Case Study: When 22% of a Building Is Outside the Property Line — How One Boundary Issue Reduced a Property's Value by Almost 45%
Case Study: When 22% of a Building Is Outside the Property Line — How One Boundary Issue Reduced a Property's Value by Almost 45%
Imagine owning a beautiful home that appears to be worth over ₱16 million, only to discover during a professional appraisal that a significant portion of the structure was built outside the property's legal boundaries.
This is a real-life appraisal scenario that highlights why due diligence is essential before buying, selling, financing, or investing in real estate.
The Property
The subject property is located in Iligan City and consists of a residential lot with a completed residential improvement. At first glance, the property appeared to be well-maintained and suitable for residential use.
However, a detailed appraisal inspection revealed a major issue that significantly affected its market value.
The Discovery
During the site inspection and review of available documents, it was observed that part of the completed building extended beyond the boundaries of the titled property.
Based on the available site references, approximately 22% of the building, covering an estimated 84.274 square meters, appeared to occupy an adjoining property.
Because the exact extent of the encroachment had not yet been confirmed by a licensed Geodetic Engineer, the appraisal was completed subject to an extraordinary assumption pending a formal relocation survey.
Why This Matters
Many property owners assume that if a building has existed for years, everything is legally in order.
Unfortunately, that is not always the case.
A structural encroachment can create several serious issues:
- Difficulty selling the property
- Reduced buyer confidence
- Limited financing opportunities
- Potential legal disputes with neighboring owners
- Increased transaction risk
- Lower marketability
- Significant reduction in market value
Even if the house itself is in excellent condition, unresolved legal and boundary issues can substantially affect what buyers are willing to pay.
Two Valuation Scenarios
To provide a fair and objective opinion, the appraisal considered two separate valuation scenarios.
Scenario 1: Hypothetical Clean Value
This assumes that:
- the building is entirely within the legal property boundaries,
- no encroachment exists, and
- the property can be freely bought and sold without legal concerns.
Estimated Value:
₱16,270,455.38
Scenario 2: As-Is Encumbered Value
This reflects the property's actual condition, considering:
- the apparent structural encroachment,
- unresolved boundary verification,
- reduced marketability,
- increased legal risk, and
- buyer perception.
₱8,948,750.45
The Financial Impact
The difference between the two values is striking.
Hypothetical Clean Value: ₱16.27 Million
As-Is Encumbered Value: ₱8.95 Million
Difference: ₱7.32 Million
In other words, an unresolved boundary issue reduced the property's estimated market value by approximately 45%.
This illustrates that real estate value is determined not only by the land and improvements, but also by legal certainty, marketability, and risk.
What Should Property Owners Do?
If there is any doubt about your property's boundaries, do not wait until you are ready to sell.
A licensed Real Estate Appraiser will often recommend:
- Conducting a relocation survey through a licensed Geodetic Engineer.
- Verifying the property's actual boundaries against the Transfer Certificate of Title.
- Identifying whether any structures extend beyond the legal property lines.
- Consulting legal professionals if encroachment is confirmed.
- Exploring possible solutions such as boundary adjustments, easements, purchase of the affected portion, or other lawful agreements with the adjoining property owner.
Addressing these issues early can protect your property's value and make future transactions much smoother.
Key Takeaway
A property's market value depends on more than its size, location, or appearance.
Legal compliance, verified boundaries, and marketability play an equally important role in determining value.
This case demonstrates why professional real estate appraisal is more than simply estimating a selling price—it is a comprehensive analysis of the property's physical, legal, and economic characteristics. Identifying risks before a transaction helps property owners make informed decisions, protects buyers from unforeseen liabilities, and supports a more transparent real estate market.
Disclaimer: This case study is based on an actual appraisal scenario, that I encountered. Specific client information and identifying details have been omitted or anonymized to preserve confidentiality. The discussion is intended solely for educational purposes and should not be interpreted as legal advice or as an opinion regarding any specific property.