Er.

Gurbakshish Singh
Antal
Lect Civil Engg.

Valuation

Property valuation
Valuation Methods
Need of Valuation
Value Theory
Valuation is both a
Science and an Art!

Valuation is both a
Science and an Art!
Valuation includes components
and knowledge of:
-mathematics
-statistics
-physical (land) planning

-urban planning
-rural planning/agriculture

Valuation components
-building construction
-sociology/human

behaviour
-common sense/feeling

Valuation
Valuation is the technique
of estimating and
determining the fair
price or value of a
property
such as a building, a
factory or other

Valuation of a building
depends on
type of the building,
building
structure
durability,
on the situation,
Size of building,
Shape of building,
Frontage of building,

and

Valuation of a building
depends on

width of roadways,
the quality of materials
used in the construction
present day prices of
materials

The valuation of a
building is
determined on
working out its cost
of construction at
present day rate and
allowing a suitable

Purpose of valuation

1.Buying or Selling Property

When it is required to buy or sell a
property, its valuation is required.

2.Taxation
To assess the tax of a property, its
valuation is required. Taxes may be
municipal tax, wealth tax, Property
tax etc, and all the taxes are fixed
on the valuation of the property.

3.Rent Function
In order to determine the rent of a
property, valuation is required. Rent
is usually fixed on the certain
percentage of the amount of
valuation which is 6% to 10% of
valuation.

4.Security of loans or Mortgage

When loans are taken against the
security of the property, its valuation
is required.

5.Compulsory acquisition
Whenever a property is acquired by
law; compensation is paid to the
owner. To determine the amount of
compensation, valuation of the
property is required.

6.Insurance,Betterment
charges, speculations Valuation
of a property is also required for
Insurance,Betterment charges,
speculations etc.

Information needed
Information about the property:
Land use
Land area
Building: size, age, standard etc.
Yearly costs and incomes
Other special conditions

Information needed
Information about the purchase
Seller
Price
Buyer
Date:
Date of sale
Price:
Seller
etc.
Buyer
Information about the real property

Land use
Land area
Building: size, age, standard etc.
Other special conditions

: Mr A
: Mrs B
04-09-15
1 200 000

Information needed
General information
Average replacement costs
Depreciation - time and percent
Average value of land
Information about the real property
Land use
Land area
Building: size, age, standard etc.
Other special conditions

The cost approach

SEK/
USD

Replacement
costs

Depreciation 3.5 %/year

Cost of land

Age (years)

10

Replacement costs
1 000
Depreciation 10 years 3,5 %
Cost of land
200
Cost value
850

Cost
value

- 350

Ty
p

es

of

Va
l

ue

Market value

Market Value
The market value of a
property is the amount
which can be obtained at
any particular time from
the open market if the
property is put for sale. The
market value will differ
from time to time according
to demand and supply.

Market Value

The market value also changes

from time to time for various
miscellaneous reasons such as
changes in industry, changes in
fashions, means of transport,
cost of materials and labour
etc.

Scrap value

Scrap value may be defined as

the value of materials of
dismantle buildings. After the
completion of utility period the
dismantled materials such as
Steel, timber ,bricks and
furniture will fetch a certain
amount which is called scrap
value of building. Scrap value of
building is about 10 % of its
total cost of construction.

Salvage value

- The value of building at the end

of utility period without being

dismantled is called the Salvage
Value. Another example is a
machine after the completion of
its usual span of life , may be sold
or purchased by some one for
other use. The sale value of that
machine is called Salvage value.

Salvage value of a property

or an asset may be positive,
zero or negative. For
example the salvage value of
RCC structures is negative
,because dismantling and
removal will be costly. Scrap
value of machine is Positive
because it will be used for
other purpose.

Insurable value

Liquidation Value

Book Value

Book value is the amount shown in

the account book after allowing
necessary depreciations.
The book value of a property at a
particular year is the original cost
minus the amount of depreciation
allowed per year and will be
gradually reduced year to year and
at the end of the utility period of the
property, the book value will be only
scrap value.

Sinking fund:

Sinking Fund may be defined as the

fund which is gradually accumulated
by way of periodic on account deposit
for the replacement of building or
structure at the end of its useful life.
Main function of creating Sinking
fund is to accumulate sufficient to
meet the cost of construction or
maintenance or replacement of
structure after its utility period.


