive real estate in the same supply and demand area.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION（2） Application① Collection and Selection of Data
The process of collecting and selecting rental data is the same as in thesales comparison approach. In this particular application, the rental data
should be selected from lease contracts with similar terms and rent payments.
② Comparing Lease Conditions, Changes in Rent Levels, and MarketSpecific and Property-Specific Factors
The comparative procedures are the same as in the sales comparison
approach: comparisons are made between the subject property andcomparable properties for different conditions for lease and rent levels over
the time since the comparable transactions took place as well ascomparisons of area-specific and property-specific factors.
3.

Income Analysis Approach（1） Concept
The income analysis method is used to estimate, at first, the net income thatthe subject property is expected to generate over a certain period of time (after
depreciation, which is called the income net rent) by analyzing the gross income
based on general corporate management, and then the indicated rent of the realestate by adding any necessary expenses. (The rent arrived at using this method
is called income rent.)
The income analysis method is effective when it is possible to appropriately
estimate the net income attributable to the real estate for business operations.
（2） Application① Estimation of Income Net Rent
The estimation of the income net rent is the same as that of the net cash
flow (NCF) in the income capitalization approach. In this case, it isnecessary to pay close attention to the characteristics of the rent.
② Methodology for Indicating Income Rent
The income rent is calculated by adding the income net rent to theoperating expenses expected to be included for the rent in the lease.
In some cases, it is necessary to directly estimate the income rent

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equivalent to the rent including the income net rent and operating expenses
by analyzing the gross income based on general corporate management.
III. Appraisal Approaches for Estimating Renewed Rent
1.

Rents Disparity Analysis Approach（1） Concept
The rents disparity analysis approach arrives at a reasonable rent for the
subject property by adding an estimated increase to or deducting an estimateddecrease from the actual effective or nominal rent. The increased or decreased
amount is obtained by first estimating the difference between the reasonableeffective or nominal rent, based on the economic value of the subject property,
and the actual effective or nominal rent, and then estimating the portion of thedifference assignable to the lessor by a careful analysis of lease terms, contract
negotiations, and other items. Finally, the assignable amount is either added to,or deducted from, the actual effective or nominal rent.
（2） Application① The reasonable effective rent based on the economic value of the subject
property is the market rent assumed on the date of value, which isestimated by the summation and rental data comparison approaches.
Where any deposit has been paid to the lessor as a condition of the lease
contract, the reasonable nominal rent based on the economic value of thesubject property is estimated by deducting the interest earned and/or theamortization of deposits, such as kenrikin, shikikin, and hoshokin, from theeffective rent.
② The portion of the difference assignable to the lessor is appropriately
estimated after considering the value influence factors specific to therenewed rent by analyzing a wide range of factors that generated any
difference, and further analyzing lease terms, contract negotiations, andother items, then making an appropriate judgement.

2.

Yield Approach（1） Concept
The yield approach arrives at an estimate of gross rent by adding operating
expenses to the base value multiplied by the rental yield rate under a renewedlease.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION（2） Application① The methods for estimating base value and operating expenses in theyield approach are the same as in the summation approach.
② The rental yield rate under a renewed lease is based on the ratio of net
rent to the base value at the time the current rent was agreed upon. The
rental yield can be determined after considering the value influence
factors specific to the rent under a renewed lease by thoroughly
comparing 1) the anticipated yield, 2) yield rates reflected in the data,
including the yield at the time the contract was signed and each time therent was revised, 3) the growth rate in the base value, and 4) yield rates
reflected in comparable data for similar real estate in the neighborhoodor similar neighborhoods in the primary market area, or comparable rental
data for real estate in a substitutive or competitive relationship with thesubject property and located in the primary market area.
3.

Trend Approach（1） Concept
The trend approach arrives at an estimate of gross rent by adding operating
expenses on the date of value to the net rent at the time the current rent wasagreed upon, which is then multiplied by a trend factor for the growth rate in the
rent.
Where it is possible to determine a trend factor for the actual effective rent or
the actual nominal rent since the time the current rent was agreed upon, theAppraiser can arrive at the indicated rent by directly multiplying the current rentby the trend factor.
（2） Application① A trend factor represents the amount of change in rent corresponding tochanges in economic conditions between the time the current rent wasagreed upon and the date of value. The trend factor can be determined bya thorough analysis of economic indicators or real estate indexes,
including changes in land and building values, changes in commodity
prices, and changes in income level, taking into account the value
influence factors specific to the rent under a renewed lease.
② The method for estimating operating expenses is the same as in the

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summation approach.
4.

Rental Data Comparison Approach
The rental data comparison approach is applied in the same way as the rental datacomparison approach for estimating rent under a new lease. In the application of thisapproach, note that it is necessary to appropriately compare the value influence factors
specific to the rent under a renewed lease.

CHAPTER8. APPRAISAL PROCEDURE
Real estate appraisals require a planned, orderly procedure based on a realistic understanding
and reasonable judgment. This procedure typically includes 1) identification of basic appraisal
premise, 2) identification of client, parties for submission, and conflicts of interest, 3) planningof appraisal procedures, 4) confirmation of subject property, 5) collecting and organizing
documents, 6) review of documents and analysis of value influence factors, 7) application ofappraisal approaches, 8) reconciliation of indicative value or indicative rent, 9) determination ofappraisal value, and 10) preparation of appraisal report. These steps should be carried out in anorderly manner When conducting real estate appraisal.
Section 1. Identification of Basic Appraisal Premise
When conducting appraisals, the basic appraisal premise needs to be first identified. So, thepurpose and conditions of the appraisal, together with purpose of the appraisal need to beclearly confirmed with the client.
Section 2. Identification of Client, Parties for Submission, and Conflicts of Interest
The items listed below should be confirmed with the client together with confirming theitems in the previous section:I.

The client, parties for submission other than the client, and parties for disclosure otherthan the clientII.

Conflicts of interest associated with Appraisers and appraisal companies
1.

Conflicts of interest of Appraisers and appraisal companies involving the appraisalof the subject property
Any conflicts of interest must be disclosed for the subject property or any affinity
or special interest with a person who has an interest in the subject property and its
details with the Appraiser(s) involved (all Appraisers involved in the appraisal; the52Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION

same applies hereafter) and appraisal companies involved (including the appraisal
company that the Appraiser(s) belong to; the same applies hereafter) must be
disclosed).
Relationship between the client, and Appraiser(s), and the appraisal company

2.

involved
Any special financial, personal, or business relationship and its details between theclient, and Appraiser(s), and appraisal company involved must be disclosed.
Relationship between the parties for submission, etc. and the Appraiser(s) and3.

appraisal companies involved
Any special financial, personal, or business relationship between the parties for
submission of the appraisal report or parties for disclosure of the appraisal value otherthan the client (parties for submission, etc.) as well as Appraisers and appraisal
companies involved and its details must be disclosed. If the parties for submission,etc. are not determined or unknown, it would be sufficient to indicate as such.
III. Whether or Not the Appraisal Value Will Be Publicly Disclosed
Section 3. Planning of Appraisal Procedures
Appraisal procedure must be orderly planned, based on the basic appraisal premise (seeSection 1, above), that reflect the nature and volume of the work to be performed and theprocessing capacity. The appraisal procedure should include identifying the subject property,
collecting and organizing the documents, reviewing the documents and analyzing the value
influence factors, applying appraisal approaches, reconciling the indicative value or indicative
rent, and finally determining the appraised value.
Section 4. Confirmation of Subject Property
For confirmation of subject property, details of the subject property determined in accordancewith Section 1 must be clarified. Confirmation of the subject property is classified into theconfirmation of the physical state and the state of interest of the subject property, and must be
accurately conducted through site inspections, interviews, confirmation of public documents,and others.
I.

Confirmation of the Physical State of Subject Property
For confirmation of the physical state of the subject property, the existence ornonexistence of the subject property and its contents identified in accordance with Section
1 shall be verified by physically confirming the location, lot number, size, etc. of the land,
and the house number, structure, use, etc. of the building, using the identification

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documents (see Section 5 I).
In addition, when confirming physical state, it is necessary to understand whether there
is any difference between what is registered on the certificate of registered information(toukijiko shomeisho) and the actual condition of the subject property.
II.

Confirmation of the State of Interests
For confirmation of the state of interests, the existence or non-existence of the interests

subject to the appraisal determined in accordance with Section 1 shall be verified by clearly
confirming all interests pertaining to the subject property physically confirmed by above
I, using confirmation documents.
Section 5. Collecting and Organizing Documents
Since the result of an appraisal depends on the documents used, collecting and organizing
the documents must be based on an appropriate and reasonable plan so that the documents canbe used in the appraisal process. Collecting and organizing should be accurately conducted
through site inspections, interviews, confirmation of official documents, etc., and should be
both fair and valid.
Documents required for appraisals can largely be categorized as below.
Confirmation Documents

I.

