Module III:Valuation and Dilapidation - 12 Hours

a) Introduction to valuation, definitions, essential characteristics, classification of value, purpose

of valuation. Various terms used in valuation, study of valuation tables.
a) Various methods of valuation, factors affecting valuation, specimen valuation report based on
land and building method and on rental method.
b) Dilapidation—definition, schedule of dilapidation report of typical load bearing Mangalore tiled
ground floor building and three storied R.C.C. building. Physical, economic life of buildings and
obsolescence.
 INTRODUCTION TO VALUATION :
• HISTORY : From the dawn of civilization land has been found to have a value. When people found
produce from one field/acre more fertile than the other land naturally fetched more value. In olden days
barter system was quite common where by one commodity was exchanged for another, which
depended upon supply and demand. In olden days, cattle, sheep, goat, horses, donkeys were
considered as wealth. The family owning comfortable land were respected in society till money was
introduced as the medium of exchange.
• In past, kings used to appoint experts to evaluate precious stones, diamonds, gold etc. and value was
determined by them based on their experience without detailed and critical analysis of facts and
circumstances. The present day valuation procedure demand that valuation be done by an approved
valuer.

• In 1984 the land acquisition Act came into being. Some property required to be acquired by the Govt.
for public purpose and compensations was paid to the owner. In this process valuation of property
became an important subject. Sound valuation principles on scientific basis were introduced by A.E.
Mirams and J.A. Park.
• In 1950, Institute of Surveyors was set up. It conducts examinations, seminars and publishes
Indian Valuer journal. There are 14 categories of valuers but out of this category related to
“immovable properties” is important to Architects, engineers and developers.
• The practice of valuation has become a significant part of many Architectural practices. Owing to
tremendous growth of building construction industry and taxation related to immovable property
there is large demand for expert valuers.
• You will find valuers in many fields like---agricultural land, land with property, ornaments, gold and
silver, precious stones, machineries, work of art, stocks and shares etc. hence, a person with
qualification and expertise in a particular field are considered as valuers----

• Architects and Engineers as valuers for land and building. Many financial institutions
maintain their own panel of valuers.
 DEFINITION OF VALUATION
• It is defined as the process of determining the fair value of specific property for a specific purpose on a
specified date. Valuation leads to an economic decision of a valuer which indicates the conclusion
arrived at after taking into consideration all factors like economic, social, political, legal and physical
which affect the value one way or another.

• Valuation is an art of judgement based on experience and relevant statistical data to determine the
value of property at present. The estimated value of property depends upon its power to serve man’s
needs, location, type, nature and quality of building, amenities, purpose, supply and demand of a
property type.
• Valuation is both Arts and Science. It is an Art of estimating the value of the property based on
scientific data.
• It continuously varies with age, physical status and characteristics.

• What buyers are willing to pay for property depends on a number of issues, including how motivated they are is
to make the purchase, their negotiating skills and the condition of other properties in the same area. If you were
to put your property on the market today, the first step toward determining its value would lie in the completion
of a comparative analysis.
• A comparative analysis means the property most similar to yours that has been recently sold in your area.
Then, the amenities of your home are compared to those of the recently sold property.
 ESSENTIAL CHARACTERISTICS----D-U-S-T

• VALUE MUST HAVE FOUR CHARACTERISTICS. Demand, utility, scarcity, transferability = "D-U-S-T
• Demand---is in the eye of the beholder. It varies from person to person. The demand for a particular piece of real
estate changes as the wants of each individual change.

• Utility---In order for real estate to have value it must have usefulness or utility. Usefulness creates a desire for
possession and has the power to give satisfaction.
• Scarcity---In order for real estate to be of value it must be relatively scarce. If too many houses like yours are for
sale, it will negatively impact the value of your home.
• Transferability---The ease with which ownership rights are transferred and It must be marketable. Transferability is
the ability to freely buy, sell, encumber, or dispose of property in any way that the owner sees fit. Property value is
derived from the freedom to transfer title readily from one person to another. marketability is more about the
readiness of the property to be sold and relates to aspects such as the home’s condition, attractiveness and
aesthetic appeal. The ability of a commodity to be sold or marketed
• In the absence of any character commodity will lose its value. Air possesses utility but not scarce. Rotten
apples may be scarce but no utility. Bungalow in a desert has utility and scarce but not transferable since it
would not fetch any value compared to market value.
 VALUE, PRICE AND COST
• VALUE : One purchases a commodity, balances value of money against the commodity. value can be said to
be ratio between the price of money and the price of commodity in return. value is not necessarily the price of
commodity. In far away village one might invest on land which he feels is cheaper than in urban area.

value can be unearned increase or decrease in price. --- industrial zone declared near your site and prices
shoot up --- here owner has made no special effort still gets benefit of unearned increase. On the other hand if
Govt. declares it as reserved for cremation then price comes down known as unforeseen decrease in the price.
• PRICE : “ a price is a fact and value is an estimate of what price ought to be.” it is the cost of commodity plus
additional reward(profit) to the producer for his labour and capital. It is fixed on the demand from consumers. It
depends on utility, durability, satisfaction and the extent to which a commodity is scarce. Price is demanded by
the seller and the value is assessed by the purchaser. It depends on Number of buyers and sellers in the
market.
• COST : Cost is actual expenditure to produce a commodity including procuring cost of material plus cost of
labour. Cost does not include profit of the product. The business intends to decrease the cost. Difference
between price and cost is a profit.
 MARKET VALUE-

• It is the amount expected to realize from a willing purchaser on sale of a property by

a willing seller in the open market.