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Depreciation is the
gradual exhaustion of the
usefulness of a property.
This may be defined as
the decrease or loss in
the value of a property
due to structural
deterioration, life wear
and tear, decay and
obsolescence.

Definition
HKSSAP defines
depreciation as the
allocation of the
depreciable amount of an
asset over its estimated
life.

Rateable Value

Rateable Value is net annual

letting value of a property ,
which
is
obtainable
after
deducting the amount of yearly
repairs
from
gross
income.
Municipal and other taxes are
charged at a certain percentage
on the rateable value.

Obsolescence

Obsolescence is defined as the

overall decrease in the value of
property or structure due to
becoming outdate in style, in
structure or in design.
i.e an old dated building with
massive walls, arrangement of
rooms not suited in present days
becomes obsolete even iif it is well
maintained.

Reasons of Obsolescence

Progress in Art
Change in Fashion

Change in
planning idea
New trends in
Market

New invention

Improvement in
Design

Inadequate
Space

Annuity

Annuity is the annual periodic

payments for repayment of the
capital amount invested by the
party.

These payments are either paid at

the end of year or at the start of
year.

Capital cost

Capital cost is the total cost of

construction including land, or the
original total amount required to
possess a property.
It is the original cost and does not
change while the value of the
property is the present cost which
may be calculated by methods of
Valuation.

Capitalized Value of a Property

The capitalized value of a property is
the amount of money whose annual
interest at the highest 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.
Capitalized Value = Net income x
years purchase

Years Purchase

Years purchase is defined as

the capital sum required to be
invested in order to receive a
net receive a net annual income
as an annuity of rupee one at a
fixed rate of interest.

Years Purchase

The capital sum should be

1100/rate of interest.
Thus to gain an annual income of
Rs x at a fixed rate of interest,
the capital sum should be
x(100/rate of interest).
But (100/rate of interest) is termed
as Years Purchase.

Factors Kept in Mind During

Valuation
Area where
Property Situated
Present Cost of
Material
Heritage value of
Building
Condition of scrap

Land value
Gross income
On situation
Road width
frontage

Qualities of a Good valuer

He must know the deep knowledge of the
concerned field or subject area.
He must posses Analytical and Computer Skills.
He should know the tolerances for wastage
incurred during construction.
He should be know the Present rates of
material used.
He should be well experienced
He should know the bye laws of that area.
He should posses the leadership and soft skills.
He must know the deep knowledge about the
latest materials and their cost.

Methods of Valuation
Valuation
Depreciation
based
Method
on cost
profit
Rental comparison
Direct
Method
of Valuation
with the

Value

capital

Rental Method of
Valuation

In this method, the net income by way

of rent is found out by deducting all
outgoing from the gross rent. A
suitable rate of interest as prevailing
in the market is assumed and Years
purchase is calculated. This net income
multiplied by Years Purchase gives the
capitalized value or valuation of the
property.
This method is applicable only when
the rent is known or probable rent is
determined by enquiries.

Direct comparison with the capital

Value

This method may be adopted when

the rental value is not available
from the property concerned, but
there are evidences of sale price
of properties as a whole. In such
cases, the capitalized value of the
property is fixed by direct
comparison with capitalized value
of similar property in the locality.

Valuation based on profit

This method of Valuation is suitable for
buildings like hotels, cinemas, theatres etc
for which the capitalized value depends on
the profit.
In such cases, the net income is worked out
after deducting gross income; all possible
working expense, outgoings, interest on the
capital invested etc. The net profit is
multiplied by Years Purchase to get the
capitalized value.
In such cases, the valuation may work out
to be high in comparison with the cost of
construction.

Valuation based on cost

In this method, the actual cost
incurred in constructing the
building or in possessing the
property is taken as basis to
determine the value of property.
In such cases, necessary
depreciation should be allowed
and the points of obsolescence
should also be considered.

According to this method of Valuation, the

building should be divided into four parts:

And the cost of each part should

first be worked out on the present
day rates by detailed
measurements.
The present value of land and
water supply, electric and sanitary
fittings etc should be added to the
valuation of the building to arrive
at total valuation of the property.

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guri02@gmail.com