Definition:

1. Valuation: valuation is determination of the monetary value,

at some specified date, of the property rights encompassed in
an ownership.

a. Monetary value would refer to market in which goods

and services are available through a certain mechanism.
The concept of monetary value must necessarily exist in a
market where there are buyers and sellers are a supply and
demand of these services. In short valuation has its base in
economics.

b. Property rights would normally mean the exclusive right

to possess, enjoy, dispose etc., however, valuation may
also pertain to property rights which are not exclusive
rights of one individual but can be common with others or
in divided property interest or in co-ownership.

(OR)
Valuation is a process for accessing the value of property
keeping in view the economics of the investment and for the
purpose it is needed.

(OR)
Valuation is a process which brings together the legal
concept of property, the economic concept of property of
monetary value, the process of mathematics and engineering
resulting in a numerical figure indicating the value of the
property.

2. Cost: It is the expenditure to produce a commodity or service

having value. In our construction industry cost means the
original cost of the construction including the cost of the
materials and labor. Hence it is a Fact.

1
3. Price: It is the cost of the commodity plus additional
reward to the producer for his labor and capital (In our
construction industry the original cost of construction with
certain percentage of profit). The profit or additional reward,
may be varied from builder to builder, and business to
business because of the price is a Policy

(OR)
The simple definition by Hadley is “ A price is a policy and a
value is an estimate of what the price ought to be”
(OR)
Price is the monetary value placed upon goods or services
offered in the market. However, price may not be the same as
value and in fact there may be no relation between the two. The
financial capabilities, motivations or special interests of a given
buyer and seller, the price paid for goods or services may or
may not have any relation to the value which might be ascribed
to the goods or services by others.
Price is however, generally an indication of a relative value
placed upon the goods or services by the particular buyer and/or
seller under particular circumstances.

4. Value: Value is an opinion or an estimate which will be

determined by many factors like the purpose, supply,
demand, depreciation, and obsolescence etc., Value is a
function of place, date and purpose.
Value is not a fact but an estimate of the worth of goods and
services at a given time in accordance with a particular
definition of value.

5. Lesser and lessee: The owner who gives his land/building on

lease is known as lesser and the other person who takes the
land/building on lease is called lessee.

2
6. Rent: it is a periodical payment made by tenant for use and
possession of the property.
7. Ground rent: the rent fixed by the owner for a piece of bare
land leased out to a person as a periodical payment for use of
that land is called ground rent. If the buildings have been
erected on the same land and lease was granted, the ground
rent is called a secured ground rent but until buildings are
erected it is called an unsecured ground rent.
8. Outgoings: The expenditure incurred for maintenance of a
property, payment of taxes and insurance etc. are called
outgoings.
9. Gross rent & Net rent: the rent obtained without deduction
of the outgoings is called gross rent and that works out after
deducting all out goings is called net rent.
10. Head rent: when a building is given on rental lease and
is further subleased, the rent reserved under the head lease
and payable to the first lessor is called head rent.
11. Improved rent: when a property given on lease is
further subleased for a short term than catere for under the
head lease by a few at a rent higher than that reserved in the
first lease is called improved rent.
12. profit rent: the difference between the improved rent
and head rent is called profit rent.
13. contractual rent: the rent of a property fixed between
the owner and the and the tenant at the time of occupation is
called contractual rent.
14. sitting rent: The rent reserved under a lease plus
annual equivalents of any capital sum the lessee has
expended on the property from time to time will be called
sitting rent which is also sometimes called as virtual rent.
15. Outgoings: The expenditure incurred for maintenance
of a property, payment of taxes and insurance etc., are called
outgoings.
16. Inclusive rent: The reserved under a lease including all
outgoings is called inclusive rent.

3
17. Rent revision clause: A clause included in the lease
agreement providing for periodical revision of the rent is
called rent revision clause
18. Full repairing lease: when a property is given on rent
with the terms that the tenant is liable for all repairs is called
full repairing lease.
19. Sinking fund: The allocation of a portion of a
terminable income for reinstatement of capital is called
sinking fund.
20. Premium: The amount paid by lessee to a lesser for
grant or renewal of lease on favorable terms or for some
other benefits is known as premium
21. Net income: The income derived from a property after
payment of all outgoings is called net income.
22. Yield: The income derived from investment of a capital
in the form of percentage is called yield.
23. Security: The security of the rent which is property
produces is reflected in the years purchase. For valuation
purpose, therefore, security and years purchase are the same.
The security in the form of percentage yield of capital is
found by (capital/rent) x100.
24. Vacancies: in case of commercial flats occupied by
various tenants the chances of remaining of some of the flats
vacant for certain period are to be considered for valuation
purpose and these will be known as vacancies.
25. Building land: The land used for constructing the
building is called as building land. In the urban area the
building land demarcation and the limit is laid down by the
authorities controlling the area.
26. Accommodation land: The land used for the purpose
of play ground, garden etc., is known as accommodation
land. It has more value than the agriculture land but less than
the value of building land.