• “In the open market” means the property is offered for sale so that every person
who desires to purchase can make an offer and necessary steps are taken to
advertise in popular papers.
• “ a willing seller” is a person who is not forced to sell but for a good price.
• Factors affecting market value : the value of property depends upon its size, situation,
condition, usefulness, its potential for further development and general economic
conditions and trends. A valuer is expected to weigh all these factors critically and
determine its value.

ESSENTIAL CHARACTERISTICS OF MARKET VALUE

1. Vender must be willing to sell without compulsion and sentimental value.

2. Purchaser must be willing who can put the land to most beneficial potential use.
3. Urgent necessity of purchase or sale to be discarded.
 CLASSIFICATION OF VALUE
• BOOK VALUE--- Initially it shows original cost of company on its assets, properties
and machineries without depreciation. Later value is shown on the books of
account every year after deducting depreciation(since value of property reduces
every year due to wear and tear) from the original cost. It may not be comparable to
market value.

• SALVAGE VALUE---- value of machinery realized on sale when its useful span of
life is over but it has not become useless or worthless. Ex: news paper is
purchased and every one eager to read it a fresh in the morning which has a good
demand and value. But in the evening when everyone has read it has no demand
and would loose its value. But this reduced value is not zero, since it can be sold as
scrap.

• SCRAP VALUE OR JUNK VALUE------ value of a machinery realized when it

becomes absolutely useless except for a sale as a junc. It also applies to properties
which have outlived their useful span of life representing scrap value.
• REPLACEMENT VALUE----- it indicates the value of a building which have been replaced or
reconstructed in the form of acceptable substitutes at the current market rates. It is a simple form
of reasonable reconstruction cost.

• EARNING VALUE------ it is the present value of a property which will yield an income in future.

• POTENTIAL VALUE------- the land has inherent value which may go on increasing due to
passage of time or alternative use fetching more return.

• DISTRESS VALUE------ when property is sold at lower price than market value due to financial
difficulties, panic due to war or riots. Ex. War broke between Iran and Iraq and many Indians sold
their property at a distress value and came back to India----it was a distressed value of a property.

• SPECULATIVE VALUE----- when property is purchased so as to sell at a profit after a short

duration. A speculator tries to purchase land at a low price to make maximum profit selling it for
more than market value in a short period of time.

• MONOPOLY VALUE------ it depends on supply and demand. Number of plots decrease after sale
and value of remaining plots go on increasing when only few plots are left. The fancy price
demanded by the owner is known as monopoly value. Ex. Usually owner keeps as reserve corner
plots and plots meant for commercial purpose and then sells it for a higher profit margin.
• SENTIMENT VALUE----the fancy price demanded by a owner when he attaches some
sentimental value to the property which has no relation to market value. Other way purchaser
may have fancy towards property and might pay exorbitant price which never represents
market value.

• ACCOMMODATION LAND AND ACCOMMODATION VALUE----the land on the outskirts of a

town used as a playground, gardens etc. which fetches more value than agricultural land and
less than building land is known as Accommodation land and Accommodation value. A strip of
land which can not be developed but only adjoining venders might be interested to purchase
for lesser price than the market value is known as Accommodation value. Ex. Earlier Bhangi
lanes, or small strip of land not useful to you but neighbour might needs it. Sometimes others
may also purchase for lessor rate only to exploit the situation.

• MARKET VALUE----Value which a willing purchaser is willing to pay to a willing seller. A

number of transactions in a particular area determine the market value of properties
having similar characteristics.
• FAIR VALUE----Fair and reasonable to both seller and purchaser which depends on its size,
situation, user, physical properties etc.

• CAPITALISED VALUE----Obtained on the basis of income-yielding capacity of the property. If

property yields Rs. 1.00 lakh per annum, the capitalised value @ 10% would be Rs. 10.00 lakhs.

• ASSESSED VALUE----the value of property recorded in local authority for the purpose of fixing
property taxes to be collected from the owner of the property every year.

• RATEABLES VALUE (RV) OR ANNUAL LETTING VALUE : value determined by the civic
authorities(municipal corporation) for the purpose of levying taxes such as property tax,
conservancy tax, education cess etc. it is fixed at the time of first occupation and generally
revised once in four/five years. Rateables value is the value assigned to non-domestic premises
and is based on a property's annual market rent, its size and usage.

• REVERSIONARY VALUE : the value of property at the expiration of a certain time period.
PURPOSE OF VALUATION :
1. Valuation for Sale or Purchase : One of most common purpose of valuation is the sale or purchase of real
estate/property for an investment or for an occupation. Prospective buyer wants to know what is the
reasonable value he should offer. On the other hand prospective seller would like to know how much he
should get out of sale of his property. Normally the seller quotes the maximum sum and purchaser offers the
lowest sum. An expert valuer determines the value on the basis of number of transactions taken place in
particular area comparable in size, location. Condition and usage.