Confirmation documents refer to the documents required to confirm the physical state
and the state of interests of the real estate. Examples of confirmation documents include
the certificate of registered information, drawings of the land or building, photographs,
and maps showing the location.
II.

Documents on Value Influence Factors
Documents on value influence factors refer to the documents that reflects the value

influence factors and can be classified into general documents for general factors, areaspecific documents for area-specific factors, and property-specific documents forproperty-specific factors.
General documents and area-specific documents should be routinely collected in an
organized way. Property-specific documents should be collected appropriately according
to the differences in the type of subject property and the conditions for the appraisal, suchas requirements for subject identification.
III. Comparable Documents
Comparable documents refer to documents relating to the actual transaction prices or54Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION

rents required to apply the appraisal approaches. Examples of comparable documents
include construction comparables, sales comparables, income comparables and lease
comparables.
There are also cases where previous appraisal values as well as the asking price of thesubject property can be used for reference.
Section 6. Review of Documents and Analysis of Value Influence Factors
When reviewing documents, it is necessary to consider whether or not the collected
documents are reliable as well as necessary and sufficient for performing the appraisal. To
analyze the value influence factors, it is necessary to consider whether the documents are
suitable for the type of subject property as well as the purpose and conditions of the appraisal.
When analyzing value influence factors, the highest and best use of the subject property
needs to be determined by analyzing general factors and conducting area and property analyses
based on the documents collected.
Further, for value influence factors, in cases where factors that have a significant impact on
the formation of value of subject property cannot be fully identified (even with all the caretaken as a professional), it is necessary, in principle, to use the results of surveys, etc. conductedby other professionals. However, sometimes there are restrictions due to the purpose of therequest or the client's circumstances. For instance, with the client’s consent, an appraisal may
be conducted by setting certain assumptions or limiting conditions or by setting conditions
within the scope of the investigation or by estimating the degree of influence that the factors
have on the formation of value within the scope of the Appraiser’s investigation and analysis
skills. In those particular cases, when setting certain assumptions or limiting conditions orconditions to the scope of the investigation, it is necessary to satisfy certain requirements forsetting the conditions, and when estimating, it is necessary to determine that an objective
estimation can be made.
Section 7. Application of Appraisal Approaches
Appraisal methods should be appropriately applied to the assignment subject for theappraisal. In this case, multiple appraisal approaches reflecting market characteristics of subject
property should be applied based on area and property analyses. Where the type of subject
property or circumstances involving the location or reliability of the documents make it difficult
to apply multiple appraisal approaches, every possible effort should be made to incorporate theconcepts of each approach.
Section 8. Reconciliation of Indicative Value or Indicative Rent
The reconciliation of indicative value or indicative rent refers to the work of reconsidering

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the value or rent indicated by multiple appraisal approaches, making judgements on thereliability of each indicative value or indicative rent, in turn leading to a final decision of theappraisal value.
When reconciling indicative value or indicative rent, it is important to be able to explain the value
influences on the subject property in a logical and practical way. For this reason, each step of theappraisal procedure should be reconsidered objectively and critically, and this should be done byappropriately reflecting the differences in the reliability of each indicative value or each indicative
rent based on the review. In this case, particular attention must be given to these matters.:
I.

Reconciliation of Each Indicative Value or Indicative Rent
1.

appropriateness of the documents selected, reviewed, and applied2.

appropriateness of applying every principle of value for the assignment

3.

appropriateness of the analysis of general factors as well as area and property
analyses

4.

appropriateness of judgments of adjustments and revisions made in applying eachapproach5.

consistency of judgment regarding value influence factors commonly applied ineach approach

6.
II.

appropriateness of the balance between unit value and total value.

Judgement for Reliability of Each Indicative Value or Indicative Rent
1.

consistency between the results obtained through area analysis and property
analysis, and each approach applied2.

relative reliability, based on the characteristics and/or limitations of the documents
used in applying each approach

Section 9. Determination of Appraisal Value
After thoroughly performing the procedures described in Sections 1 through 8, the appraisal
value should be determined appropriately using the highest professional ethics.
The published land price must be used as a standard when estimating the market value ofland within the publicized area defined under Paragraph 1, Article 1 of the Ordinance for
Enforcement of the Land Price Publication Act (Chikakojiho Shikokisoku) determined by the
Minister of Land, Infrastructure, Transport and Tourism.
Section 10. Preparation of Appraisal Report
The appraisal report is prepared when the appraisal value is determined.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONCHAPTER9. APPRAISAL REPORTAn appraisal report is a document containing the results of a real estate appraisal. Its purpose
is to clearly present the judgment and opinion of the Appraiser based on his or her professional
knowledge and experience as well as to clarify the scope of the Appraiser's liability.
Section 1. Guidelines for Preparing an Appraisal Report
The primary objectives of the appraisal report are to communicate the basic appraisal
premise and the appraisal value, to explain the rationale for arriving at the appraisal value, andto indicate the extent of the liability of the Appraiser involved in the appraisal. So, when
preparing an appraisal report, all documents used in the appraisal process should first beorganized, then items related to the judgment of value influence factors and the application ofappraisal approaches should be clarified and prepared based on the judgement.
The content of the appraisal report is the substance of the appraisal report presented to theclient by the Appraiser's company. The appraisal report has an effect not only on the client but
also on third parties. It also is the basis for forming a logical real estate value. For those reasons,when preparing an appraisal report care must be taken not to leave any room formisunderstanding, and an Appraiser must provide as full an explanation as possible to the client
as well as third parties, especially for the rationale used to determine the appraisal value.
Section 2. Report Contents
An appraisal report must contain, at the least, the items listed in Ⅰ through Ⅻ with full
attention for every item:
Appraisal Value and Type of Value or Rent

I.

If limited market value, market value based on special consideration or limited market
rent is estimated for real estate where the market value or market rent can be estimated,market value or market rent must be stated in parentheses with a clear statement that thisfigure is the market value or market rent. For the appraisal of a nominal rent, as defined in
CHAPTER 7, Section 2-1-1, the nominal rent and a note stating that it is nominal rent must
be reported together with the effective rent and a note in parentheses stating that it is theeffective rent, if the nominal rent differs from the effective rent.

II.

Assumptions and Limiting Conditions of Appraisal
An appraisal report should clearly state details of the requirements for the subject

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investigation regarding area-specific or property-specific factors that are in place to reflect
the purpose of the valuation, and should also clearly state the rationale for determiningthat it is appropriate to impose such assumptions for the valuation. If necessary, an
appraisal report should also provide the value of the subject property without suchassumptions as a reference.
III. Location of the subject property, lot number, type of land use, house number, structure,use, area, and interests for the subject property
IV. Matters related to Confirmation of Subject Property
The results of the comparison between the confirmation of the physical state and thestate of interests of the subject property with confirmation documents must be clearlystated.
In addition, considering the fact that doubts could arise at a later date on the current stateof the subject property, the following items must also be included:1.

date of site inspection2.

name of Appraiser who conducted the site inspection

3.

name and occupation of the guide at the site inspection

4.

inspection coverage (including whether or not an internal inspection was
conducted)

5.
V.

the reason that it was not possible to conduct a full site inspection, if relevant

Relationship between Purpose of Valuation and the Conditions and Type of Value orRent
An appraisal report must state the rationale for determining the type of value according

to the purpose and conditions of the appraisal. In particular, where the type of value
estimated is market value based on special consideration, an appraisal report must clearly
indicate the rationale for social demands by laws and regulations. Where the type of value
estimated is nonmarket value, the report must indicate the supporting facts, such as adesignation as a cultural asset.
VI. Date of Value and Date of Appraisal ReportVII. Principal Reasons for Determining Appraisal Value
An appraisal report shall state the principal reasons for determining the appraisal value
based on the items listed below.

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Area Analysis and Property Analysis
Based on the type and category of the subject property and the type of rent, anappraisal report must include discussions of the scope and state of the same supply
and demand area and subject neighborhood area; value influence factors affecting the
subject property; market trends in the same supply and demand area and the behaviorof typical market participants in the same supply and demand area ; the superiority or
inferiority of the subject property in relation to substitutive or competitive real estate;
and the relative competitiveness of the subject property.

2.

Highest and Best Use
The highest and best use of the subject property and how it was determined must
be clearly described. For the highest and best use of a building and its site, the reportmust also describe the highest and best use of the land as though vacant.

3.

Application of the Appraisal Approaches
For the appraisal approaches that were applied, the relationship to provisions ofSpecific Standards Chapters 1 through 3, use category, and state of the interests forthe subject property, and the type of rent should be described, as well as therelationship to the market characteristics of the subject property identified througharea and property analyses.

4.

Indicative Value or Indicative Rent
An appraisal report must explain the results of judgement regarding a reconciliationand the reliability of the indicative value or the indicative rent.

5.

Compliance in Relation to the Published Land Price

6.

When the parties have different views of the facts
If there are any differences in relation to the subject property that the parties havethat result in a claim, such as disputes, how these were handled must be described.

7.