4
27. Agriculture land: Agriculture land means any land
used for kharif, Rabi, paddy crops etc. and also that used for
growing vegetables is called agriculture land.
28. Belting of land: The method of dividing the land in
different portions to workout the value of relevant portion is
called belting of land.
29. Vistas: The property situated in such a location that has
an uninterrupted view, will fetch more value and this factor
adding to the value of the property is called vistas.
30. Good will value: This value represents the amount by
which the value of a business enterprise, in its present form,
exceeds the value of physical or other assets determined at
market price (or of the specific components of the property).
It might include reserves in extractive industries, good will in
licensed hotels, cinemas.
31. Liquidation value: It may be defined as a value or an
amount that can be realized if the assets of a concern are sold
under forced circumstances. It is also the amount that may be
realized by the sale of an enterprise on dissolution.
32. Salvage value: this is the amount that is likely to be
realized on sale of a property or a portion of the property
which has been separated from the property because that
component is no longer useful. The term salvage value
normally applies to machinery part.
33. Scrap value: This is the amount that is likely to be
obtained for a portion of component of a material item when
sold at the end period of its useful life. It is a kind of salvage
value. For example: if a building is demolished then certain
old material that may be sold will bring in money in the form
of scrap value.
34. Book value: it is an accounting term, not a valuation
term. Assets in balance sheet are usually shown as original
costless depreciation. This figure is referred is referred to as
book value.

5
35. Deprival Value: it is the value which a person or
organization owning an asset may suffer on loss of that
particular asset. It would be the cost of replacing this with
one similar in all respects. Deprival value may include the
basic or fundamental value of the fixed asset plus any loss to
the business on account of the said not being used for the
purpose for which it was intended to be used.
36. Sentimental value: very often owner may have a
certain attachment to a particular property and he will not sell
it even at a very sensational price. This price can be termed
sentimental value.
37. Monopoly value: a particular property has a certain
peculiar advantage such as location, frontage, etc., and the
owner may ask a fancy price. This can be termed as
monopoly value as it does not represent the market value but
a special price which the owner wants or expects.
38. Potential value: this term indicates the value derivable
from a property when it is put to different possible uses after
being developed to its maximum capacity and efficiency.
39. Forced sale value or distress sale value: some times a
property may develop distress value or a forced sale value
due to factors like war, riots, or other conditions which not
consistent with the concept of market value. These
expressions represent values under peculiar selling conditions
where the criteria of normal market transactions are not met.
There is an element of compulsion on the seller and as such
the essential element of a market valuation is absent.
40. Valuation Applications:
a. Use of valuation reports in the sale of Property
b. Use of valuation Reports in the purchase of property
c. Valuation for central government taxation under direct
taxation under tax laws.
d. Valuation reports used for fixing rents and for the purpose
of forecasting earnings
e. Valuation for rating purposes

6
 f. Valuation of insurance purposes
g. Valuation in acquisition proceedings by government or
other agencies.
h. Valuation in connection with mortgages
i. Valuation for partition of properties.
j. Valuation in cases of Mergers or Exchanges.
k. Valuation for liquidation
l. Valuation for leasing properties and fixing lessor/lessee
interests.
m. Valuation requirement in probate (i.e. for the successors to
get the property transferred to their name, is a state subject
in India) matters
n. Valuation requirements for calculating court fees for other
specific requirements in court cases
o. Valuation for accounting purposes
p. Valuation reports to study alternate investment
opportunities and economic feasibility
41. The following factors generally affect the value of real
property from time to time:-
a) Supply and demand

Population changes

General level of prosperity

Planning limitation restricting the supply of
land and buildings at a particular time.
b) Security and return on investment
c) Period of investment
d) Condition of the structure and future life of
property
e) Rent restriction/control acts.
f) Proposal for development or for improvement
scheme in a locality.
g) Abnormal conditions due to war, break out of
serious riots and other disturbances up setting the
stability and safety in a locality.
h) Urban land ceiling Act

7
 i) Town planning act

Property Rights

Property can be defined as the continuous, everlasting use, control

and disposition which the owner may legally exercise over a
particular thing or object.
Property can be of two types: corporeal or tangible (ex: movable or
immovable, buildings, material etc,) and incorporeal or intangible
(ex: non material things copy rights, good will etc.,).
Real property consists of land and objects and substances
permanently attached to the ground. Ex: builinds, bridges,
minerals, trees, standing crops, plant machinery(exception).
Ownership denotes the legal relation between a person and an
object. Ownership is thus sum total of the rights a person has over
the object. A normal case of ownership would exhibit the
following:
a) the right to possess an object
b) The right to use and enjoy the thing owned.
c) The right to consume, destroys or alienate the things owned.
These are known as the liberties of ownership and power.
d) The right to enjoy a property indefinitely. Thus a house
property remains under the ownership of the landlord till
sold.
e) The right to retain a residential right over a property. Thus,
where a person lets his property on lease, he retains the right
of revocation that is the right to receive back the property on
expiry of the lease (residual right of an owner)