2. Valuation for Mortgage, loans etc. : Some times property owners offer their property as a security to obtain
loan from financial institutions. (usually 75% of valuation is sanctioned as loan) If owner defaults the amount is
recovered by selling the property.
3. Valuation for Rent fixation : The fair rent fixed by the court is called standard rent. A tenant can move the
court for fair rent and the court after hearing both the owner and tenant fixes the rent known as standard rent.
If both parties agree it is known as contractual rent which may not be fair due to shortage of houses. Fair rent
is when both parties agree on return of 10% gross rent which will fetch 6% income after deducting out goings.

4. Valuation for compulsory Land acquisition Act of 1984 : If Govt. is satisfied that a particular land is
required for any specific public purpose it can acquire land compulsorily under the Act and owner is paid
compensation. But owner is generally unwilling hence valuer takes liberal view. In such cases, the owner is
paid compensation on the basis of prevailing market value on the date of notification plus “solatium”
(emotional financial harm)as fixed by the authorities.
5. Valuation for Betterment charges : Betterment fees is a charge collected by civic
authorities in case a property has seen price appreciation, driven by infrastructural development, including
Metro, retail or commercial set-up (a special economic zone, a mall or an IT park), an industrial corridor or
better connectivity.
6. Valuation for Auction bids : An auction is usually a process of buying and selling goods or services by
offering them up for bid, taking bids, and then selling the item to the highest bidder or buying the item
from the lowest bidder. ... Participants bid openly against one another, with each subsequent bid required
to be higher than the previous bid.
7. Valuation for Probate : Probates are issued to the executors of the will, to authorize them with a seal of
approval from the court. Probate legalises a will to transfer the properties in the names of individuals to
whom the property is bequeathed(to be transferred). Since, as per the society register, the owner is the
person who has died and left the Will, unless the executor shows a probate stating their authority to transfer
the said property, the society might not agree to the transfer. properties are valued for death will.
8. Valuation for Insurance purposes : properties are valued for the “insured value” for the
purpose of working out the amount of premium to be paid to the Insurance company which is
valued by “land and building method”. At the t.me of paying compensation for the loss due to fire
the valuer will calculate depreciated value of the building setting aside 10% of the cost towards
foundation and plinth which is generally not affected by the fire.
9. Valuation for taxation purposes : Wealth tax : valuer determines fair market value which willing
buyer would pay to willing seller. Whosoever owns a property beyond certain limits must pay wealth
tax on entire property except self occupied property. Properties are valued for the purposes of
deciding the tax liability in the event of gifting the property . In case of gift of property either the
person making the gift or the person receiving the gift is required to pay “gift tax” on the basis of its
valuation within six months of making gift. In the case of sale of property, the seller is required to
pay “capital gains” tax. Whosoever owns a property beyond a certain limit must pay wealth tax after
deductions allowed as per income tax rules and regulations. (Capital gain is denoted as the
net profit that an investor makes after selling a capital asset exceeding the price of purchase. The
entire value earned from selling a capital asset is considered as taxable income)
PROPERTY TAX—it is a tax levied by civic authorities on lands or lands with buildings, valuation
Includes conservancy tax, sewerage benefit tax, education tax etc.
10. Valuation for Stamp duty : To fix stamp duty for registration by state government.
11. Valuation for division : for partition among partners or family members.
 VARIOUS TERMS USED IN VALUATION
• SINKING FUND : The building is subjected to natural law of decay with the result owner will start losing
part of his capital every year till the physical life of the building is zero. As such owner is left with only
land which is his part capital. Hence, it is necessary to make some provision whereby an owner can get
back his part of his capital invested in the building on expiry of its life span.
• It is an amount (usually 5 to 10% of rent or value of property) set aside every year and invested in some
kind of security to recover the original cost of the building at the end of useful life of a property is known
as SINKING FUND. Hence the purpose of sinking fund is to accumulate the funds to create a new
property at the end of economic life of a property.
• OUTGOINGS : These are expenses incurred by the owner for maintenance of his building in a proper
condition, repairs, watchman salary, liftman, pump attendant, sweeper and to pay various taxes which
include civic taxes, cost of repairs, salary of rent collectors, sinking fund, insurance premiums against
theft, earthquake and fire, N.A. charges, loss of rent due to vacancies, ground rent in case of lease hold
lands etc.
• GROSS ANNUAL RETURNS OR RENT : It is the total annual rent paid by the tenants during one year.
• NET ANNUAL RETURNS : It is the amount that remains with the owner after deducting the out goings
such as Municipal taxes, rent collection charges, amount of repairs and maintenance and sinking fund
etc.
• ANNUITY : Net annual income/net annual return (in the form of interest received) for the capital invested.(fixed
deposit). A person investing Rs. 10000.00 in a fixed deposit at the rate of 7% interest will get Rs. 700.00 per
annum.(annuity)

• Capitalized Value of a Property

The capitalized value of a property is the amount of money whose annual interest at the prevailing rate of interest
will be equal to the net income from the property. To determine the capitalized value of a property, it is required to
know the net income from the property and the highest prevailing rate of interest.
Therefore, Capitalized Value = Net income x year’s purchase.
Bank Interest is considered as 8%/year. Then capital value =
Ex. Rs. 3500(net return or income) x 12.5(year’s purchase=1/rate of interest =.08 OR 100/8=12.5) =
Rs.43,750.00
To get net return of Rs. 3500/yr. you have to invest Rs. 43,750 @ the rate of 8%/yr.

