VALUATION ASSIGNMENT

Palvi Deshmukh | 4th year section – B

1. a. Briefly explain various approaches to valuation.

 Valuation of a building depends on the type of building, its
structure and durability, on the situation, size, shape, frontage,
width of roadways, the quality of material used in the
construction and present-day prices of materials. This also
depends on the height of the building, height of plinth,
thickness of wall, nature of floor, roof, doors, windows, etc.
 The valuation of building is determined on working out its cost
of construction at present-day rate and allowing a suitable
depreciation.
 Various approaches to valuation are:
 Cost from record
 Cost by detailed measurement
 Cost by plinth area basis
 Determination of depreciation

b. Explain any one approach in detail.

 Cost from record:
 Cost of construction may be determined from the estimate,
from the bill of quantities, from record at present-day rate.
 If the actual cost of construction is known, this may increase or
decrease according to the percentage rise or fall I the rates
which may be obtained from the P.W.D schedule of rates.

2. Explain the difference between words cost, price and

value in context to immovable properties.
COST PRICE VALUE
 Cost refers to the  The price implies  Value implies the
amount of the financial usefulness and
expenditure made compensation for desirability of a
on a particular the supply or use product or service
product to of the product or to a customer.
produce it or to service.  Value is what goods
undertake any  Price is what the or services pay to
activity. company charges the customers i.e.
 Cost is what the for goods or worth.
company pays to services for its  The estimation of
acquire goods and customers. value is based on a
services for  Price is estimated customer’s opinion
production. through the about the product
 Cost is assessed on pricing policy and or service.
the basis of actual strategy of the
expenditure company.
incurred on
manufacturing a
particular product.

3. Explain by giving examples five different types of

“values” of an immovable property.
 Ratable value: Ratable value is the net annual letting value of a
property, which is obtained after deducting the amount of
yearly repairs from the gross income. Municipal and other taxes
are charged at a certain percentage on the ratable value of the
property.
 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
value of a property is the present cost which may be calculated
by methods of valuation.
 Capitalized value: Capitalized value of a property is the amount
of a money whose annual interest at the highest prevailing rate
of interest will be equal to the net income from the property.
Example: capitalized value of a property fetching a net annual
rent of RS. 1,000 and the highest rate of interest prevailing
being 5% is as follows:
For Rs, 5.00, capital
To get Rs. 1,000 interest, capital
Rs. 1,000 = 100/5 x 1,000
= 20,000.00

In short capitalized value is – net annual income x year’s

purchase.
For the same net income if the rate of interest is 8% the
capitalized value. = 1000x 100/8 = 12, 500.00

 Market value: 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. The market
value also changes from time to time to various miscellaneous
reasons such as changes in industry, changes on fashions,
means of transport, cost of materials and labor, etc.
 Obsolescence: The value of property or structures become less
by its becoming out of date in style, in structure in design, etc.
and this is termed as obsolescence. An old dated building with
massive walls arrangements of rooms not suited in present
days and for similar reasons becomes obsolete even if it is
maintained in a very good condition, and its value becomes less
due to obsolescence.

4. Explain various purposes of valuation.

  The purpose of valuation are as follows:
i. Buying or selling property: when it is required to buy or to sell a
property, its valuation is required.
ii. 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.
iii. Rent fixation: in order to determine the rent of a property,
valuation is required. Rent is usually fixed on certain
percentage of the amount of valuation (6% to 10% of the
valuation).
iv. Security of loans or mortgage: when loans are taken against the
security of the property, its valuation is required.
v. 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.
vi. Valuation of the property is also required for insurance,
betterment charges, speculations, etc.

