VALUATION

-Dr. Girish S. Kulkarni.

 Different Methods of
Valuation for land and Building
• Valuation of building or property is the method of
calculating the present marketable cost of a building. A
building located on a freehold land generates a higher
valuation amount compared to a building located on the
leasehold land.
• Valuation of a building depends on the sort of building,
its structure, durability, location, size, shape, the width of
roads, frontage, types and quality of building materials
used and the cost of these materials.
Following are the different Methods of Valuations of the
Property:
• Rental Method of Valuation
• Direct comparison with capital value
• Valuation based on profit
• Valuation based on cost
• Development method of valuation
• Depreciation method of valuation.
1. Rental Method of valuation
In this method, net income from the building is calculated by
deducting all the outgoings from gross rent. Year’s purchase
(Y.P.) value is calculated by assuming a suitable rate of interest
prevailing in the market. For example, consider a rate of interest
as 5%, the Year’s Purchase = 100/5 = 20 years.
The net income multiplied by the year's purchase gives the
capitalized value or the valuation of the property. This method is
used only when the rent is known or probable rent is
determined by enquiries.
2. Direct Comparison with Capital Value
When the rental value is not known, this method of direct
comparison with the capital value of a similar property of the
locality is used. In this case, the valuation of the property is fixed
by direct comparison with the valuation or capitalized value of
similar property in the locality.
3. Valuation based on Profit
This method of valuation is suitable for commercial properties
such as hotels, restaurants, shops, offices, malls, cinemas,
theatres etc. for which the valuation depends on the profit. In
such cases, the net annual income is used from the valuation
after deducting all the outgoings and expenses from the gross
income. The valuation of building or property is found by
multiplying the net income by year’s purchase. The valuation, in
this case, can be too high in comparison with the actual cost of
construction.
4. Valuation based on Cost
In this case, the actual cost of construction of the building or the
cost incurred in possessing the building is considered as the basis
to determine the valuation of the property. In this case, necessary
depreciation is allowed and points of obsolescence are considered.
5. Development method of valuation
This method is suitable for properties which are under the
developmental stage. For example, if a large place of land is to be
divided into plots after provision for roads and other amenities,
this method is used. The probable selling price of the plots, the
area required for amenities and other expenditures for
development is considered for valuation.
Development method of valuation is also used for properties or
buildings which are required to be renovated by making alterations,
additions, improvements etc. The value is calculated based on the
anticipated net income generated from the building after
renovation work is complete.
The net income multiplied by year’s purchase gives the valuation of
the property. The actual cost of the property with a total cost of
renovation shall be compared with the anticipated value of the
property to decide if the renovation is justified.
6. Depreciation Method of Valuation
Based on the depreciation method, the valuation of the
buildings is divided into four parts:
• Walls
• Roofs
• Floors
• Doors and windows
Cost of each part at the present rate is calculated based on
detailed measurement. The life of each part is calculated by the
formula:
D = P [(100 – rd)/100)]n
where,
D = depreciated value
r = rate
d = depreciation
n = age of building in years
 rd values are considered as per following table:
Life of Building rd

100 years 1.0

75 years 1.3

50 years 2.0

25 years 4.0

20 years 5.0

The valuation calculated is exclusive of the cost of land,

amenities, water supply, electrical and sanitary fittings etc. and
is used only for buildings which are well maintained. If it is not
well maintained, then suitable deductions are considered in the
valuation calculated above. The present values of the land,
amenities, water supply, electrical and sanitary fittings should be
added to find the valuation of the property.
Valuation Method for open
land.
• There are three different methods of valuation as
mention below;

Comparative method

Hypothetical method

Belting method.

