VALUATION

PROFESSIONAL PRACTICE
AND VALUATION
-: CREATED BY:-

KAVIN RAVAL
141080106026
-: SUBMITED TO:-
PROF. NUTAN PATEL
CIVIL DEPARTMENT
ACET
CONTENT OF SLIDE
1. TERMS
2. VALUATION
3. TABLES OF VALUATION
4. TYPES OF RENT
5. FIXING STANDARD RATE
TERMS
CHAPTER 1
COST
• The term cost is used to indicate the actual amount incurred
in producing a commodity.
• Cost means the original cost of construction and can be
known after accounting all day-to-day expenditure from the
very planning stage till the construction is completed.
• The expenditures or charges represented directly in the
commodity produced are called the prime costs.
• Other expenditures or charges like rent, management,
services, salaries, depreciation, etc. represented indirectly in
the production of the commodity are called the
supplementary costs.
Value
• Value means its worth or utility.
• Value varies from time to time and depends largely on the
supply of that particular type of property and the extent of
the demand for it
• The cost of the construction of a building may have no relation
to the value of the same if sold in the open market.
• The value of the property within a short time may be more
like double than construction when there are more buyers .
• The value depends upon
->It’s utility
-> scarcity
-> events
Price
• The term price is used to indicate the cost of the commodity
plus profit of the manufacturer.
Price = Cost + Profit
• As labour and capital are required to produce a commodity,
• The manufacturer is entitled to have some reward over and
above the cost of commodity.
• The price of a commodity is determined by the supply and
demand conditions prevailing in the market for that
particular commodity and as such , a commodity may be
sold above or below its cost of production
VALUATION
CHAPTER -2
Valuation
• Valuation is the art of estimating or determining the fair price
or value of a property such as a building, a factory, other
engineering structures, land, etc.
• By valuation the present value of a property is determined.
• The present value of a property depends on its structure, life,
maintenance, location, legal control, etc.
• The value also depends on supply on demand and the
purpose for which valuation is required.
• Rises and falls of the fair price can occur in a very short space
of time.
• It follows therefore that all valuations must clearly state the
date to which the value relates, since time is the essence of
all valuations.
Valuation
• The value of a property depends on:
1. Nature of structure
2. Life
3. Maintenance
4. Location
5. Bank interest
6. Legal control
7. Supply and demand
8. Purpose of valuation
Objects/Purpose of valuation
1. Buying or selling property.
when it is required to buy or sell a property, its valuation is required
2. Security of loans or mortgage.
When loans are taken against the security of property , its valuation is
required. It is also referred to as valuation for mortgage purposes.
3. 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
(5% to 10% of the valuation).
4. Insurance
For the purpose of taking out an insurance policy of the property, the owner
desires to know the replacement value of the property . In this case , the
value of land is excluded or omitted.
Objects/Purpose of valuation
5. Taxation
To assess the tax of a property , its valuation is required. Taxes may be municipal tax,
property tax, wealth tax, etc. and all the taxes are fixed on the valuation of the property
6. Compulsory acquisition
sometimes, a property is acquired by law for some public purpose. In that case, the
injured party is to be paid a suitable amount of compensation for the property thus
acquired. To determine the amount of compensation valuation of the property is required.
7. Betterment charges
when the property comes under some town planning scheme of the area, its value increases
and consequently, the owner of the property is required to pay additional tax, known as the
betterment charges. It becomes, therefore necessary for the property to know the value of
his property before and after completion of town planning schemes.
Objects/Purpose of valuation
8. Speculations
When a purchase is intended for sale of the property and make some profit, a
short period valuation is necessary for that purpose and this is known as
speculative value. Generally speculative value is lesser than the market value.
9. Court fees
When a case has to be filed with respect to a real estate, it becomes necessary
to affix stamp of suitable amount. This amount is worked out after arriving at
the value of the property under dispute.
10. Gift tax
When a property is gifted, valuation of the gifted property is necessary to pay gift tax to
the government by the person whom the property has been gifted
11. Balance sheet
Sometimes, a company requires valuation of its premises for the purpose of showing
them in the balance sheet.
TYPES OF PROPERTY
• There are mainly three types of property
1. Mortgage
2. Free hold property
3. Lease- hold property
TYPES OF INCOME
• There are mainly three types of incomes
1. Property income
2. Gross income
3. Net income
DEPRICIATION
• Depreciation is the gradual loss in the value of the property due to its use, life, wear, tear
and decay.
• This is an assessment of the physical wear and tear of the building or property and is
naturally dependent on its original condition, quality of maintenance and mode of use.
• Thus, the value of a building or property (but not land ) decreases gradually up to the
utility period due to depreciation.
• A certain percentage of the total cost may be allowed as depreciation to determine its
present value.
• Usually a percentage on depreciation per anum is allowed .
• The general annual decrease in the value of a property is known as ‘annual depreciation’.
• Usually . The percentage rate of depreciation is less at the beginning and gradually
increase during later years.
• Present value of property
= initial cost - total amount of depreciation.
DEPRICIATION
• Types of depreciation :