Other Items
When the purpose of the appraisal is to estimate nominal rent (as discussed in
CHAPTER 7, Section 2-1-1 of General Standards), an appraisal report must describe
the relationship between that nominal rent and the effective rent. If renewal rent isestimated, the most recent agreed upon point in time must be stated.

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VIII. Handling Unknown Appraisal Items and the Scope of the Investigation
When there are items that cannot be clarified at each stage of the appraisal procedure,such as confirmation of the subject property, review of documents, and analysis of value
influence factors, due to limitations in the collection of documents for the appraisal orinadequacy of documents, the handling of these items in the appraisal must be described.
In these cases, the scope and content of the investigation conducted by the Appraiser
must be clearly stated. In cases where the results of an investigation, etc. conducted byother professionals are uses, the scope and content of the investigation conducted by those
professionals must be clearly stated.
IX. Conflict of interest associated with Appraisers and appraisal companies involved
1.

Conflict of interest associated with Appraisers and appraisal companies involved
regarding the subject property
Any conflict of interest for the Appraisers or appraisal companies involved and thesubject property or parties who have connections or interests in the subject property
and any details of these interests must be specified in the appraisal report.

2.

Relationship between the client and Appraisers or appraisal companies involved
Any special financial, personal, or business relationship between the client and theAppraisers or the appraisal companies involved and details of the relationship mustbe specified in the appraisal report.

3.

Relationship between the parties for submission/disclosure and Appraisers orappraisal companies involved
Any special financial, personal, or business relationships between the parties for
submission/disclosure and the Appraisers or appraisal companies and the details of
the relationship must be specified in the appraisal report. (If the parties for
submission/disclosure are not determined or unknown, that must also be indicated.)X.

Names of Appraiser(s) involved

XI. Names of client and parties for submission, etc.
XII. Details on whether or not the appraisal value will be publicly disclosed

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Section 3. Appendix to Appraisal Report
Maps clearly showing the location of the subject property, drawings of the land and/or
buildings, photographs and other identification documents as well as comparable data should
be attached to the appraisal report where necessary.
Documents obtained from the reports of investigations conducted by other professionals
should also be attached to the appraisal report. However, these types of documents should only
be attached to the appraisal report when the consent of the professional who complied them has
been obtained.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONSPECIFIC STANDARDS (SS)Appraisers should perform appraisals of real estate based on the specifics of each assignment
using their own specialized knowledge, professional capabilities, and in accordance with the
General Standards. To ensure appropriate appraisals of specific property types, Appraisers should
employ techniques that match the use and interest categories of real estate as well as the type ofrent (discussed below).

CHAPTER1. APPRAISAL OF REAL ESTATE VALUE
Section 1. Land
I.

Building Site
1.

Vacant Land
The appraisal value of vacant land is determined by reconciling the value indicatedby the sales comparison approach, based on comparable sales data for vacant land as
well as the building and its site (if an allocation method can be applied) and the value
indicated by the income approach applying a land residual method.
If the reproduction cost can be estimated, the appraisal value should be determinedby reconciling the values indicated by the cost approach as well. In cases where thesubject land is larger than the standard land size of the subject neighborhood area, thevalue estimated (see below) will also be taken into account when determining theappraisal value. (This method is called the development approach):（1） If it is considered reasonable to use the land as a whole, the value will be
estimated by deducting from the total sales price the amount equivalent tostandard building construction costs and ordinary incidental costs to be borne
directly by the ordering party, assuming the construction of the building
represents the highest and best use of the land as of the date of value.
（2） If it is considered reasonable to use the land by division, the value will be
estimated by deducting from the total sales price the amount equivalent to thestandard development costs of the land and ordinary incidental costs to be borne
directly by the ordering party, assuming the subdivision of the vacant land into
standard building sites as of the date of value.
Sales and income comparables used when applying an allocation method and a land
residual method should be those applied for the highest and best use of the land.

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JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONLand Portion of Building and its Site
The land portion of building and its site is closely related to buildings andimprovements, and has organic utility in conjunction with the buildings andimprovements. For this reason, an appraisal of the land portion of building and its site
is performed as a partial appraisal of the land (in addition to the right to use the land
for the building and other constructions, other rights that will limit use and income
gaining, such as easements, will be taken into account as is) if continuing use withthe current building and improvements is considered reasonable.
The appraisal value of the land portion of building and its site is determined basedon the value of the vacant land considering 1) whether or not there is any difference
between the highest and best use of the land portion of the building and its site andthe vacant land, 2) the degree of land assemblage with buildings and improvements
as well as the difficulty in converting to vacant land, taking into account the value
indicated by the sales comparison approach applying the allocation method and thevalue indicated by the income approach applying land residual method.
However, the value of the land portion of building and its site can also be
determined based on the value allocating the amount attributable to the land byanalyzing the value of building and its site ("composite property value").

3.

Leasehold Interest in Land and Leased Fee Interest in Land
Since the value of the leasehold interest in land and the value of the leased fee
interest in land are closely related, the following points should be consideredthoroughly and the two interests should be compared:①

The common practice of leasing a building site and the transaction ofleasehold interest in land and its level of maturity could differ dependingon each city; even within the same city, it could differ depending on the
area.

②

The existence of a leasehold interest in land does not necessarily meanthat the leasehold interest in the land has value. In the common practiceof leasehold interest in land, there are cities or areas where leaseholdinterest in land is independently seen as subject for transaction, while inother cities or areas, it is not independently seen as subject for transaction
but is considered together with building as subject for transaction.

③

The state of the transaction of leasehold interest in land:a. whether or not it is an area where leasehold interest in land was
originally contracted with value and was inherited

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b. whether or not it is an area where the transaction of leasehold interest inland involves parties other than the lessorc. whether or not it is an area where many leasehold interest in land are forthe purpose of owning a solid building
d. whether or not it is an area where the lessees have a strong awareness of
the right of leasehold interest in lande. whether or not it is an area where giving and receiving a lump-sum
payment is a common practicef. whether or not it is an area where either the seller or buyer of a leaseholdinterest in land usually pays a transfer fee.
④

State of leasehold interest in land:a. originally contracted or inheritedb. superficies or leaseholdc. sublease or not
d. whether the purpose is to own a solid building or a nonsolid building
e. whether it is primarily a building for residence or for commercial use
f. presence or absence of a specified lease termg. presence or absence of special provisions
h. contract is written or orali.

presence or absence of title registrationj.

fixed-term leasehold interest in land (fixed-term leasehold interest inland as specified in Section 2, Paragraph 4 of Shakuchi Shakka Ho).

（1） Leasehold Interest in Land
① Value of Leasehold Interest in Land
The value of a leasehold interest in land reflects the economic benefits(including those based on a lump-sum payment) expressed in monetary
terms that accrues to the lessee from the use and profit of the land in
conforming with Land Lease and Building Lease Law (Shakuchi Shakka
Ho; including Shakuchi Ho before abrogation).
Economic benefits attributable to the land lessee includes a wide range ofbenefits generated by the use of the land, mainly consists of below.:a.

stable benefit for the land lessee being able to exclusively use andgenerate revenue by occupying the land for a long period of timeb.

a portion of the value consisting of the difference between
appropriate rent reflecting the economic value of the building site to

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which the leasehold interest is attached and the actual nominal rent(“rent difference”) as well as the present value of the economic
benefits during the term of the difference, which is customarily the
subject for the transaction.
② Appraisal of Leasehold Interest in Land
Approaches applied for appraisal of leasehold interest in land differ
according to the existence of the transaction practice for leasehold interestin land and its maturity.
a.

Areas where transaction practice is highly matured
The appraisal value of leasehold interest in land is determined byreconciling 1) the value indicated by the sales comparison approachbased on comparable data for leasehold interest in land and thecomposite property with leasehold interest in land, 2) the value indicatedby the income approach applying land residual method, 3) the value
estimated by capitalizing the rent difference based on the agreement of
the leasehold interest in land that is subject for transaction, and 4) thevalue estimated by calculating the ratio of leasehold interest in land of
the area, if the area is matured, for the transaction of leasehold interest.
In this case, the following items should be comprehensively considered:(a) through (g) ((a) through (i) in the case of the appraisal of fixed-termleasehold interest in land):(a) possibility for future revision of the rent and the amount of therevision(b) state of the leasehold interest in land and the remaining life of thebuilding(c) background of the agreement, the lease period that has alreadyelapsed, and the remaining period of the lease(d) amount of the lump-sum payment paid/received under theagreement and related conditions in the agreement(e) amount expected in the future of the lump-sum payment andrelated conditions in the agreement(f) transaction practice of leasehold interest in land and transaction
yield of leased fee interest in the land(g) value as vacant land and value as the land portion of building andits site for the land subject for the leasehold interest(h) conditions of agreement in relation to the building at the maturity

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expected due to construction or demolition of the building during
the lease term.

b.

