Professional Practice I

VALUATION

Ar. Kalpeshkumar Patel

 VALUATION
Definitions

• Valuation is an estimation of the worth of something, especially one carried out

by a professional valuer
• Valuation is an adventure in economic research, leading to an economic decision
of a valuer which indicates the conclusions arrived at after taking into
consideration all factors like economic, social, political, legal, and physical which
affect the value one way or the other.
 VALUE, PRICE AND COST
VALUE
Value is an estimate of what the price ought to be.
Price
Price is a fact. It is the cost of a commodity plus additional reward to the producer for
his labour and capital
Cost
Expenditure to produce a commodity having value
 MARKET VALUE
The Market Value has been defined as the amount which might be expected to realise
from a willing purchaser on a sale of a property by a willing seller in the open market.

Essential Characteristics of Market Value

• Vendor must be willing to sell
• Purchaser must be willing to purpose and must be a prudent one who can put the
land to the most beneficial use.
• Sentimental value to the vendor will have no place
• Present and future uses known as potentials are to be taken into account
• Urgent need of purpose or sale to be discarded.
 VALUE CLASSIFICATION
• Guidance Value – decided by Govt for acquisition of land

• Assessed Value - done by local Authorities for knowing the tax amount to be
calculated from the owner

• Book Value – original investment on its assets including properties and machinery
and depreciation

• Salvage Value – Value of Building / Machinery realised on sale when it is used for
some years but it has not become useless.

• Scrap Value or Junk Value – Value of Building / Machinery realised when it has
became useless . There is option sale as Junk or Scarp.. It is also known as
Demolition Value
 VALUE CLASSIFICATION
• Replacement Value – value for acceptable replacements or substitutes at market
rates…

• Earning Value – Present value of the property showing an income yielded in future

• Potential Value – Value considers increasing value due to passage time or due to
some alternative use

• Distress Value – Property sold at lower price than the Market Price

• Speculative Value – Property is purchased for short duration to sell for higher
returns
 VALUE CLASSIFICATION
• Monopoly Value – Due to demand and less supply of land or plots in a particular
area or locality

• Sentiment value – Fancy price due to the sentimental value attached to the
property…

• Accommodation Land and Accommodation Value – Accommodation Land is

usually outskirts of the city… used as Playground . Garden etc….Buffer zone or less
development zone… Accommodation value is more than Agricultural land but less
than Non Agricultural Land
 PURPOSE OF VALUATION
1. Purchase for Investment or Occupation
2. Sale
3. Mortgage
4. Rent Fixation
5. Land Acquisition
6. Betterment Charges
7. Auction Bids
8. Speculation
9. Insurance
10. Wealth Tax
11. Capital Gains
12. Stamp Duty
13. Gift Tax
14. General court purpose
 FACTORS AFFECTING THE VALUE OF PROPERTY

1. Supply and Demand

2. Cost of Replacement

3. Occupational Value

4. Interest and Security of Capital

5. Abnormal Conditions

6. Town Planning Act or Master Plan

 QUALIFICATION FOR VALUER
MINIMUM QUALIFICATION FOR EMPANELMENT OF VALUERS PRESCRIBED UNDER
SECTION 34AB (RULE 8 A) OF THE WEALTH TAX ACT 1957
The minimum qualification prescribed under section 34AB (Rule 8 A) of the Wealth Tax
Act 1957 are enclosed herewith as Annexure-“A”. However the salient details are as
under:
a. A valuer of Immovable property (other than agriculture lands, plantations, forests,
mines and quarries) should have the following qualification:
(i) He should be a graduate in civil engineering, architecture or town planning of a
recognized university or
(ii) He should be a Post graduate in valuation of real estate from a recognized
university or
(iii) He should possess a qualification recognized by the Central Government for
recruitment to superior services or posts under the Central Government in the filed of
civil
 REGISTRATION AS VALUER
The Indian Institution of Valuers (India),
Second Floor, West Wing, PMT Building
Hadapsar, Pune - 411028, Maharashtra (India),
Phone Nos: +91-20-26993456

Institute of Valuers
Plot No. 3, Parwana Road ( Adjacent to Bal Bharti Public School)
Pitampura, New Delhi – 110 034
Phone: (91) (011) 270 12855 / 56 / 57
E-Mail: indianvaluers@iov.co.in
Web: http://www.institutionofvaluers.net

Under the Category – Land & Building

From 1st April 2019,

Valuers should take Valuation Examination conducted by  Insolvency and Bankruptcy
Board of India ( IBBI) established in October 2016 to get Empanelled to do Valuation
for Banks .
 METHODS OF VALUATION
1. Rental Method of Valuation
Net income from Rent is found by deducting all expenditures or outgoings from the
Gross Rent ( Annual Rent collected by Landlord from Tenant). To this Net income a
suitable rate of interest is added and calculated. This called Capital Value of that year…
So add the number of years for future life of the building.. To get overall capital value…

2. Profit Method of Valuation

Deals with working profit from the property and capitalizing the same at appropriate
rate. Part of profit due to Goodwill, Brand or Location .. That Royalty should be
considered.. Usually Applicable to Cinemas and Hotels…
 METHODS OF VALUATION
3. Development Method of Valuation –
Along with Building and Land Value considerations, the cost of development like roads,
drains, electrical lines etc. should be considered. Necessary Allowance will have to be
made for legal cost and other incidentals like Registration, HESCOM Deposit…
 STANDARD RENT
Rent is defined as the periodic payment made by the tenant to the landlord for use
and occupation of the building or premises. Maintenance can be included in rent or
collected annually. Or any other amenities agreed by the landlord to provide..

Standard Rent is rent which would be permissible under the law to be changed to be a
tenant…

COST OF CONSTRUCTION
Building Cost Can be ascertained by Following Methods
• Account Method – Tender Value or Departmental Value based
• Detailed Item wise Method
• Unit Rate of Construction per Square Metre Method
• Lump sum Method
Thank You