(a) Physical depreciation

1. Wear and tear from operation
2. decrepitude i.e. action of time and other elements

(b) Functional depreciation

1. Inadequacy or suppression
2. Obsolescence
OBSOLESCENCE
• Obsolescence may be defined as the loss in the value of the
property due to change in fashions, in designs, in structures, etc.
• 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.
• The obsolescence may be due to the reasons such as progress in
arts, changes in fashions, changes in planning ideas, new inventions,
improvements in design techniques, etc.
• A machine of old design may become obsolete, though it may be in
good running condition and its value will be less.
• Thus, though the property is physically sound, it may become
functionally inadequate and its economical returns become less.
OBSOLESCENCE
• Types of obsolescence :
[A] Internal obsolescence :
1. Poor or old design
2. Change in type of construction
3. Change in kind of construction
4. Change in utility demand
[B] External obsolescence
1. Poor original location
2. Change in the character of the district
3. Specific detrimental influences such as, construction of factories,
proximity of public building, traffic locations, noises, etc.
4. Zoning laws
Different Forms Of Value
• Different forms of values are as
under 8. Replacement value
1. Market value 9. Investment value
2. Book value 10. Sentimental value
3. Scrap value 11. Speculative value
4. Salvage value 12. Annual value
5. Accommodation value 13. Potential value
6. Distress value 14. Occupation value
7. Monopoly value 15. Present value
ESTIMATING VALUATION
CHAPTER - 3
VALUATION TABLE
• In order to save time and reduce the chances of error in elaborate
and laborious mathematical calculations, the valuation tables are
prepared so that by referring to them, suitable coefficients can be
found out.
• Valuation tables are worked out based on respective mathematical
formula for simple and compound interest for sinking fund,
depreciation, interest on capital, amount receivable at the form of
ready reckoners and are very easy to use.
• But it is necessary for valuer to have a through knowledge of the
construction of these tables.
TABLE - 1
• To find the amount to which Re. 1 will accumulate at the end
of given numbers of given numbers of years.
• Let , i = interest per annum on Re. 1
• Interest of Re. 1 after 1 year = i
amount receivable after 1 year = ( 1 + i )
amount receivable after 2 years = ( 1 + i ) + ( 1 + i ) i
= 1 + i + i + i²
= ( 1 + i ) ² Re.
for Re. 1 amount receivable after n years
= ( 1 + i )ᴺ
.
C=(1+i)ᴺ
TABLE - 2
• To find the present value of Re. 1 receivable at the end of
a given number of years.
• Present value of Re. 1 /-

• This formula indicates how much amount is to be

invested at present, to get Re.1 at the end of n years
TABLE - 3
• How much amount to be deposited every year to
accumulate 1 Re. after n years.
• To find the amount of annual sinking fund for the
redemption of Re. 1 capital