Areas where transaction practice is not mature
The appraisal value of leasehold interest in land is determined byreconciling 1) the value indicated by the income approach applying land
residual method, 2) the value estimated by capitalizing the rent
difference based on the agreement of the leasehold interest in land,
which is the subject for transaction, and 3) the value estimated bydeducting the value of leased fee interest from the value of the land as
the vacant or land portion of building and its site subject for theleasehold interest. In this case, the items above should becomprehensively considered: (a) through (g) ((a) through (i) in the caseof the appraisal of fixed-term leasehold interest in land).
（2） Leased Fee Interest in Land
The value of leased fee interest in land reflects the economic benefits
expressed in monetary terms that accrue to the land lessor in relation to the valueof the leasehold interest of that land. The economic benefits attributable to theland lessor refers to the economic benefits during the lease term for the actual
nominal rent after deducting related costs and the present value of the economic
value reverted at the maturity of the term.
Note that if giving/receiving a lump-sum payment is expected in the future,
the economic benefit of this lump-sum payment could also constitute an
economic benefit attributable to the land lessor.
The appraisal value of leased fee interest in land is determined by reconcilingthe value indicated by the income approach estimating the total present value ofthe net cash flow based on the actual nominal rent and the value indicated by thesales comparison approach. In this case, the items above should becomprehensively considered: (1)-②-a-(a) through (g) ((a) through (i) in the caseof appraisal of fixed-term leasehold interest in land).
For appraising leased fee interest in land where the land lessee is purchasing
the leased fee interest, note that there could be incremental economic value
attributable to the recovery of marketability by having the building site or

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building and its site to be owned by the same owner.
Sectional Superficies

4.

The appraisal value of sectional superficies reflects the economic benefits
expressed in monetary terms, typically based on the value of the land where thesectional superficies are established, determined by details of the right and benefit of
the scope of the right, reflecting the economic benefit of both the right set withsubdivided space in planar and three dimensions and the use restriction of the spacein order to maintain the utility of the space where the right is set, within the whole
economic benefit of the land with sectional superficies. The appraisal value ofsectional superficies is determined by reconciling 1) the value indicated by the sales
comparison approach based on an analysis of the contract data, 2) the value indicatedby the income approach applying land residual method, and 3) the value developed
by applying a vertical allotment ratio for sectional superficies, also with considerationof the value estimated by a sectional superficies ratio of contract comparable data ofsectional superficies.
II.

Agricultural Land
Appraisal of agricultural land may be requested for transactions where the objective is

to convert the agricultural land to another land use, for example, the acquisition of landfor public works.
In this case, the appraisal value of agricultural land is determined based on the value
indicated by the sales comparison approach, taking into account the value indicated by the
income approach as a reference. Where a reproduction cost can be estimated, the appraisal
value should be formed by reconciling the value indicated by the cost approach as well.
Note that when acquiring agricultural land for public works, there are cases where
agricultural compensation is sometimes provided separately as compensation for the losses
normally incurred in the land acquisition.
III. Forestland
Appraisal of forestland may be requested for transactions where the objective is toconvert the forestland to another land use, for example, the acquisition of land for public
works.
In this case, the appraisal value of forestland is determined based on the value indicatedby the sales comparison approach, taking into account the value indicated by the income
approach as a reference. Where the reproduction cost can be estimated, the appraisal value

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should be formed by reconciling the value indicated by the cost approach as well.
Note that when acquiring forestland for public works, there are cases where forestationcompensation is sometimes provided separately as compensation for the losses normally
incurred in the land acquisition.
IV. Land in Prospective Use to Building Site
The appraisal value of land in prospective use for a building site is determined byreconciling the value indicated by the sales comparison approach and the value estimatedusing the following steps: (a) assume vacant land after conversion and improvement, (b)deduct the amount equivalent to the typical cost for site improvement and typical expenses
to be borne directly by the ordering party from the estimated land value in (a); and (c)appropriately adjust the value derived in (b) based on the maturity of the land inprospective use to the building site. In particular, the effect over the neighborhood area ofthe factors accelerating development of city expansion should be comprehensively
considered, as well as the following:
1.

government ordinances and/or regulations that enable or hinder conversion of theland in the prospective uses for the building site

2.

current and anticipated construction of public facilities in the surrounding area3.

current and anticipated construction of residential housing, commercial facilities,
and factories in the surrounding area4.

difficulty of making site improvements and level of requirements

5.

efficient use of the building site after improvements.

When appraising land in prospective use to building site with low maturity, the appraisal
value is determined based on the value indicated by the sales comparison approach, taking
into account the value of the land category before the conversion while adding an
expectation of the conversion to a building site.
Section 2. Building and Its SiteI.

Owner-Occupied Building and Its Site
The appraisal value of an owner-occupied building and its site is determined byreconciling the values indicated by the cost, sales comparison, and income approaches.
The appraisal value of an owner-occupied building and its site, where converting theuse of the building or remodeling the building structure for another use is the highest andbest use, is determined by taking into account the increase in economic value after thechange in use as well as the cost for renovation and related expenses.
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building is the highest and best use, is determined by adjusting the value based on thehighest and best use of the site with deducting an estimate for the required expenses
including demolition, removal, and transporting debris from the salvage value of thematerials remaining after the building is demolished.
II.

Tenant-Occupied Building and Its Site
The appraisal value of a tenant-occupied building and its site is determined based on thevalue indicated by the income approach, derived by a summation of the present value ofthe net cash flow based on actual effective rent, and taking into account the values
indicated by the cost and sales comparison approaches. (In a transaction where the seller
did not pass on to the buyer a part of the lump-sum payment that the seller previously
received, the interest on and amortization of that portion of the payment are not to be
included in estimating the net cash flow.) In this case, the following items should becomprehensively considered:1.

possibility of a future revision of rent and the amount of the revision

2.

amount of lump-sum payment given/received under the agreement and related
conditions in the agreement

3.

amount expected in future for the lump-sum payment and related conditions in theagreement

4.

background to the agreement, the lease period of the building that has alreadyelapsed, the remaining period of the lease, and the remaining life of the building

5.

transaction practice of tenant-occupied building and transaction yield

6.

purpose of building lease, form of the agreement, whether or not it is registered,
whether or not it is a sublease, and whether or not it is a fixed-term building lease(as specified in Article 38 of the Land Lease and Building Lease Law or Shakuchi
Shakka Ho)

7.

value of leasehold interest in the building.

In the case of an appraisal of a tenant-occupied building and its site where a building
tenant is purchasing the tenant-occupied building and its site, note that there could be
incremental economic value attributable to the recovery of marketability by having thetenant-occupied building and its site becoming an owner-occupied building and its site.
III. Building and Its Leasehold Land
1.

Owner occupying the building
The appraisal value of a building and its leasehold land is determined byreconciling the values indicated by the cost, sales comparison, and income approaches.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATIONIn this case, items indicated above in the section for leasehold interest in land ②-a(a) through (g) ((a) through (i) in the case that the leasehold interest is fixed-termleasehold interest in land) should be comprehensively considered.
2.

Tenant occupying the building
The appraisal value of a building and leasehold land where the building is leased
is determined based on the value indicated by the income approach, derived by thesummation of the present value of net cash flow based on actual effective rent, andtaking into account the values indicated by the cost and sales comparison approaches.
(In a transaction where the seller did not pass on to the buyer a part of the lump-sum
payment that the seller previously received, the interest on and amortization of the
portion of the payments are not to be included in estimating net cash flow.)
In this case, items indicated above in the section of Leasehold Interest in Land ②-a-(a) through (g) ((a) through (i) in the case that the leasehold interest is fixed-termleasehold interest in land), and section II 1 through 7 should be comprehensively
considered.

IV. Condominium Unit and Its Site
1.

Value Influence Factors on Condominium Unit and Its Site
The following are examples of value influence factors unique to a condominium
unit and its site.
（1） Property-Specific Value Influence Factors of Building and Its site of a Whole
Building of a Condominium Unit①

Factors of Building

a. year of construction (newly built, expansion or reconstruction. or
relocation)b. building area, height, structure and materials
c. functionality of design and facilities
d. construction quality and volume
e. condition of facilities, such as entrance and conference rooms
f. number of floors
g. intended use of the building and condition of the use
h. condition of maintenance and managementi.

mix of residences and commercial shops

j.

quality of earthquake resistance, fire resistance, and related items

k. whether any harmful substances were used in the construction and their

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condition.
②

Factors of Site

a. shape of the site and extent of any open space area
b. facilities on the sitec. size of the sited. state of interest in the site.
③

Factors of Building and Its Sitea. layout of the building and additional facilities within the siteb. balance between the size of building and sitec. any long-term repair plan and its adequacy and the amount of the reserve
fund for the repair plan.
（2） Property-Specific Value Influence Factors of Exclusive Area①

floor level and location②

sunlight, view, and scenery③

interior finish and quality of maintenance and management④

size of the condominium unit and room layout⑤

use of the adjacent real estate⑥

accessibility to elevators and other common facilities⑦

state of interest and ownership ratio of the right in the site⑧

amount of unpaid management and other fees by the condominium unit
owner.