• Year’s Purchase

Year’s purchase is = 100/rate of interest. If rate of interest is 8%/annum then

Years purchase = 100/8 = 12.5. It is useful in calculating capital value required to be invested to get
certain annual return regularly on yearly basis.
Ex. If you wish to get Rs. 5000/yr.(Annuity) at the interest rate of 8% /year, how much capital is
required to be deposited or invested?

CAPITAL VALUE = ANNUAL INCOME X YEAR’S PURCHASE , capital value = Rs.5000x 12.5(Y.P.=100/8)=
Rs.62,500.00
• DEPRECIATION : A person invested in a car to use it as taxi in a busy city. In order to earn
more it was run on two shifts per day. His income was also sumptuous. But due to heavy
use, wear and tear was also more. After a few years of use, the taxi became worn-out and
expensive to maintain. Monthly profits also reduced due to increase in cost of repairs and
taxi remained out of business for want of frequent repairs. Then the person decided to sell
the taxi for a salvage value and purchase a new one.
• Similarly, every building ages due to wear and tear and decay thus depreciates in its value
every year. When the building is new, rate of depreciation is low. Ex.: If the economic life is
60 years, at the age of 30 years the building may not depreciate by 50%. The amount of
depreciation is calculated by an expert based on his experience. It mainly depends how
much care has been taken to maintain the building and kept in good condition every year.
• PROPERTY TAX : it is a tax levied by civic authorities on lands or lands with buildings,
valuation includes conservancy tax, sewerage benefit tax, education tax ( earlier beggar
tax but now cleaning tax)etc. it is one of the important sources of civic income. Usually this
is revised once in four /five years.
• LAND TENURE : The condition under which the land or the building is held or occupied.

• TYPES OF LAND HOLDINGS : It indicates the terms and conditions under which a property consisting of land
or land with building can be owned. In wider sense there are two types of land holdings
• 1. freehold 2. leasehold.

1. FREEHOLD : Land can be owned without any restrictions so far as its use is concerned. The ownership of a
freehold land can be for a period of indefinite duration and the owner can deal with the land as he may please i.e.
either develop or give it on rental basis , or sell or transfer or gift the same at his sweet own will. The freehold land
will be subject to the law of easement rights. It is the highest form of ownership of land. It is valued more than
lease hold land.

2. LEASEHOLD : It is a registered instrument for a transfer of right to enjoy a property proposed to be leased out for
certain time or in perpetuity in consideration of a price in the form of premium or rent or a combination of both and
subject to certain terms and conditions. In this lessee(person holding a lease of the property and a person
receiving the lease rights) borrows the land from the lessor (a person who leases or lets out a propertyto other
person) instead of borrowing the capital from some one to purchase the land from freeholder. His payment of
lease rent will be just like payment of interest on borrowed capital and his return of capital will correspond to his
return of the property to the lessor at the expiry of the lease period. Lessor is the owner of the property or
freeholder and lessee is the person who acquires the right to use the property for a specified period of time.

DURATION OF LEASE PERIOD :It is normally of 21,50,98 or 999 years or even shorter than 21 years with
different conditions for renewal. When lease period is 98 years it is known as long lease and when it is 999
years it is known as lease in perpetuity which is as good as freehold.
• GROUND RENT : It is the rent paid by the lessee to the lessor. It is mutually agreed between them at the time of
granting of lease and is mentioned in the lease deed. It is a fixed monthly amount for lease period but some
times this rent is increased every 5 years by 5 to 10% which is known as rising ground rent.

• LAND LOCKED LAND : When a piece of land is surrounded by land belonging to other owners is called “land-
locked land”. Such a land will not fetch a good price. The owner of such land will have to pay to the neihbour for
proper access or acquire a right of way by any other method.
• UNDIVIDED SHARE OF PROPERTY : When two or more persons buy a property they may have equal or
unequal shares in the property. It is very common to express this when flats are sold wherein all the owners
become owners of undivided share of land which cant be sold in isolation. It is worth only when you sell your flat.
• SUPER BUILT AREA : It is applicable in case of flats(independent like house on different floors) or
apartments(part of a room in a building) in a multi-storied buildings. Super built-up area of the flat is the plinth or
built-up area plus the proportionate % of common areas like stairs, staircase room. Lift well and lift machine
room, balcony, garden etc. This increases the total saleable area approx. by 25 per cent.
• PLOT COVERAGE : Plinth area {not built up} / plot area, which is usually 50%. (ref. rules of corporation).

