PROFESSIONAL PRACTICE

LESSON PLAN

1. ELEMENTS OF VALUATION
2. PURPOSE OF VALUATION
3. MARKET VALUE
4. VALUE CLASSIFICATION
5. CLASSIFICATION OF OWNERSHIP
6. TYPES OF TENURE – FREEHOLD/LEASEHOLD
7. GROUND RENT
8. OTHER FORMS OF RENT

AR. KANAK KASHYAP LECTURE 01

ELEMENTS OF VALUATION

VALUATION: An estimation of the monetary worth of a commodity carried out by a Valuer

VALUE PRICE
• Its an estimated figure
• A Commodity has Value only if:
It has Utility
It is Scarce
It is Marketable
• Any one missing – Commodity has No Value VALUE COST
• Value= Unearned Increment /Unfortunate Decrease
• Value= Price of money : Price of Commodity
• Value= Adjustment of PRICE
• Price is a factual figure
• Fixed as per demand from Consumer compared to their other wants.
• Price= Cost + Reward for Labour + Capital
• Cost= expenditure to produce a Commodity with a value

AR. KANAK KASHYAP LECTURE 01

PURPOSE OF VALUATION

PURPOSE plays an important part in Determining Market Value of the Property

Need to know the Purpose of Valuation in ADVANCE –

Different Values for the same property . Difference is in the Purpose of VALUATION -

Purpose Of Valuation
Function of Valuer
1. Sale or Purchase
[Investment/Occupation] SALE – Conditions of Money Market + ROI on Securities
2. Mortgage PURCHASE – Client should get Bargain Proposal
3. Acquisition MORTGAGE – Amount or Sum that can Safely be
4. Tax [Wealth, Gift, Other] Advanced on the Property. Important to Safeguard
5. Rent Fixation Position of Mortgagee i.e. Client
6. Betterment Charges
7. Auction Bids ACQUISITION – Valuer can take Liberal View as Seller
8. Probate is Unwilling and might be going through lot of trouble
9. Speculation & Expense
10. Insurance Govt Taxes – Valuer determines Market Value that a
11. Capital Gains Willing Buyer would Pay to a willing Seller
12. Stamp Duty
13. General Court Purpose [Court Fee, Stamp]

AR. KANAK KASHYAP LECTURE 01

MARKET VALUE
Definition - Amount which MIGHT BE EXPECTED TO REALISE from a WILLING
PURCHASE on the Sale of a Property by a WILLING SELLER in the OPEN MARKET.
MARKET
VALUE
Might Be Expected to
Realise
Expectations of the
Purchaser after supplied with
all the Necessary Data +
know the Conditionals of the
Market
AR. KANAK KASHYAP
Open Market
• Every Person who Desires to
Purchase Can make an Offer
• Notify of all purchasers that
property is For Sale in the
Market under most favourable
conditions
Willing Seller
• Person who Will NOT sell the
Property unless he obtains
something More than its Reserve
Price
• Has necessary Advantages to FIX a
RESERVE BID for the Property
• FREE PERSON to Sell & NOT FORCED
TO SELL i.e. “FREE WILL SALE
Essential Characteristics
YES
1. Both Vendor & Purchaser are
willing to Sell & Purchase
2. Purchaser prudent enough to put
the property to the most beneficial
use
3. Present & Future uses i.e.
Potentials taken into account
NO
1. No Compulsion on either side to
Buy/Sell
2. Urgent necessity to Buy/Sell
discarded
3. Disinclination of the Vendor to be
ignored
4. Sentimental value to vendor to be
ignored
LECTURE 01
VALUE CLASSIFICATION

1. Assessed Value: Value registered with Local Authority. Used for Property Tax evaluation.
2. Book Value: original investment of the company minus the depreciation of period passed.
3. Salvage Value: value realised on sale post useful life span but not completely useless
4. Scrap Value/Junk Value: value realised on useful life outlived and out for sale.
5. Replacement Value: Value of replacing part or whole to Acceptable Substitutes.
6. Earning Value: Present Value of the Property which will start yielding an Income in Future.
7. Potential Value: The inherent value which increases over time resulting in more returns.
8. Distress Value: When sale value is lower than the value at which property was obtained.
9. Speculative Value: chief aim of purchase is not development but speculation for max profit.
10. Monopoly Value: fancy price demanded by vendor for limited plots.
11. Sentimental Value: Variant price for sentimental attachments of a property.
12. Accommodation Value: value of Accommodation land.
(Accommodation land is the one on the outskirts used for playground gardens etc.)

AR. KANAK KASHYAP LECTURE 01

CLASSIFICATION OF OWNERSHIP

Hero of Valuation= Immovable property.

Immovable property= Land and associated benefits.

General classification of ownership- 2 types

-Freehold
-leasehold.

Qualification of property= Tenure

Tenure indicates terms and conditions under which a property consisting of

Land/Land with building can be owned.

AR. KANAK KASHYAP LECTURE 01

TYPES OF TENURE – FREEHOLD & LEASEHOLD

Freehold Tenure:
• Land can be owned without any restrictions as far as use is concerned.
• No payment of any charges or ground rent required.
• Rules and regulations by Govt. and local authority need to be complied with.
• Restrictions associated with public welfare not exempted.
• Ownership can be for a definite period / indefinite duration.
• The owner can: develop it/ rent it/ sell it/ transfer it. Choice is his, completely.
• Provided use of land by owner is not a nuisance to others in the vicinity.
• Land will be subject to Laws of Easement.
• Highest form of ownership.

Leasehold Tenure:
• Land has a lot of Rights which can be retained or divided among the Lessor ad
Lessee.
• Three primary aspects: Lease, Lessor and Lessee.
• Lease: The legal instrument which dictates terms of borrowing of the property.
• Lessor: The superior owner who has surrendered the right to use and occupy the
property but retains the right of reversion.
• Lessee: The person who acquires the rights to use and occupy the property for a
specified period in exchange of rentals/ premium/ both and is subject to terms
and conditions of the Lease.
AR. KANAK KASHYAP LECTURE 01
GROUND RENT

It is the periodic payment made by the Lessee to the Lessor for rights to use and
occupy the leased out property.

Two major types:

Secured Ground Rent
Unsecured Ground Rent

Secured Ground Rent: Unsecured Ground Rent:

• It is the periodic payment made by the
Lessee to the Lessor under the Building
lease.
• Lessee- obligated- improve the land-at
own cost- by putting up a building-
thereby assuring Lessor- Ground Rent
on Re-entry.
• It is the periodic payment made by the
Lessee to the Lessor for an open plot.
• Lessee- not obligated- improve the
land- thereby no security to Lessor- on
Re-entry.

AR. KANAK KASHYAP LECTURE 01

OTHER FORMS OF RENT

1. Rack Rent
Complete Property consisting of Land and building is given on lease on payment
of periodic considerations known as Rack Rent which is full rent of the property.

2. Head Rent
when the property held under occupation lease is further sub-leased the rent
reserved under the Head Lease is known as Head Rent.

3. Improved Rent
when the property held under occupation lease is further sub-leased for a term
shorter than the term of the original head lease at a rent which usually exceeds
the head rent it is Improved Rent.

4. Profit Rent
The difference between Head Rent and Improved Rent.

5. Virtual Rent (Sitting Rent)

Rent reserved+ annual equivalents of premium paid by lessee/Tenant
OR
rent reserved + money spent by the lessee/ tenant on improvements/ repairs.

AR. KANAK KASHYAP LECTURE 01

QUERIES AND DISCUSSIONS

AR. KANAK KASHYAP LECTURE 01