2.

Appraisal of Condominium Unit and Its Site
（1） Owner-Occupied Condominium Unit
The appraisal value of a condominium unit and its site, where the owner of thecondominium unit is using the exclusive area, is determined by reconciling thevalues indicated by the cost, sales comparison, and income approaches.
The value indicated by the cost approach is developed by first estimating thewhole building value of the subject condominium unit by the cost approach, thenapplying an allocation rate based on the utility by floor and location on the same
floor.

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The appraisal value of a condominium unit and its site where the exclusive area
is leased is determined based on the value indicated by the income approach,derived by a summation of the present value of the net cash flow based on theactual effective rent, and taking into account the values indicated by the cost andsales comparison approaches. (In a transaction where the seller did not pass on to
the buyer a part of the lump-sum payment that the seller previously received, theinterest on and amortization of the portions of the payments are not to be includedin estimating the net cash flow.)
In this case, items 1 through 7 in the previous section (Ⅱ) should becomprehensively considered.
Section 3. Building
A building and its site are closely related: the building has organic utility in conjunction with
its site. For this reason, generally the building and its site as a whole are subjects for theappraisal. However, there are cases of only appraising the building where the building and itssite as a whole has marketability or only appraising the building where the building and its site
as a whole does not have marketability.
Appraisal only of a building where the building and its site as a whole has marketability

I.

In this case, the appraisal of a building will be conducted as a partial appraisal of thebuilding as a breakdown of the overall appraisal value, under the condition that thebuilding is combined with its site.
The appraisal value of the building is this case is determined based on the value
indicated by the cost approach, taking into account the values indicated by the sales
comparison approach based on the allocation method, and the value indicated by the
income approach applying a building residual method.
However, it can also be determined based on the composite property value by allocating
the amount attributable to the building.
II.

Appraisal only of a building where the building and its site as a whole does not havemarketability
In this case, the appraisal of a building is generally the case of estimating the nonmarket

value of such buildings as cultural heritage buildings, religious buildings, and public
facilities maintaining the current status with the focus of conservation. The appraisal valueof a building in this case is determined based on the value indicated by the cost approach.

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III. Leasehold Interest in a Building
Leasehold interest in a building is a leasehold interest over a building as specified by
the Land Lease and Building Lease Law (Shakuchi Shakka Ho, including Shakka Ho
before abrogation).
The appraisal value for the leasehold interest in a building, where there is transaction
practice for the leasehold, is determined based on the value indicated by the sales
comparison approach taking into account the individual circumstances between the parties
concerned as well as the amount developed by deducting the value of a tenant-occupied
building and its site from the value of the owner-occupied building and its site, with any
necessary adjustments. If the ratio of leasehold interest in the building can be estimated,the value developed by a ratio of leasehold interest in the building should also be taken
into account. In this case, items indicated above in 1 through 6 in the section for TenantOccupied Building and Its Site should be comprehensively considered.
Further, the value of leasehold interest in a building may be realized individually in
relation with the lessor, reflecting the economic benefit practically lost by the lessee withan involuntary eviction request from the lessor. The appraisal value of leasehold interestof the building in this case is determined by reconciling the values developed by 1) an
amount equivalent to the difference between the actual nominal rent of a new contract
necessary to lease an alternative building similar to the current building and the current
actual nominal rent for a period of time, adding a lump-sum payment which has prepaid
nature as rent, and 2) deducting the value of a tenant-occupied building and its site fromthe value of an owner-occupied building and its site, with any necessary adjustments. In
this case, the individual circumstances between the parties concerned should be taken into
account, and items indicated above in 1 through 6 in section for Tenant-Occupied Building
and Its Site should be comprehensively considered.
Section 4. Appraisal Methods to Be Applied for Estimating Market Value Based on Special
Consideration
I.

Where the value of investment profitability for investors is to be estimated based on avaluation for a purpose of appraisal as specified under the Specific Standards, Chapter
3, Section 1: Appraisal of a property for securitization.
In this case, the appraisal value is determined based on the value indicated by the DCF
method of the income approach, verifying the value derived from the DCF method against
the value indicated by the direct capitalization method and reconciling this amount withvalues indicated by the sales comparison and the cost approaches.

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Where the value based on a quick sale is to be estimated based on a valuation for a
purpose as specified under the Civil Rehabilitation Law (Minji Saisei Ho).
In this case, the appraisal value is determined by reconciling the values indicated by thesales comparison and the income approaches, based upon the assumption of a quick sale,then verifying this amount against the value indicated by the cost approach. In situations
where there is little comparable data, the appraisal value can be determined by adjusting
the market value estimated by the ordinary procedure, then adjusting the value downward
to reflect the circumstances of the quick sale.
III. Where the value based on the continuation of a business is to be estimated based on avaluation for a purpose as specified under the Corporate Reorganization Law or Civil
Rehabilitation Law (Kaisha Kosei Ho or Minji Saisei Ho).
In this case, the appraisal value is generally determined based on the value indicated by
the income approach (based on the net cash flow attributable to the real estate from thewhole business operation), taking into account the value indicated by the sales comparison
approach and after verifying the value indicated by the cost approach.

CHAPTER2. RENT APPRAISAL
Section 1. Building Site
I.

Estimating Market Rent under a New Lease
1.

Value influence factors of market rent under a new lease
Specific value influence factors of market rent under a new lease are:（1） contractual practices of leases in the area（2） contractual details on which the new rent is based, such as the type andpurpose of the lease, whether or not a lump-sum payment is given/received
and the details, and whether or not any special covenants exist (and thedetails).

2.

Estimating the market rent of a building site
To appraise the market rent of a building site, an appropriate rent figure is estimatedreflecting the economic value of the building site based on its use and the conditionsof the lease contract.
The appraisal of market rent of a building site is determined by reconciling the rent
indicated by the summation approach, the rent indicated by the rental data comparison
approach, and the rent indicated by the rental data comparison approach using theallocation method. When the net cash flow can be properly estimated, the rent

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indicated by the income analysis approach should also be taken into account. In
addition, when the net cash flow, which is generated from the rental business of thebuilding and its site, can be properly estimated, the rent indicated by the rental
business analysis method (a method to determine the indicative rent of building siteby estimating the net cash flow attributable to the land based on the whole net cash
flow generated from the whole building and its site) should also be considered.
3.

Estimating special rent for the building site
The appraisal of special rent is determined by reconciling 1) the rent indicated by
the summation approach by applying the special value of the building site (combined
use with adjacent building site(s) or partial use of the whole building site) as the basevalue, and 2) the rent indicated by the rental data comparison approach by applying
rent comparables of combined use with adjacent building or partial use of the wholebuilding site. In this case, following items should be comprehensively considered:（1） state of interest of adjacent building site(s)（2） conditions of lease contract of the comparables.

II.

Estimating Renewal Rent
1.

Value influence factors for renewal rent
Specific value influence factors for renewal rent are mainly those related to thefactors that arose between the time of the most recent agreement and the date of therent. The main examples are:（1） change and revisions of rent of a) building sites in the neighborhood area orsimilar areas within same the supply-demand area, or b) alternativecompetitive properties in the same supply-demand area（2） changes in land value（3） changes in real estate taxes（4） contract conditions and their background（5） contribution of the lessor or lessee to the development of the neighborhood
area.

2.

Revising Actual Nominal Rent of an Ongoing Lease Contract of Building Site
The appraisal for the revision of actual rent based on an ongoing lease contract ofa building site is determined by reconciling the rent indicated by the rents disparity
analysis, the yield, the trend, and the rental data comparison approaches. In thisparticular case, the following items should be comprehensively considered, mainly

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during the time of the most recent agreement to the time of the date of rent:（1） change and revisions of rent for a) building site(s) in the neighborhood areaor similar areas within the same supply-demand area, or b) alternativecompetitive properties in the same supply-demand area（2） change in land value（3） change in net rent as a proportion of rent（4） (change in yield of leased fee interest in land（5） change in real estate taxes（6） degree of difference between market rent under the new lease and the current
rent at the time of the most recent agreement and at the date of rent（7） contract conditions and their background（8） the period elapsed from the lease start date, and the period elapsed between
the time of the most recent agreement and the time of the date of the rent（9） background of rent revisions in the past.
In cases where the revision of rent is triggered by the renewal of the lease upon
expiration of the contract term or the transfer of the leasehold right to a third party, if
a renewal fee or title transfer fee is paid, the amount of the fee or title transfer fee isdetermined based on a comprehensive consideration of these amounts.
3.

Revising Rent Following a Change in Contract Terms or Purpose of Use
The appraisal for the revision of rent following a change in contract terms or the
purpose of use is determined by adding an appropriate allocation of increased
economic value of the building site and the building on top of the site with changes
in contract terms or the purpose of use to the rent estimated in paragraph 2 (above).
In this case, the following items, in addition to the items in paragraph 2 (above). need
to be comprehensively considered:（1） state of the lease（2） details of changes in the contract terms or purpose of use（3） amount of fee for the consent to change the contract terms or extension orreconstruction of building, if it is paid.