8
Types of ownership:
1 Sole ownership and co ownership: Generally a thing
can be owned only by one person at a time. This is
commonly known as “sole ownership”. However,
duplicate or multiple ownership is also a possibility.
Thus, two or more persons may own a thing as in the
case or land owned by a family. In such a case, the right
of each member of the property is the right owner of
co-ownership and each member is only a co-owner. In
fact each member is in a way the owner of the property,
but the right to own the entire property becomes
complete only when all the co-owners come together. It
is then that they get the right to dispose the property.
2. Trust and beneficial Ownership: A trust is an example
of duplicate ownership which allows the separation of
the powers of management and the rights of enjoyment.
Trust property may be owned by the two persons at the
same time. One being under an obligation to use the
property for the benefit of the other. The former is
called trustee, and his ownership is the trust ownership,
while the latter is known as the beneficiary and he has
the beneficial ownership (or the owner of actual
benefits).
3. Vested and Contingent Ownership: An ownership is
vested when the owners title is perfect or clear. It is
contingent when the owner’s title is imperfect, but
would become perfect on the fulfillment of some
conditions. Ex:
Thus, if B transfers a property to A by way of, say, a
gift, A’s ownership becomes vested as soon as B
transfers it. But, if B transfers the said property to A
only after his death then A s ownership is a contingent
one, that is, it is contingent on B s death.
4. Trust and Contingent Ownership: A trust is an example
of duplicate ownership which allows the separation of

9
 the powers of management and his rights of enjoyment.
Trust property may be owned by two persons at the
same time. One being under an obligation to use the
property for the benefit of the other. The former is
called the trustee, and his ownership is the trust-
ownership while the latter is known as the ‘beneficial
ownership’
5. Vested and contingent ownership: An ownership is
vested when the owner’s title is perfect on the
fulfillment of some conditions.
Thus, if B transfers a property to A by way of, say, a
gift, A’s ownership becomes vested as soon as B
transfers it. But, if B transfers the said property to A
only after his death, then A’s ownership is a contingent
one, that is, it is contingent on B’s death.
6. Ownership in immovable property through Cooperative
Societies, Companies, etc. : in metropolitan cities, flats
in multistoried buildings or other dwelling units in
group housing schemes are registered in the name of a
cooperative society formed by the individual allottees.
Sometimes, companies are floated for the purpose and
allottees are given shares in such companies. Thus
ownership in property can also be of this type. Such
ownership are governed by the Cooperative society
Acts or similar Acts framed by each state. In such each
property unit is treated as an independent property with
common undivided share in the land and the common
facilities.
Transfer of ownership rights in the flat or unit is
affected by changing the membership of the
cooperative society or by transferring the shares in the
company.

10
Estate in Property:

The kind of estate an owner has, measures the right and interest he
has in the real property in terms of duration (time), in geographical
extent (breadth, depth and height), in degree (sole or co-
ownership), and in character (lease hold, easement, etc.).
1. Fee simple: The term ‘fee simple’ defines the most complete
ownership in real property. It implies absolute ownership of land.
The owner’s right is unrestricted in time (i.e. till perpetuity),
quantity (as far as the property is concerned), etc. and the owner of
such a title may at any time sell, encumber or will the entire estate
to another. Theoretically the right is absolute and therefore,
sometimes the term fee simple absolute is also used for this type of
ownership. However, even the holder of this type of estate
(commonly known as freehold) is restricted from absolute
enjoyment. He has to subject the land to the restrictive covenants
which the land may be burdened with, such as keeping conformity
with local laws, zoning and subject to police powers. In case of
buildings, construction must be in conformity with local building
bye laws. His land is subject to taxation assessments for public
improvement or even to acquisition under the various state or
central Acts in force. When selling his estate he must give the
buyer a clear transferable title, although in certain cases some
conditions may be imposed, such as restrictive clauses in case of a
lease.
2. Fee Simple less than Absolute: There may be estates in land of
lesser quantity than whole ownership, where there are restrictions
imposed by the grantor to land use. If an estate will belong to a
person only under certain terms and conditions or revert in case of
certain events then such estates are less than absolute.
Ex: Life estate
Life estate is one in which property is conveyed to a person only
for the term of his life. After the death of the life tenant, the
property may, according to the deed of conveyance or will, revert
to some other person. This implies that the life tenant has control

11
of the property or estate only till death. He, therefore, cannot make
any contract beyond the term of his life. Therefore, a life tenant
must use the land reasonably so as to leave it intact for the benefit
of the reversioner or remainder man. A life tenant is responsible
for payment of taxes and his tax liability should not exceed the
benefit he derives for the land.

12