5. Explain types of property.

 Most legal systems distinguish between different types of
property, especially between land (immovable property, estate
in and, real estate, real property) and all other forms of
property – goods and chattels.
 Movable property or personal property, including the value of
legal tender itself, as the manufacturer rather than the
possessor might be the owner.
 They often distinguish tangible and intangible property.
 One categorization scheme specifies three species of property:
land, improvements (immovable man-made things), and
personal property (movable man-made tings).
 6. Write in detail about methods of estimation.
i. Preliminary cost estimation:
 The preliminary cost estimation is also called an abstract cost
estimate or approximate cost estimate or budget estimate.
 This estimate is generally prepared in initial stages to know the
approximate cost of the project.
 By this estimate, the component sanctioning authority can
decide the financial position and policy for the administration
section.
ii. Plinth area cost estimate:
 Plinth are cost estimate is prepared on the basis of plinth area
of building which is the area covered by external dimensions of
building at the floor level and plinth area rate of building which
is the cost of similar building with specifications in the locality.
 Plinth area estimate is obtained by multiplying plinth area of
building with plinth area rate.
iii. Cube rate cost estimate:
 Cube rate cost estimate of a building is obtained by multiplying
plinth area with the height of building.
 Height of building should be considered from floor level to the
top of the roof level.
 It is more suitable for multistoried buildings.
 This method of estimation is accurate than plinth area method.
 The rate per cubic meter is taken into consideration based on
the cost of similar type of buildings situated in that location.
iv. Approximate quantity method cost estimate:
 In approximately quantity method cost estimate, the total wall
length is multiplied by the rate per running meter is calculated
separately for the foundation and superstructure.
 In case of foundation, rate per running meter is decided by
considering quantities such as decided by considering
quantities such as excavation cost, brick work cost up to plinth.
  While in case of superstructure quantities like brickwork for
wall, wood works, floor finishing etc. are considered for
deciding rate per running meter.
v. Detailed cost estimate:
 Detailed cost estimate is prepared when competent
administrative authority approved the preliminary estimated.
 This very accurate type of estimate.
 Quantities of items of work are measured and the cost of each
item of work is calculated separately.
 The rates of different items are provided according to the
current workable rates and total estimated cost is calculated.
vi. Revised cost estimate:
 Revised cost estimate is a detailed estimate and it is prepared
when the original sanction estimate value exceeded by 5% or
more.
 The increase may be due to sudden increase in cost of
materials, cost of transportation etc.
 The reason behind the revision of estimate should be
mentioned on the last page of revised estimate.
vii. Supplementary repair cost estimate:
 Supplementary cost estimate is a detailed estimate and it is
prepared freshly when there is a requirement of additional
works during the progress of original work.
 The estimate sheet should consists of cost of original estimate
as well as the total cost of work including supplementary cost
of work for which sanction is required.
viii. Annual repair cost estimate:
 The annual repair cost estimate is also called annual
maintenance estimate which is prepared to know the
maintenance costs of the building which will keep the structure
in safe condition.
 Whitewashing, painting, minor repairs, etc. are taken into
consideration while preparing annual repair estimate for a
building.

7. Explain in detail factors affecting valuation.

 Location: the location of a property is the most obvious factor
that affects how much a property is worth. People generally
want to live close to where they work and where they enjoy
their free time, so properties in these area will be more
expensive.
 Supply and demand: id demand exceeds supply in a given
market, property prices will increase. This is because there are
more people in the market for a smaller number of properties
and the completion to secure a home drives prices up.
 Economic outlook: the overall performance of the economy can
also have an impact on the property market. If the economy is
experiencing strong growth, employment and labor conditions,
people can afford to purchase a property, which leads to rising
property values.
 Property market performance: the performance of the real
estate market in your local area can also affect how much your
property is worth. If there’s little demand for houses in the
neighborhood and the properties listed are selling for well
below the asking price, expect values to fall.
 Population and demographics: the more people who want to
live in a particular suburb. At the same time, the type of people
living in the area will also influence property values.
 Size and facilities: the features and overall size of a property
will also influence its worth. A four bedroom house is likely to
fetch more than a two bedroom house in the same area.
 Aesthetics: the street appeal of a property should never be
underestimated. First impressions are very important in real
estate.
 Renovation potential: the potential for growth is important for
both homebuyers and investors – the potential to add an extra
bedroom or extra storey, the potential to increase the floor
space, or the potential to add pool or outdoor patio.
 Investment potential: the value of a property is also influenced
by the potential it presents to investors. Factors such as the
rental income an investor can expect from a property and the
capital growth they will enjoy when they later sell the property
all play their part.
 Energy efficiency: a property made of high quality materials is
likely to have a higher value, in part because this makes the
property easier to heat and cool.

8. Write short notes on: (any 2)

i. Replacement cost:
 Replacement cost is a term referring to the amount of money a
business must currently spend to replace an essential asset like
a real estate property, an investment security, a lien, or
another item, with one of the same or higher value.
 Sometimes referred to as a “replacement value,” a
replacement cost may fluctuate, depending on factors such as
the market value of components used to reconstruct or
repurchase the asset and the expenses involved in preparing
assets for use.
 The practice of calculating a replacement cost is known as
replacement valuation”.
 The replacement cost is an amount that a company pays to
replace an essential asset that is priced at same or equal value.
ii. Depreciation:
 Depreciation is the gradual exhaustion of a property.
 This may be defined as the decrease or loss in the value of a
property due to structural deterioration use, life wear and tear,
decay and obsolescence.
 The value of a building or structure will be gradually reduced
due to its use, life, wear and tear, etc. and a certain percentage
of the total cost may be allowed as depreciation to determine
its present value.
 The amount of depreciation being known, the present value of
a property can be calculated after deducting the total amount
of depreciation from the original cost.