Section 2. Building and Its Site
I.

Estimating Market Rent under a New Lease
1.

Value influence factors of market rent under a new lease
Specific value influence factors for market rent under a new lease for a building
and its site shall correspond to the appraisal for estimating market rent under a new

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lease for a building site.
2.

Estimating market rent of a building and its site
To appraise the market rent of a building and its site, an appropriate rent figure isestimated reflecting the economic value of the building and its site based on its use
and the conditions of the lease contract.
The appraisal of market rent of building and its site is determined by reconcilingthe rent indicated by the summation approach and the rental data comparison
approach. When the net cash flow from the property can be properly estimated, therent indicated by the income analysis approach should also be considered.
In cases where the market rent is only for a part of the building and its site, therelationship of the whole and the subject part is comprehensively considered when
determining the market rent.

II.

Estimating Renewal Rent
The appraisal for renewal rent of a building and its site shall correspond with theappraisal to estimate the renewal rent of a building site. In this case, the terms "change inland value" and "change in yield of leased fee interest on land" in Chapter 2, Section 1, II
should be replaced with "change in land and building value" and "change in yield ofbuilding and its site," respectively.

CHAPTER3. APPRAISALSECURITIZATION

OF

REAL

ESTATE

VALUE

FORSection 1. Basic Appraisal Premise for Properties for Securitization
I.

Definition of Subject Properties for Securitization
In this chapter, the phrase "subject properties for securitization" refers to properties(including those held under trust beneficiary rights) that are subject to or likely to become
subject to a real estate transaction for any the following reasons:（1） assets undergoing liquidation as defined in the Act on Securitization ofAssets, real estate transactions related to investment trusts as defined in the
Act on Investment Trust and Investment Corporation, and real estatetransactions undertaken by investment corporations as defined in the sameact.
（2） real estate transactions related to real estate specified joint enterpriseagreements as defined in the Act on Real Estate Specified Joint Enterprise.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION（3） securities defined in Article 2, Paragraph 1, Items 5, 9 (limited to thoserelated to a limited company (including a limited liability company that
continues to exist as a company limited as specified in the provisions ofArticle 2, Paragraph 1 of the Act on the Establishment of Relevant Acts inconnection with the Enforcement of the Companies Act) established for the
purpose of exclusively conducting real estate transactions), 14 and 16 of the
Act on Financial Instruments and Exchange, as well as real estatetransactions that generates income or profit mainly for the purpose offulfilling obligations of rights considered to be securities under theprovisions in Items 1, 3 and 5 of Paragraph 2 of this article.
The appraisal of subject properties for securitization must be conducted as prescribedin this chapter. In this case, a statement on securitization must be included in the appraisal
report.
Even when appraising properties other than properties for securitization, it is importantthat the Appraiser conducts the appraisal as prescribed in this chapter for appraisals of alargescale rental property held for investment purposes, and whenever it is considerednecessary to protect the other investors, purchasers, or any other interested party.
II.

Responsibility of Appraisers（1） Appraisers must always conduct appraisals in a way that gives fullconsideration to the appropriate procedures for the appraisal of subject
properties for securitization, while recognizing that they (the Appraisers)
have a significant influence on the decision making, not only on the people
requesting the appraisal of subject properties for securitization (referred tohere as “clients") but also of a wide range of investors and others, keeping
in mind that Appraisers bear the important responsibility of upholding the
public reputation of the real estate appraisal profession.
（2） When appraising a property for securitization, the Appraiser should look toenable the securitization of the subject property by providing clients with
explanations of the data, procedures, and other matters related to theappraisal, in this way improving the understanding of the clients andobtaining their cooperation. The Appraiser must also take care in the waythat information is presented in the appraisal report in order to make thecontent of the appraisal report on the subject property for securitizationeasier for the clients, people with conflicts of interest in the subject property,
and others to understand and use for comparisons. The Appraiser must be

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fully accountable, ensuring that the data and other informational materials
used in the appraisal are available for disclosure.
（3） Whenever several Appraisers are working together on the appraisal of aproperty for securitization, the roles of each Appraiser must be clearly
defined, and all of the Appraisers must work as a team to complete theappraisal assignment, sharing information on the overall appraisal while
maintaining close and thorough teamwork.
Section 2. Requirements on the Appraisal of a Building and its Site Yet to Be Completed for
Securitization
In addition to the requirements set out in the postscript of General Comments Chapter 5,
Section 1, I 2, the appraisal of a building and its site yet to be completed for securitization
should be conducted only when there is full disclosure of any damage that could occur ifconstruction was suspended, the construction period was postponed, or the content ofconstruction is changed by the covenants in the purchase agreement or various types of
insurance for the subject property.
Section 3. Planning of Appraisal Procedures
I.

Items to be confirmed during planning of appraisal procedures
When planning an appraisal procedure, the Appraiser should confirm with the client inadvance any items related to the appraisal of a property for securitization in order todevelop an appropriate and reasonable work plan that allows for the competent and reliable
implementation of the appraisal. The confirmed information should be reflected in theappraisal procedures and the procedures should be changed whenever any change occurs
in the specified information. Items that should be confirmed include:（1） purpose of the appraisal and background on why the appraisal was requested（2） classification of the subject property under (1), (2), or (3) of Section 1, I
(above)（3） the major subjects covered in the engineering report (an investigative reporton the condition of the subject property for securitization, conducted by anexpert having specialized knowledge of buildings, mechanical and electrical(M&E) systems, environmental issues, etc.) The same applies in Section 3
below, as well as data needed to apply the DCF method, other related
documents, and when these documents will be available.
（4） whether there are explanatory comments from the preparer of theengineering report

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II.

Records of items to be confirmed
After confirming the items listed above in (1) through (6) of Section 3, Ⅰ (1), records

must be prepared for each of these items, and these records must be attached to theappraisal report as appendices. Included among these records are:（1） date confirmed（2） name of the Appraiser who made the confirmation（3） name and occupation of the person who provided the confirmation（4） content of the confirmation, and the status of reflection on the content in theappraisal procedure（5） details of any changes in the appraisal procedures or changes in the content
of the report that were made as a result of any change in the content of theconfirmation.
III. Purpose of the appraisal, and the relationship between the client and the parties
involved in the property securitization
In many cases, a wide range of parties are involved and hold intricate conflicts ofinterests in the subject property for securitization. The appraisal report must state thepurpose of the appraisal of the property for securitization, the background on reasons why
the appraisal was requested as well as the following items concerning the conflicts ofinterests of the client with regard to the property for securitization:（1） Whether the client holds conflicts of interest in the securitization of theproperty. All parties should be identified, such as an originator, arranger,
asset manager, lender, equity investor, special purpose company (SPC),
corporate investor, or funding agency (referred to here as "parties involvedin the securitization").
（2） Whether the client has capital ties or business connections to any of theparties involved in the securitization and if so, the details of thoserelationships.
（3） The details of any other special interests between the client and any of theparties involved in the securitization.

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Section 4. Investigation of Property-Specific Factors on the Subject Property for
Securitization
Investigation of property-specific factors on the subject property

I.

During the investigation of property-specific factors on a property for securitization andto ensure and to detail the physical and legal confirmation of the property, it is necessary
to confirm the data needed for the appraisal. The required data includes the identificationof associated rights and interests, any restrictions under public statutes, the presence of
toxic substances such as asbestos, determination of earthquake resistance, and the historyof remodeling, expansion, etc. of the subject property. This data is gathered throughinterviews with the manager of the property as well as onsite inspections and interior
inspections of the property in the presence of the client (including anyone designated by
the client).
II.

Property inspection
The Appraiser must include the following items related to the site inspection in theappraisal report:（1） date of the site inspection（2） name of the Appraiser who performed the site inspection（3） names and occupations of the guide for the site inspection and the managerof the subject property（4） scope of the site inspection (including whether or not the interior inspection
was conducted) and the items verified during the site inspection（5） if it was not possible to perform any part of the site inspection, the reasonsmust be stated.
III. Handling an engineering report and property investigation by the Appraiser（1） For an appraisal of a property for securitization, the Appraiser must ask theclient to submit an engineering report required for the appraisal. After
analyzing and evaluating the report’s content, the Appraiser must incorporate
its conclusions into the appraisal. However, if no engineering report is
submitted, or if its content is considered inadequate for use in the appraisal,
the Appraiser must then take action. This action should include conducting
an independent investigation to substitute for the engineering report, in thatway fulfilling the requirements of the assignment. As well, the appraisal
report must describe the results of that investigation as well as the reasons
why the original engineering report was considered to be inadequate.