• Instalment of S.F.=
TABLE - 4
• If Re. 1 is invested every year, how much amount will be accumulated
after n years ?
METHODS FOR VALUATION
[A] Valuation method for property and land.
1. Rental method
2. Land and building based method
3. Profit based method
4. Development method
[B] Valuation methods.
1. Comparative method
2. Hypothetical method
3. Belting method
TYPES OF RENT
CHAPTER - 4
RENT
• Rent may be defined as an animal or periodic
payment for the use of land or building and land.
TYPES OF RENT
1. Standard rent 10. Nominal rent
2. Head rent 11. Monopoly rent
3. Rack rent 12. Fair rent
4. Situation rent 13. Gross rent
5. Sitting rent 14. Net rent
6. Subsidized rent 15. Lease rent
7. Improved rent 16. Ground rent
8. Profit rent
9. Contractual rent
TYPES OF RENT
1. Standard rent
 Standard rent is the legal permissible rent that can be charged to a tenant.
The rent controller of a state used to fix up the standard rent of a
building considering its cost of construction, age , cost of land
and its location
 This is the maximum permissible rent for a building of a state can be
challenged at the court of law.
2. Head rent
 If the rent a grade in an occupation is less than the prevailing rent for
similar property, it is known as head rent
 Reasons of taking less rent
i. tenant is extremely needy
ii. tenant may have made modifications in the building at his own cost with the consent
of the owner
iii. Owner may have taken deposit from the tenant
TYPES OF RENT
3. Rack rent
If the rent a grade in an occupation is nearly equal to the
prevailing rent for the similar property, it is known as rack rent
,Wreck represents the full rental value of land and building .
it is also called market rent In all cases of valuations by rental
method, it is necessary to know comma the rack rent of the
property
4. situation rent
If the property is situated in a good locality comma it may fetch
higher rent such a rent is known as situation rent
5. Sitting rent
Sitting rent is term applied to the true annual cost of premises to a
lessee. It is the rent paid plus the annual equivalent of any capital
sums he may have extended on the premises from time to time It
is also known as virtual rent
TYPES OF RENT
6. Subsidized rent
From certain person less rent is charged then normal rent
 It is known as subsidize rent
For example rent for workers quarters
7. Improved rent
When the original lease holder sub lets the property under
lease at a higher rent then the original rate rent of the lease
then it is known as improved rent
This is more than the head rent
8. Profit rent
The difference between the improved rent and head rent is
known as profit rent
TYPES OF RENT
9. Contractual rent
The rent agreed upon by bargaining between a landlord and tenant
is known as contractual rent
Many times it happens that the contractual rent becomes higher
than the standard rent and the tenant takes legal help to revise the
rate of his rent comparing with standard rent
On the other hand the contractual rent becomes too old the owner
may apply to the court of law to increase the old rate
10. Nominal rent
It is token rent of very small amount per annum mention in lease
document in order to establish the relation between a landlord and
tenant or lease
For very long term lease say for 999 years the right of these lease
treated as perpetual
TYPES OF RENT
11. Monopoly rent
In a good locality, due to shortage of houses the owner of house
maid demand higher rent it is known as Monopoly rent
12. Fair rent
The rent payable by a tenant under existing rules of the rent Control
Act , is known as fair rent and should be the prevailing recent rent
for similar properties in the
13. Gross rent
The total rent received from a tenant without any outgoing
reduction is known as gross rent
14. Net rent
Net rent = gross rent - outgoings
TYPES OF RENT
15. Lease rent
This is a certain periodical payment fixed in the lease document to
be paid by the loss to enjoy the position of a property from the
owner
Property consists of land with structures or open land only But lease
rent for open land only is specifically known as ground rent to hold
the possession of ground only
16. Ground rent
The rent paid by person for use of plot a vacant land belonging to
another person is known as ground rent
There are two main forms of ground rent
1 unsecured ground rent
2 secured ground rent
FIXING STANDARD RATE
CHAPTER – 5
FIXING STANDARD RATE
• Standard rent is the legal permissible rent that can be
charged to A tenant
• The rent is determined from the value of property
• Greater the value of A property, the greater is the rent
• The method of fixing A rent is just reverse the rental
method of valuation of A property
• The rent of building is fixed on the basis of certain
percentage of the annual interest on the capital cost less
all possible annual outgoings
• The rent fixed should not exceed the standard rent so
that it can be challenged at the court of law
PROCEDURE
[1] Standard rent (gross rent)
= Net rent(net return) + outgoings
[2] Calculate annual net income (return) N.I. summing up
of the following .
a) A certain annual interest on the cost of construction of the
building including the costs for water supply and sanitary, etc.
b) A certain annual interest on land is considered . The rate of
interest on land may be same or a bit less than the rate of
interest for the cost of construction.
PROCEDURE
c) Outgoings – All usual outgoings are Govt. taxes, repair
and maintenance charges, management and collection
charges, etc.
G.I. = N.I. + outgoings
G.I. = Annual rent

 Monthly rent = Annual rent / 12

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