• F.A.R. : Total built-up area (including plith area of ground floor)/plot area. It varies from 1.00 to 2.50 as per
building bye laws for different areas and use of building.
• VALUATION TABLES
• The object of valuation tables is to express the value of property in figures. They are energy saving
devices, reduce chances of errors, save tedious calculation and the time. It is very essential to
understand the formation of tables as without which an architect will not be able to decide the use of
a particular table.
• TABLE NO. 1 : Amount of Re. 100 at the end of given no. of years. ( F.D.)
• This table shows the amount receivable after certain number of years at a given rate of interest if Re.
1 is invested. Ex: If Re. 100/- is invested @ 5% compound interest, the same will amount to (Re. 100
+ 5) = 105 at the end of first year, Re. 110.25 at the end of second year and Re.115.375 at the end of
third year.
• TABLE NO. 2 : Amount of Re. 100 per annum in given no. of years.
• This table shows the amount that can be accumulated in a specified period of time DUE TO
REGULAR investment of Re. 100 P.A. ( Re. 1 to be invested at the end of each year ) at the end of
each year at a given rate of interest.
• Ex: At the end of first year, Re. 100/- will be deposited and as such capital accumulated will be Re.
100/- only. At the end of second year @ 5% interest, it amounts to ( 105x5%+100 ) = 210.25 , at the
end of third year @ 5% interest, it amounts to ( 210.25x5%+100) = 320.7625 and at the end of fourth
year @ 5% interest, calculated on the initial amount of Re. 100 invested at the end of first year is
added—and so on.
• TABLE NO. 3 : ANNUAL SINKING FUND FOR THE REDEMPTION (getting back)
OF Re. 100 CAPITAL INVESTED.
• This table shows the annual equivalent which when deposited at a given rate of
interest will amount to Re. 100, after specified number of years.
• TABLE NO. 4 : Present value of Re. 100 P.A. allowing interest on capital at X % and
redemption at Y % ( year’s purchase T). This is a dual rate table wherein interest on
capital is also allowed as well as allowance for sinking fund is made. It gives
capitalized value of amenities receivable for specified no. of years or in perpetuity.
• TABLE NO. 5 : Present value of Re. 100 P.A. allowing interest on capital at X %
( year’s purchase T). This table is same as T-4 except that there is no provision for
sinking fund.-------
• TABLE NO. 6 : Present value of Re. 100 receivable at the end of given term.
• This table shows the amount which when invested at the compound interest will
accumulate Re.100 after a specified period.
 METHODS OF VALUATION

• UNIT / PLINTH AREA METHOD- There are several methods of valuation but plinth area rate is very popular
and commonly used since it is very simple and is acceptable by valuation cell of income tax department. It is
multiplied by a fair unit rate of land prevailing in the vicinity. The fair unit is decided on the basis of recent sale
instances obtained from various sources. It also depends on shape, size, location, potential for development,
impediments(obstruction) for development etc. Service charges, cost of amenities and extra work executed are
added but depreciation amount deducted to arrive at final amount of valuation. The known cost of a completed
building (Standard Building) is divided by its plinth area to arrive at the Plinth Area Rate (PAR). Sometimes it is
difficult to get identical buildings then it is convenient to adopt PAR of CPWD or PWD published for that fiscal
year. Unit of land is measured either in hectare or sq.m.1hectare=(100m x100m) 10000 sq.m.=2.47 acres.

• RENTAL METHOD OF VALUATION----- It is also known as ”income capitalization” method. It is adopted in

most cases. In this method basis is net annual return on the property. Net annual rent = total rent (gross)
collected-statutory out goings such as property taxes levied by the local authorities, repairs, maintenance,
collection charges, insurance premium on property, sinking fund etc.
• Belting method: This method is used for valuation of extremely large pieces of open
lands. If a large project is proposed on various plot nos. it becomes cumbersome to
prepare valuation for each and every plot separately hence it is divided into number of
belts.
• Ex.—land adjacent main road till depth of 100 m. can be called as belt A. 100 m. to 200 m.
from road could be belt B. beyond b could be belt c. as such if belt A fetches 100% market
value belt B might fetch 75 % while belt C could fetch only 50%.
• Land and building method----- This is adopted where rental method can not be adopted.
For example there is no rent for religious and certain type of industrial buildings there is no
rent and basis of calculating estimated rent is unrealistic. Hence, it can not be compared
with market value. This method is adopted for ascertaining value for fire insurance and
taxation purpose. It involves calculation based on Sqm. Basis (or even cubic content
basis). Depending upon nature of its construction, present cost is determined. The age of
the building is determined on the basis of expected future life and not on the basis of
physical age. by adopting appropriate sinking fund and the depreciation based on the age
of the building amount of depreciation is calculated. Finally cost of construction is worked
out by deducting the amount of depreciation from the present cost of construction. To this
cost of land is added to arrive at the valuation of the property.
• DEVELOPMENT METHOD---------- adopted for large properties which have potential for
commercial development and can fetch good profitable sum at the end. It takes into account
present value of land, cost of its development --- like internal roads, services such as water supply
and drainage systems, sewerage, garbage disposal, electricity etc., cost of construction of buildings,
fees of all consultants etc. To this desired profit is added to arrive at a valuation. Before finalizing
the profit margin it is very important to consider interest on borrowings. Sometimes developer
expects part investment from prospective buyers in installments to reduce the borrowings and
heavy interest on the same.
VALUATION OF ENCUMBERED PROPERTIES------- properties which are encumbered or are
affected by encroachments, reservations, covenants etc. are valued by experts after taking into
account each and every encumbrance. Factors like life interests of individuals, rights of miners in
ancestral property are considered.
• HYPOTHETICAL VALUATION---- Imagined valuation not accepted. Every valuation must be based
on facts, information collected by the valuer and his own professional judgment.
• VESTED INTEREST------- No valuer can value a property for legal or taxation purposes if he has
some interest in the property or owner is closely related to him. In any case valuer is required to
declare that he does not have direct or indirect interest in the property or owner is not in any way
related to him.
FACTORS AFFECTING VALUATION
• PHYSICAL • ECONOMIC • LEGAL • SOCIAL
• PHYSICAL : Land characteristics : Size, shape, plot area, vista(far reaching view), frontage,
orientation, soil type, topography etc.
• Prominence and placement : Main road, by-lane, remote area location.
• Building characteristics: R.C.C. framed or load bearing structure. Aesthetics and
workmanship quality.
• Functional aspect : Optimum use of space, good planning and design with no wastage, high
utility value, modern habitation style.
• Amenities : Swimming pool, garden, lift, security system, car parking facility, Health club,
Children’s play area.
• Environmental aspect : Noise and smoke pollution level, sea or lake frontage, nuisance due to
railway track, industries or airport, climatic condition.
• ECONOMIC :
• Demand and supply of properties.
• State and Central Govt. policies for land development.
• Economic and Taxation policies of Government.
• Income and wage level of residents.•
• Expected rental yields and returns on investment in real estate.
• Burden of property tax and other maintenance outgoings.
• LEGAL :
• Social legislation like The Rent Control Act 1948.
• Land Reform Legislation like : The Urban Land Ceiling Act 1976.
• Land Acquisition Act.
• Laws Governing Building Construction like Development Control Rules/ Building Bylaws/ Town planning and
Zoning Regulations.
• SOCIAL
• Locality: Poor class, middle class, posh areas (Life style and living standards of residents of the locality).