1. Comparative method
• In this method the various transactions of nearby lands are
property studied and then a fair rate of land under
consideration is decided.
• Thus this method will be useful only in case of an active
market where there are large number of statistics are
available for comparison.
• Following factors are to be taken into account while analyzing value
of land by this method.
(I) Situation
(II) Size
(III) Shape
(IV) Frontage and depth
(V) Front road width
(VI) Vistas
(VII)Nature of soil.
2.Hypothetical method
• In this method value of a vacant plot of land is estimated by
capitalizing the assumed rent that can be obtained from a building.
• If erected on the land after developing the same and then
deducting the cost of development and building.
• This is not a suitable method of valuation of land because the cost
of land depends on the magnitude of development of land.
Valuation procedure
• Permissible covered area = total area – (1/3) area of open
space land
• find, rental area = total area – 20 % for area of walls and
wastes
• Calculate net rent per month = gross rent – outgoing
• Find out Y.P.
• Find out the cost of building from the total covered area
and current plinth area rent.
• Workout the development cost of the land.
• Find out the total cost of building and development cost.
• Deduct the total cost of building and development cost.
3.Belting method.
• When a plot of big size is to be valued or when a plot with less
frontage and more depth is to be valued it is logical to adopt
the method of belting.
• It is due to the principle that the value of land in general
deceases as the plot increases.
• In this method whole area is to be divided into the number of
belts.
• Example: figure shows the plot of land. If width of first
belt is 30 m and its value is estimated to Rs. 100/sq.m.
find value of the entire plot by belting method V1,V2,V3
ae the values and B1,B2,B3 are width.
• Let us divide the plot in 6 parts
Width of first B1 =30 m
Width of second belt B2 = 1.5×30 = 45m
Width of third belt B3 = 125 -30 – 45 = 50m
BB1/30 = 40/125 BB1=9.6m
CC1/75= 40/125 CC1=24m
Valuation Questionnaire
• 1. Purpose for which valuation is made .
• 2. Date as on which valuation is made.
• 3. Name of the owner/owners .
• 4. If the property is under joint ownership/co-ownership,
share of each such owner. Are the shares undivided?
• 5. Brief description of the property.
• 6. Location, Street, Ward No.
• 7. Survey/Plot No. of land.
• 8. Is the property situated in residential/commercial/mixed
area/industrial area ?
• 9. Classification of locality high class/middle class/poor class.
• 10. Proximity to civic amenities, like schools, hospitals, offices,
markets, cinemas, etc. been notified for.
• 11. Means and proximity to surface communication by which
the locality is served Land:
• 12. Area of land supported by documentary proof, shape,
dimensions and physical features
• 13. Roads, streets or lanes on which the land is abutting
• 14. Is it freehold or leasehold land ?
• 15. If leasehold, the name of lessor/lessee, nature of lease,
dates of commencement and termination of lease and terms
of renewal of lease :
(i) Initial premium
(ii) Ground rent payable per annum
(iii) Unearned increase payable to the lessor in the event of
sale or transfer
• 16. Is there any restrictive covenant in regard to use of land ?
If so, attach a copy of the covenant
• 17. Are there any agreements of easements ? If so, attach
copies
• 18. Does the land fall in an area included in any Town Planning
Scheme or any Development Plan of Government or any
statutory body? If so, give particulars
• 19. Has any contribution been made towards development or
is any demand for such contribution still outstanding?
• 20. Has the whole or part of the land acquisition by
Government or any statutory body ? Give date of the
notification .
• 21. Attach a dimensioned site plan Improvements :
• 22. Attach plans and elevations of all structures standing on
the land and a lay-out plan
• 23. Furnish technical details of the building on a separate
sheet [The Annexure to this Form may be used]
• 24. (i) Is the building owner-occupied/tenanted/both ? (ii) If
partly owner-occupied, specify portion and extent of area
under owner-occupation
• 25. What is the Floor Space Index permissible and percentage
actually utilised? Rents :
• 26. (i) Names of tenants/lessees/licensees, etc. (ii) Portions in
their occupation (iii) Monthly or annual
rent/compensation/licence fee, etc., paid by each (iv) Gross
amount received for the whole property
• 27. Are any of the occupants related to, or close business
associates of, the owner ?
• 28. Is separate amount being recovered for the use of fixtures
like fans, geysers, refrigerators, cooking ranges, built in
wardrobes, etc., or for service charges ? If so, give details
• 29. Give details of water and electricity charges, if any, to be
borne by the owner
• 30. Has the tenant to bear the whole or part of the cost of
repairs and maintenance ? Give particulars
• 31. If a lift is installed, who is to bear the cost of maintenance
and operation__owner or tenant?
• 32. If a pump is installed, who has to bear the cost of
maintenance and operation__owner or tenant ?
• 33. Who has to bear the cost of electricity charges for lighting
of common space like entrance hall, stairs, passages,
compound, etc__owner or tenant ?
• 34. What is the amount of property tax ? Who is to bear it?
Give details with documentary proof
• 35. Is the building insured ? If so, give the policy No. amount
for which it is insured and the annual premium
• 36. Is any dispute between landlord and tenant regarding rent
pending in a court of law ?
• 37. Has any standard rent been fixed for the premises under
any law relating to the control of rent? Sales :
• 38. Give instances of sales of immovable property in the
locality on a separate sheet, indicating the name and address
of the property, registration No., sale price and area of land
sold
• 39. Land rate adopted in this valuation
• 40. If sale instances are not available or not relied upon, the
basis of arriving at the land rate Cost of Construction :
• 41. Year of commencement of construction and year of
completion
• 42. What was the method of construction -- by contract/by
employing labour directly/both ?
• 43. For items of work done on contract, produce copies of
agreements
• 44. For items of work done by engaging labour directly, give
basic rates of materials and labour supported by documentary
proof