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Version 1.0 -JAPAN REAL ESTATE APPRAISAL STANDARDS ENGLISH TRANSLATION（2） For example, the engineering report could be lacking some points or beinadequate for use in reappraising a property for securitization that had
already been appraised or the subject property for securitization may bevacant land (or land where the buildings are to be demolished).
（3） The appraisal report must include a statement of the decision made onwhether or not to use the content of the engineering report in the appraisal,along with the reasons for that decision. For all the items listed in thefollowing table, the specified information must be included in the appraisal
report. Appendix 1 provides a sample format for an appraisal report. The
same applies in the case of the second statement at Ⅲ (1) above (beginningwith "However").
Item

Content

Basic information about the・Name, etc., of the preparer of the engineering reportengineering report

・Date of the investigation undertaken for the engineering
report and the date when the engineering report was prepared

How the engineering report

・From whom the Appraiser obtained the engineering report

was obtained and handled in(name, occupation, etc.)

the appraisal

・Date obtained
・Whether explanatory comments were obtained from the
preparer of the engineering report
・How the engineering report was handled in the appraisal

Method of investigation ofStatement concerning whether the engineering report wasproperty-specific factors,

used for the investigation of property-specific factors or

which is required for thewhether the Appraiser investigated these influences. (Theappraisal

investigation might also have been done by another expert, at
the request of the Appraiser). Property-specific factors to beinvestigated include:
・Regulations and restrictions under public and private
statutes (including the state of compliance with the law)
・Renovation plan
・Reproduction costs
・Building environment related to toxic substances, including
asbestos
・Soil pollution
・Earthquake risk

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・Earthquake resistance・Underground structures or objects
Appraiser's conclusions

Decisions on whether or not to use the content of theabout the method ofengineering report or an investigation by the Appraiser ofinvestigation of property-

property-specific factors, along with the reasons for thatspecific factors, which aredecision, etc.

required for the appraisal（4） Because the engineering report might need to be revised or supplemented
owing to changes in the market environment for real estate securitization,
the Appraiser must maintain close contact with the preparer of theengineering report and must also make every effort to improve his or her
knowledge and understanding of engineering reports.
Section 5. Application of the DCF method
When appraising the value of a property for securitization using the income approach, theDCF method must be applied. In this case, it is necessary to apply the direct capitalization
method for verification.
I.

Clarifying the procedure for applying the DCF method（1） The appraisal report must include statements regarding the suitability of thedata used to determine the property's value by the income approach. Alongwith the reasons for the conclusion, these statements must indicate:①

whether or not the data obtained from the client on the subject property,
such as the income and expense amounts, has been used without any
modification②

whether or not the data obtained from the client on the subject property,
such as the income and expense amounts, has been used without any
modification③

whether or not the data collected by the Appraiser on the subject property,
such as the income and expense amounts, has been used.

（2） When the DCF method is used to determine the value by the income
approach, in addition to explaining the selection of the terminal
capitalization rate, discount rate, forecasts of future income and expenses,
and other individual items that have been assessed, the appraisal report must

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lay out the procedure showing how that data was used to determine the value
by the income approach and the reasons for using that procedure. The
appraisal report must clearly indicate such factors as the possibility ofchange in the economic situation, the specific comparables that were
examined, and it must have a logical consistency. When multiple Appraiserswork jointly to appraise multiple properties for securitization, they mustensure a logical consistency among all of the reporting on the subject
properties for the selection of terminal capitalization rates, discount rates,
forecasts of future income and expenses, and other data used when applying
the DCF method.
（3） The appraisal report must contain a clear statement of the relationshipbetween the value indicated by the income approach, using the DCF method(including verification by direct capitalization), and the indicated value
using the cost approach as well as the sales comparison approach. The
appraisal report must also state the reasons for arriving at the appraisal value.
（4） The Appraiser must strive for full accountability, working to improve his or
her own knowledge and understanding in order to become proficient in theapplication of the DCF method.
II.

Uniformity in income and expense items in the DCF method（1） When applying the DCF method to determine the value by the income
approach, the income and expense amounts for a property for securitization(referred to here as "income and expense items") must be described in theappraisal report for each of several continuous time periods. These time
periods should be classified according to the items shown in the following
table. Each of the income and expense items should be accompanied by abreakdown of how the figures were calculated. When describing this data in
the appraisal report, each item in the "Item" column in the following table

Item

Definition

Room rental income

When all or a portion of the subject property is rented or operated

incomes

Effective grossshould be defined as specified in the table.

by a contractor, the recurring income (assuming full occupancy)

Income from common

Income collected under contracts with tenants for that portion ofarea management

the recurring expenses for the maintenance, management, andcharges

operation of the subject property (including expenses for

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electricity, water, gas, regional heating and air conditioning, etc.)that apply to the common areas management (CAM)
Utility fee income

Income collected under contracts with tenants for the portion of
the recurring expenses for electricity, water, gas, regional heating
and air conditioning, etc., in the operation of the subject property
that apply to leased areas (assuming full occupancy)

Parking fee income

Income from leasing the subject property's parking spaces totenants or from renting parking spaces by the hour

Other income

Other income from facility installation fees for signs, antennas,
vending machines, etc., and income from lump-sum paymentsthat are not refundable, such as key money and renewal fees

Vacancy loss

Decrease in each income item based on predicted vacancies, forallowance

the time it will take to replace tenants, etc.

Collection loss

Decrease in each income item based on predicted debt collection

allowance

losses

Maintenance andRecurring expenses for the maintenance and management of the

management expenses

subject property, including building as well as mechanical andelectrical (M&E) system management, security, and cleaning

Utility expenses

Expenses for electricity, water, gas, regional heating and air
conditioning, etc. incurred during the operation of the subject
property

Repair expenses

That portion of the expenditures for building and M&E system
repair, renovation, etc., of the subject property that are recurring
expenses for ordinary building and M&E system maintenanceand management, etc. or are incurred to restore the building andM&E systems to their original condition

Property management

Expenses for management services for the subject property

fees
Tenant recruitment

Expenses for rental agency services, advertising, etc. to recruit

expenses, etc.

new tenants as well as expenses for lease renewals or repeat

Operating expenses

leasing contracts with existing tenants
Tax and public dues

Property taxes (on land, buildings, and depreciable assets) andcity planning taxes (on land and buildings)

Casualty insurance

Premiums for fire insurance on the subject property andpremiums

accessory equipment as well as liability insurance for losses by
third parties, etc. due to subject property defects or management

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failures, etc.
Other expenses

Other expenses for ground rent, road occupancy and utilization,etc.

Net operating income

Effective gross income minus operating expenses

Operating profit on lump-

Operating profit on security deposits and other lump-sum

sum payments

payments, which are refundable deposits

Capital expenditures

Portion of expenditures for building and M&E system repair,renovation, etc., which is recognized as increasing the value ofthe building, M&E system, etc., or strengthening its durability

Net cash flow

Net operating income plus operating profit on lump-sum
payments minus capital expenditures.

（2） When using the DCF method to determine the value by the income approach,
it is necessary to identify and explain the income and expense items and theirdefinitions to the client before obtaining the requisite data and to confirm
that each income and expense item corresponds to the specified definition.
（3） Appendix 2 is a sample format for an appraisal report when the DCF method
is applied. This format can be revised as necessary to conform with thespecific appraisal situation based on factors such as the purpose and thecategory of the subject property for securitization.

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Supplementary Provisions
Supplementary Provisions (completely revised on 3 July 2002)
The real estate appraisal standards will be enforced from 1 January 2003.
Supplementary Provisions (partially revised on 2 April 2007)
1. These standards will be enforced from 1 July 2007.
2. Assistant real estate Appraisers are considered to be real estate Appraisers with respect tothe application of the revised standards.
3. Approximately once a year, the Ministry of Land, Infrastructure, Transport and Tourism
will take all necessary measures, such as any more revision of the standards, when it isrecognized that further consideration is necessary of the status of the appraisal businesses
based on the revised real estate appraisal standards as stated in this notification.
Supplementary Provisions (partially revised on 28 August 2009)This revision will come into effect on 1 January 2010 and the revised real estate appraisal
standards will apply to appraisals that conclude contracts on or after this same date.
Supplementary Provisions (partially revised on 1 May 2014)
This revision will come into effect on 1 November 2014 and the revised real estate appraisal
standards will apply from the date of appraisal when the contract is concluded.

Appendix 1
Appraiser

D

C

B

A

Preparer

Basic information about the engineering report and its acquisition

Basic information about theengineering report and its
acquisition

Item

Earthquake resistance determination by architects, etc.

Environmental assessment, etc.

Soil survey (Phase 2)

Asbestos (Phase 2)

Detailed analysis

Simple analysis

Soil survey (Phase 1)

Other

PCBs

Asbestos (Phase 1)

Replacement cost

Long-term repair/renewal expenses

Short-term repair/renewal expenses

Emergency repair/renewal expenses

Renovation/renewal history and plans

Regulations and restrictions under public and private
statutes (state of compliance with the law)

Structural overview

M&E system overview

Building overview

Location overview

How the submitted engineering report was handled in the appraisal; whether an additional investigation by
the Appraiser was needed; results of the investigation by the Appraiser, etc.