• Neighbourhood: Well developed, less developed, slum like, cremation ground, dumping ground, nuisance due to
community hall, cinema, school on adjoining plot.
• Civic amenities: Proximity of shops, Mall, market, school, cinema, community hall, hospital, railway/bus station,
garden, Means of communication: Railway, airways, road way or water ways.
• Prestige aspect: Prestigious building, prominent location, renowned personality like film star or industrialist or
politician or a celebrity as next door neighbour.

• Racial habitation: Parsi colony, Mohmedan locality, Hindu colony, Catholic colony. Brahman Wada etc.
• Religious factor: Proximity of Temple, Church, Mosque, Place of worship.
• Personal factors: Sentimental considerations, beliefs in ‘Vaastu’ principles or Feng Sui norms, Liking for specific
neighbourhood,
• Stigma aspects: Haunted house, Dislike for Vyagramukhi or Tee junction plots, fear due to past history of cyclone,
Tsunami ,flood or earthquake, case history of murder or suicide on property, previous use of land as Kabrastan or
Cremation ground
 SPECIMEN VALUATION REPORT BASED ON LAND AND BUILDING METHOD

• REF: Property known as “varada” bearing p.no.49, s.no.490/a,udyambag belagavi, belonging to Mr. Ahok n. Desai.
1. GENERAL : Under the instructions from Ashok N. Desai, myself inspected the above property on Friday, 27th
September 20-11-2020 with a view to preparing valuation report. The property consists of an office cum residential
building.
2. The purpose : To ascertain its market value for mortgage/general insurance purpose.
3. LAND: it is a rectangular plot and as per city survey records measures 20mx 30 m. (600.00 Sq.m.). bearing plot
no. 49, s. no. 490/a, at udyambag belagavi, it is accessible from 24m road on Eastern side. On West side there is
a private property bearing plot no. 48 and on south by plot no.47 and on North by plot. No. 50. It is situated in the
heart of city with all amenities like schools, colleges, bus and railway station, hospitals, shopping centers and
market are all accessible within 2 km. distance. Hence the cost of present value is taken at Rs.25000/sq.m.
4. Building : It is a typical two storied r.c.c. framed structure with offices on ground floor and residence on first floor. It
is having r.c.c. columns, beams, slabs, staircase etc. External walls are of 23 cms thick, whereas partition walls
are 15 cm. thick. All offices have M.S. rolling shutters whereas residential building has T.W. doors and glazed
aluminum windows and ventilators. Office flooring is done with ceramic tiles and residential building has marble
and vitrified tiles. The toilets have modern sanitary fittings with solar heating system. It was built in the year 2010
and has been maintained in an excellent condition. Hence the present cost of construction has been considered at
Rs. 16000.00/sq.m. for ground floor offices and Rs. 18000/sq.m. for residence on F.F.
VALUATION STATEMENT
A. COST OF LAND
• Area of land as per revenue records is 600.00 sq.m.
• 600.00x Rs. 25000.00/sq.m. Rs. 15000000.00
B. COST OF BUILDING
• Offices on Ground floor---plinth area—200.00sq.m.
200.00xRs. 16000.00/sq.m. = Rs.3200000.00
• Residence on first floor—built-up area—300.oosq.m,.
300.00xRs.18000.00/sq.m. = Rs. 5400000.00
-----------------------
• Total cost of building = A+B = Rs. 8600000.00
• Since it has been built 10 years ago depreciation
Is considered as 1%/year = 10% of market value.
8600000.00x10% = Rs. 860000.00.
Deduct depreciated amount from building market value-- Rs. 860000.00
--------------------------
Rs. 8600000.00-Rs.860000.00= Rs.7740000.00 Rs. 7740000.00 Rs. 7740000.00

• Hence total market valuation = A+B= Rs. 15000000.00+7740000= Rs. 22740000.00

• (TWO CRORES TWENTY SEVEN LAC FORTY SEVEN THOUSAND ONLY)
 SPECIMEN VALUATION REPORT BASED ON RENTAL METHOD VALUATION

• REF: Property known as “varada” bearing p.no. 49, s.no. 490/a,udyambag Belagavi, belonging to mr. Ahok N. Desai.
1. GENERAL : Under the instructions from Ashok N. Desai, myself inspected the above property on Friday, 27th
September 2020 with a view to preparing valuation report. The property consists of an office cum residential
building.
2. The purpose : To ascertain its market value for mortgage/general insurance purpose.

3. LAND: it is a rectangular plot and as per city survey records measures 20mx 30 m. (600.00 Sq.m.). bearing plot no.
49, s. no. 490/a, at udyambag belagavi, it is accessible from 45m road on Eastern side. On West side there is a
private property bearing plot no. 48 and on south by plot no.47 and on North by plot. No. 50. It is situated in the
heart of city with all amenities like schools, colleges, bus and railway station, hospitals, shopping centers and
market are all accessible within 2 km. distance. Hence the cost of present value is taken at Rs.25000/sq.m.
4. Building : It is a typical two storied r.c.c. framed structure with offices on ground floor and residence on first floor. It
is having r.c.c. columns, beams, slabs, staircase etc. External walls are of 23 cms. Whereas partition walls are 15
cm. thick. All offices have M.S. rolling shutters whereas residential building has T.W. doors and glazed aluminum
windows and ventilators. Office flooring is done with ceramic tiles and residential building has marble and vitrified
tiles. The toilets have modern sanitary fittings with solar heating system. It was built in the year 2010 and has been
maintained in excellent condition. Hence the present rent has been considered at Rs. 450.00/sq.m./P.M. for ground
floor offices and Rs. 60/sq.m./P.M. for residence on F.F.
VALUATION STATEMENT
• Gross Annual Rent----
• offices---200.00sq.m.x Rs.450.00/sq.m. = Rs. 90000.00x12=Rs. 1080000.00
• residence-300.00sq.m.xRs.60.00/sq.m. = Rs. 18000.00x12=Rs. 216000.00
------------------------
TOTAL Rs. 1296000.00
• Deduct outgoings
• Municipal taxes at 30% Rs 388800.00
• Repairs @ 10% Rs. 129600.00
• Collection charges Rs.12000x12 Rs. 144000.00
• Insurance premium Rs. 5000.00
-----------------------
TOTAL Rs. 667400.00 Rs. 667400.00
-------------------------
Net annual return Rs. 628600.00
• Capitalized value of net annual return @ 8%
And allowing for redemption of capital @ 4% for
Period of 50 years(Expected future life)
Year’s purchase = 11.50
(628600.00 x11.50) Rs.7262844.40
SAY Rs. 7263000.00
• COST OF LAND
• Area of land as per revenue records is 600.00sq.m.
• 600.00x Rs. 25000.00/sq.m. Rs. 15000000.00
-------------------------------- --
TOTAL : Rs. 22263000.00

(TWO CRORES TWENTY TWO LAKH SIXTY THREE THOUSAND ONLY)

 Dilapidation reports and certification.
• DILAPIDATION :
• Dilapidation is a state of disrepair or injuries to a property on account of its neglect whereby the
building becomes dilapidated and ultimately reaches a ruinous condition.

• TO KNOW CONDITION OF DILAPIDATION --------------------one should know

• a. State of disrepair of the building.
• b. Defective condition of the building.
• c. Worn out or ruinous condition of the building.

• All these arising out of the positive act of injury or wrongful neglect to do such repairs resulting in
dilapidations whereby value of the property depreciates or the owners liabilities for repairs
increases. When injuries are done by a tenant making substantial alterations against the interest
of the owner, willful neglect or omission to take care of the premises by not attending to the
repairs whereby the building falls in the state of decay or ruin, resulting in depreciating of its value,
imposing of increased burden of repairs on the landlord.
• ILLUSTRATIONS OF DILAPIDATION
1. Construction of water tank by the tenant without consent of owner over a terrace which is
not safe to bear the load.
2. Pulling down a building, raising a roof ht. Overloading of premises are all act of
damages.
• Though structural changes and erecting new permanent structures are not permissible,
tenant with approval from owner or local authority as the case may be, can provide
partitions, cooking platform, false ceiling, air conditioner or exhaust fan , grill work, or
opening of a window for ventilation purpose etc.
PREPARATION OF VALUATION

• A dilapidation report is a report on the condition of a property at a given point in time. It

records any existing damage, and the state of any particular aspects of the property that
are likely to be affected by construction work, excavation or demolition. Dilapidation
reports can help protect you against litigation if neighbours claim that your construction or
demolition work has damaged their homes.
• For preparing a report on the schedule of dilapidations, it is necessary to make a detailed
inspection of the building which are in the state of disrepair together with a short
description and measurements of the same. It is also essential to ascertain the age of the
building, its user and locality in which it is situated. The inspection is usually done from
the roof or top floor to the ground floor, then all the external faces and finally
drainage and plumbing works.
TYPICAL VALUATION
----------------------------------------------------------------------------------------------------------------------------------------
ITEM OF WORK APPROX. COST.
----------------------------------------------------------------------------------------------------------------------------------------
First floor roof : a. 50% tiles broken, battens decayed ends of purlins and
tie beams of roof trusses attacked by termites. Rs. 150000.00
b. roof has caved in ..to be replaced. Rs. 50000.00
c. Leakage from roof and gutters. Rs. 25000.00
Walls: a. Conditions of walls supporting the truss—to be repaired. Rs. 15000.00
b. Conditions of walls and plaster—cracks.to be replastered. Rs. 75000.00
c. Conditions doors and windows. Frames sagged,
windows rusted, new alluminium windows. Rs. 250000.00
Floor : a. Whether it is sagged or not ..sagging at places..repair. Rs. 15000.00
b. Separation of junction of wall and floor and the cause. NIL