Results of the investigation and Explanatory
preparer comments (Enter A, B, comments fromC, or D in the "Preparer" column) the preparer

1. Building condition survey

2. Building environment
survey3. Soil pollution risk
assessment
4. Earthquake risk
assessment

Buried structures or objects
Building environment survey

Soil pollution risk
assessment
Earthquake resistance survey

Affiliation

ClientWas the engineering report used or did the Appraiser(s) conduct aninvestigation?

Date

Date investigated

Date prepared

Name of property

Obtained from

Location of property

Items used in appraisal and reasons for so including themNote: "Phase 1" indicates investigating the possible presence of toxic substances or pollutants by performing field surveys, collecting and analyzing data, and conducting interviews. "Phase 2" indicates confirming the presence or absence of toxic substances or pollutants by taking samples and conducting chemical analyses.
"Simple analysis" indicates analysis using statistical methods. "Detailed analysis" indicates the use of analytical techniques.

Date obtainedBuildingLand

Income from common area charges

Room rental income

Total vacancy loss allowance

Vacancy loss allowance for (e) and (f)Vacancy loss allowance for (c) and (d)(c)＋(d)＋(e)＋(f)Other income

Parking fee income

Utility fee income

Rental income, including income from common area charges [(a)+(b)]

(a)

(t)

(s)

(r)

(q)

(p)

(o)

(n)

(m)

(l)

(k)

(j)

(i)

Value indicated by the income
approach ((t)+(x))*

Present value
Total for (s) column

Compound present value rate

Balance of lump-sum payments (refundable deposits)

Operating efficiency ratio (OER)(Reference)

Capital expenditures
Net cash flow[④＋(q)－(r)]Operating profit on lump-sum payments

Net operating income [②－③]Other expenses
Operating expenses[(i) ＋(j)＋(k)＋(1)＋(m)＋(n)＋(o)＋(p)]Casualty insurance premiums

Depreciable assets

Land
Tax and public dues Buildings

Tenant recruitment expenses, etc.

Property management fees

Repair expenses

Utility expenses

Maintenance and management expenses(h)Collection loss allowance
Effective gross income [①－(g)－(h)]

(g)

(f)

(e)

(d)

(c)

(b)

Location

Identification of the subject property
Location and parcel number

Appendix 2

①

②

③
④

⑤

Effective gross income
Operating expenses

Land category
Structure

Lot area

2

House number

1

PurposeFloor area

Date completedn(u) Sale value ⑤ for n＋1 years / z(v) Sale expenses(w) Reversionary value (u)－(v)(x) Current reversionary value(y) Discount rate(z) Terminal capitalization rate

Year after
expiration ofthepreservation
period (n＋1)%%

Anticipated change

Grounds for assessment

Assessment method
If data obtained from the client or other informational
materials were used, were any modifications made or did
the Appraiser(s) use data obtained by itself? State thereasons for those decisions.

Reasons for conclusion

Additional comments

Additional commentsReference Materials
1.

“Japan Real Estate Appraisal in a Global Context” (September 9, 2008; revised 1st edition)（”Real Estate Appraisal Standards in English”（July 31, 2003; 1st edition）©2008 JAPAN REAL ESTATE INSTITUTEPart 1:

Evolution and Characteristics of Japan Real Estate Appraisal

Part 2:

Real Estate Appraisal Act

Part 3:

Real Estate Appraisal Standards (Partially revised on April 2, 2007)
General Standards (GS)Specific Standards (SS)Part 4:

Guidance Notes on the Real Estate Appraisal Standards (GN) (Partially revised on
April 2, 2007)

Part 5:

Guidelines for the Appraisal Overseas Investment Properties (GL) (Notified andenforced on January 25, 2008)（Japan Real Estate Institute, the owner of this book, has granted a license to the Japan
Association of Real Estate Appraisers, which has been used in this English translation.）2.

“Practical Guidance of Investment (Securitized) Real Estate Appraisal” (July 6, 2011; 1stedition)©2011 Japan Association of Real Estate Appraisers

I.

Overview of Real Estate Appraisals in Japan

II.

Specific Standards Chapter 3 of Real Estate Appraisal Standards

III. Basic Policy on Revaluation of Securitized Real Estate
IV. Guidelines Regarding Appraisal of Securitized Properties
V.

Reference Materials
1.

Act on Real Estate Appraisal(Final revision: March 31, 2006 Law No. 10)

2.

Land Price Publication Act(Final revision: June 2, 2004 Law No. 66)

3.

Real Estate Appraisal Standards and Guidance Notes on the Real Estate Appraisal
Standards(Final revision: March 31, 2010, Ministry of Land, Infrastructure, Transport andTourism)4.

General Guideline for Real Estate Appraisers on Determination of Purpose andScope of Valuation and Contents of Report(August 28, 2009, Ministry of Land, Infrastructure, Transport and Tourism)

5.

Guidance Notes on the General Guideline for Real Estate Appraisers on
Determination of Purpose and Scope of Valuation and Contents of Report(August 28, 2009, Ministry of Land, Infrastructure, Transport and Tourism)

6.

Guidelines for Appraisal of Overseas Investment Real Estate

7.

Guidelines Regarding Valuation Practice for Appraisal Firms(September 2009, Japan Association of Real Estate Appraisers)

8.

Japanese-English Glossary

9.

Related taxation issues etc.

参考資料
1.

「不動産鑑定評価の国際化」（2008 年 9 月 9 日改題版第一版）（「英語で読む不動産鑑定評価基準」（2003 年 7 月 31 日初版））©2008 一般財団法人 日本不動産研究所
第 1 編：日本の不動産鑑定評価の展開と特質
第 2 編：不動産の鑑定評価に関する法律第 3 編：不動産鑑定評価基準（平成 19 年 4 月 2 日一部改正）
総論
各論
第 4 編：不動産鑑定評価基準運用上の留意事項（平成 19 年 4 月 2 日一部改正）
第 5 編：海外投資不動産鑑定評価ガイドライン（平成 20 年 1 月 25 日通知）
（なお、本書籍は、著作物保有者である一般社団法人日本不動産研究所より公益社団法人不動産鑑定士協会連合会宛に「使用許諾」を得ており、今般の英訳においても活用させて頂いた。
）

2.

「英語で読む証券化対象不動産の鑑定評価の実務」（2011 年 7 月 6 日初版）
©2011 公益社団法人 日本不動産鑑定士協会連合会
I.

日本の不動産鑑定評価制度の概要

II. 不動産鑑定評価基準（各論第 3 章）
III. 証券化対象不動産の継続評価の実施に関する基本的考え方
IV. 証券化対象不動産の鑑定評価に関する実務指針
V.

参考資料

1.

不動産の鑑定評価に関する法律（最終改正：平成 18 年 3 月 31 日法律第 10 号）

2.

地価公示法
（最終改正：平成 16 年 6 月 2 日法律第 66 号）

3.

不動産鑑定評価基準及び不動産鑑定評価基準運用上の留意事項（最終改正：平成 22 年 3 月 31 日 国土交通省）

4.

不動産鑑定士が不動産に関する価格等調査を行う場合の業務の目的と範囲等の確定及び成果報告書の記載事項に関するガイドライン（平成 21 年 8 月 28 日 国土交通省）

5.

不動産鑑定士が不動産に関する価格等調査を行う場合の業務の目的と範囲等の確定及び成果報告書の記載事項に関するガイドライン運用上の留意事項（平成 21 年 8 月 28 日 国土交通省）

6.

海外投資不動産鑑定評価ガイドライン

7.

不動産鑑定業者の業務実施態勢に関する業務指針（平成 21 年 9 月 社団法人日本不動産鑑定協会）

8.

日英用語対照表9.

関連税制等

令和 3 年・令和 4 年度 国際委員会
国際評価実務小委員会委員名簿
（敬称略）
役

職

氏

名

勤 務 先 名

小委員長

水

谷 賀 子

シービーアールイー（株）

委

田

仲 博 樹

田仲不動産鑑定事務所

市

川

サヴィルズ・ジャパン（株）

小

川 真 市

（株）谷澤総合鑑定所

古

山 英 治

一般財団法人日本不動産研究所

長

與 剛 慶

大和不動産鑑定（株）

上

村 比佐代

ArchiTech（株）

藤

野 裕 三

（株）谷澤総合鑑定所

員

専門委員

国際委員長

丈

令和 5 年・令和 6 年度 国際委員会
国際評価実務小委員会委員名簿
（敬称略）
役

職

氏

名

勤 務 先 名

小委員長

水

谷 賀 子

シービーアールイー（株）

委

員

石

塚

石塚不動産鑑定

国際委員長

佐

藤 史 郎

充

大和不動産鑑定（株）

研究報告

不動産鑑定評価基準

英訳令和 5 年 9 月 12 日 制定
編集・発行

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