Staircase : a. Conditions of steps. NIL

b. Conditions of hand rail and balusters NIL
c. Level and conditions of steps and landing NIL
Ground floor : a. Conditions of ceiling, joists and beams Rs. 50000.00
b. Cracks in walls and plaster Rs. 50000.00
c. Conditions of doors and windows. Rs. 250000.00
Four side elevations : Conditions of walls, cracks, plaster, line, Rs. 150000.00
level and plumb, cracks in
plinth and uneven settlement of plinth etc.
Sanitary block : Leakage from baths, W.C.s , their structural
conditions, missing and
broken fixtures and conditions of pipe lines. Rs. 150000.00
Drainage arrangements : Conditions of septic tank, soak pit,
inspection chambers, overflow etc. Rs. 75000.00
General : Conditions of electrical fittings, cracks in terrace, pavement, Rs.175000.00
parapet wall, leakage from terrace, conditions of rain water pipes etc. -----------------------------
TOTAL Rs. 1230000.00
-----------------------------
TYPICAL REPORT

First floor roof : a. Conditions of tiles, battens, ends of purlins and tie beams of roof trusses.
b. Whether roof has caved in or not
c. Leakage from roof and gutters
Walls: a. Conditions of T.W. posts or walls supporting the truss
b. Conditions of walls and plaster
c. Conditions doors and windows
Floor : a. Whether it is sagged or not
b. Separation of junction of wall and floor and the cause.

Staircase : a. Conditions of steps

b. Conditions of hand rail and balusters
c. Level and conditions of steps and landing
Ground floor : a. Conditions of ceiling, joists and beams and their levels
b. Cracks in walls and plaster
c. Conditions of doors and windows.

Four side elevations : Conditions of walls, cracks, plaster, line, level and plumb, cracks in
plinth and uneven settlement of plinth etc.

Sanitary block : Leakage from baths, W.C.s , their structural conditions, missing and
broken fixtures and conditions of pipe lines.

Drainage arrangements : Conditions of septic tank, soak pit, inspection chambers,

overflow etc.
• General : Conditions of electrical fittings, cracks in terrace, pavement,
parapet wall, leakage from terrace, conditions of rain water pipes etc.

• The estimated cost of the repairs should be worked out in order to show
that the repairs to the building are economical or not. If uneconomical it
requires pulling down.

• The following are few considerations for the same :

a. If the cost exceeds 8 years of gross rent.

b. When it has completed its economic life.
c. Due to uneconomical returns
d. If it can not be put to beneficial use.
 DILAPIDATION CERTIFICATES :
• Typically include things like notes, measurements, photographs and diagrams which give an
accurate picture of the state of the buildings being inspected, and are normally signed by both
the owner of the property being inspected, and the contractor. Present cost of reinstating and
completing repair works will cost approx. Rs. 900000 as per dilapidation report.
• CERTIFICATE: DATE:
• The building is typical load bearing structure with Mangalore. tiles on joists and rafters, brick
walls with plaster, ordinary kota tiles, nandi doors and block board shutters, steel windows etc. a
built 35 years back at a cot of Rs. 800000.00 .
Now the cost of Rs. 900000.00 exceeds the capital cost and building has already completed its
economic life of 30 years, it is better to pull down the building and new one is proposed to be
constructed.
ARCHITECT/VALUER----REG. NO.

OWNER CONTRACTOR
LIFE OF A BUILDING : THE LIFE OF A BUILDING DEPENDS ON
 Materials of construction
 Repairs and maintenance
 Sub-soil condition
 Climatic condition
 User – residential compared to go down
 Vibrations in factory building
AGE OF A BUILDING : it is the actual physical age of the building which can be ascertained from documents of the owner
or some times it is written on compound wall near gate or in a prominent place.
• ECONOMIC LIFE OF DIFFERENT TYPES OF PROPERTIES.
1. R.C.C. framed structure 80 years
2. Mangalore tiles/A.C.. or G.I..sheet on load bearing walls. 30 years
3. -----------do-------------------temp. structures 10 years
4. Load bearing brick wall construction 60 years
5. Load bearing stone wall—1st class construction. 100 years
6. Factories 40 years
THE LIFE OF BUILDING CAN HAVE THREE ASPECTS.
ECONOMIC LIFE 2. PHYSICAL LIFE 3. OBSOLESCENCE
1. ECONOMIC LIFE: When owner builds a building he expects it to last for certain
number of years so that he gets a steady income after paying all the outgoings. When
the income from property decreases and cost of maintenance increases out of
proportion, then it is no more profitable to own that property. Then it can be said that
the economic life of property is over. it is usually less than the physical life. At present
economic life of a building is considered as 60 years for load bearing and 80 years for
framed ones while for factories it is 40 years.
2. PHYSICAL LIFE : After the span of economic life has passed repairs to the building
go on increasing and increasing till a stage is reached when the repairs are an
impossible economic proposition. The only alternative is to pull down the building. The
life of the building left after the economic life is known as physical life.
3. OBSOLESCENCE : The building may be physically sound but if it is realized that it is
not suitable for the present needs of life, then it can be said that the building has
become obsolete and therefore life is over. Even change of use like residential area
declared as Industrial then the property becomes obsolete.