Valuation In Engineering Professional

Practice
What is Valuation?
 Valuation is the technique of estimating or determining
the fair price or value of a property such as land
building, assets, equipment's, vehicles etc.
 In other words, Valuation is an art of recognizing the
saleable present value of a property on the basis of its
depreciated rate, government rate and commercial rates.
 In the engineering professional practice, the mainly used
purpose of the valuation is to determine the present rate
of land, building, assets, machines and equipment's to
use it as a mortgage as a security of loan by various
banks, or for any other purpose.
Purpose Of Valuation
Along with the engineering professional practice, valuation has other
different purposes. Some of them are:
 For mortgage as security of loan by bank or organization.
 Buying or selling of property on saleable rate.
 For tax fixation or assessment of taxes
 For fixation of insurance premium, mostly used for vehicles
valuation.
 For partition of a property
 To determine speculation i.e., more than fair price in selling.
 For determination of rent.
Principle of valuation
As a valuator, one must acquire detail information about the property, its
type, location, market rates, government rates, details about the importance
of certificates needed while valuating and information in respective field.
He/she must be aware of administrative laws and bank laws etc also.
At the time of evaluating fair market value of the property, following
principles should be observed.
a. Cost depends upon the supply and demand of property.
b. Cost depends upon its design, importance, type of materials used,
location and accessibility of the property.
c. Cost varies with the age and lifespan of the property.
d. Depreciation must be considered while evaluating building, assets,
equipment's and machines etc.
e. Valuators must be ethically moral so that they will not value the
property based on the interest of their clients’ interest and commission
one must have no personal interest on the proposed property.
Scopes of valuation
Land Valuation : Land valuation as one of the important component of
Land Administration is the process of valuing land. The value usually
determined is the land's fair market value. Furthermore, all properties
differ from each other in their location and are an important factor in
their value, accessibility and availability of facilities. Every properties
has different values depending upon its affecting factors.
At present, the property valuation is undertaken in Nepal only to access
loans provided by the banks or other financial organizations.
Building Valuation: It is mostly done for the home loan purposes by
mortgaging the property to the bank.
Factors Affecting The Valuation
 Present and future value of the property
 Type of property (Residential/Commercial/Agriculture/Industrial)
 Location of property
(Residential/Commercial/Agriculture/Industrial)
 Accessibility to the property
 Climatic Condition
 Type of structure
 Topography
 Road width and motor able access
 Hold type (freehold/rented)
 Residual age of the property
Valuation In Engineering professional Practice
1. Valuation of land only
2. Valuation of land and building
3. Valuation of Building Only
4. Valuation of existing assets of building
5. Valuation of machines in factories/industries.
Criteria for valuation of Properties as per bank: Valuator shall valuate only
those properties which meets the following criteria unless mentioned
otherwise.
 Property which is assessed for valuation must be freehold type, free from
any tenancy right, permissible for further transfer of property through
rajinama or as gift, and eligible for taking as mortgage.
 There must be access road to the property which must be visible at the site
as well as on the topographical survey map. The public motorable road
must be at least 8 feet wide, or however for certain areas, the minimum
access road to the property must be 4 ft wide as per confirmation of the
bank.
 The property must be at least 25 meters away from the river bank if the
property is located within Kathmandu valley, 50 meters for pokhara valley
and at least 200 meter for rest of the places of Nepal. However for the
cases like property out of the permissible range, the said property must
been safeguarded by strong retaining walls, river high flood level must be
within safe range and the same property must be prescribed by the ministry
of Planning, woda karyalaya / Nagar Bikash pradhikaran Act and certified
by the approved valuator.
 Land & Building adjoining the highway/ near river road/ other roads falls
after setting aside the portion of land (Right of Way)as prescribed by
Ministry of Roads & Transport or any other concern authority.
 For the residential area of Kathmandu valley, 4 meters road width is taken
for future consideration and ROW deduction is made as per present road
width on the proposed property.
 The land is not situated under a high tension line or 15 meters of land
within the high tension line. However, the same may be accepted provided
compliance with the guidelines issued by Nepal Government and/or Nepal
Electricity Act 2064 and certification by the approved valuator.
 For many land plots or plot area more than one ropani, area deduction for land
is taken within (15-20)% of total land as per land or road development.
 The property under valuation process must be suitable for mortgage as per
saleable and reasonable rates as per location, present use and permissible
mentioned distances.
 Valuator shall not valuate the real estate property, if;
 The property is under dispute or under litigation.
 The property is in the name of a Guthi. The property, although registered in the
name of an individual, is in use for the benefit of public.
 The property is without clear plot number, boundaries, etc.
 The property is under compulsory acquisition by Government of Nepal or any
other such authority.
 The construction of building or any other construction is prohibited in the
proposed land.
 The building is constructed in the land owned by some other person, without
the manjurinama of such land owner and his/ her legal heirs.
 There is any complication as per knowledge and professional ethics of the
valuator.
 In case of newly purchased/ acquired property,
The valuator must highlight in remarks of valuation report for the following
points;
a) Purchased through Rajinama:- if 1 year plus 35 days not elapsed from the
date of transfer.
b) Acquired through Halaidekhiko Bakaspatra (gift):- if 2 years 35 days not
elapsed from the date of transfer (Bakaspatra).
c) Acquired through Ansabanda (family partition): if 3 months 35 days not
elapsed from the date of transfer (Ansabanda).
Terms used during preparation of valuation report
for Bank purpose
1. Client
2. Owner
3. Government Value
4. Fair Market Value
5. Distress value
6. Depreciation
7. Plinth Area Method for Valuation
8. Legal Documents
9. Site plans
Valuation Report shall cover/consists of the following:
a. Identification and status of the Consultant,
b. Identification of the client(s) & Identification of other intended users,
c. Purpose of the valuation,
d. Identification of the asset being valued,
e. Basis/bases of value used,
f. Valuation date,
g. Extent of inspection and investigation
h. Nature and source of the information relied upon,
i. Assumptions and special assumptions,
j. Relevant attachments.
Legal Documents required for valuation
For Valuation of land
 Copy of Land Ownership Document ( Lalpurja)
 Copy of Land Revenue payment reciept
 Copy of Char Killa Approval Letter
 Copy of Citizenship of Owner of property
 Copy of Citizenship of Client/Owner
 Latest original survey map (blue print) of the area with clear print out of the respective plot(s), duly
stamped by the Government Land Survey Office mentioning - for Bank and Financial institution purposes.
 Location Plan
 Site Plan
 Clear Photographs from important angles
For Valuation of Building
 Approved Building Drawing and Floor plans approved by municipality
 Copy of Building Construction Completion Certificate
In the case of company as bank’s client
 Firm Registration Certificate
 PAN Registration Documents
 Tax Clearance Reciept
Art of drawing site plan/ Trace Map in AutoCAD
 One must know how to measure area of land in site itself and area as
per trace map. During valuation of land, we are assigned to visit the
sites in order to plot and find out the area land and buildings. We
must be able to assess the site, examine the importance of location,
where it is located, what are the availability of facilities, measure
sites and draw the exact measurements of site and calculate area as
per site and trace map.
 For this purpose, we often use AutoCAD tool to draw site plans and
location plan.
 For the evaluation purpose of land as purposed by banks for
mortgage, it considers the minimum of the area as per field and tress
map/lalpurja.
 The lesser area between that of Lalpurja and Actual Measurement is
considered for valuation.
Area measurements of land
 Area is calculated as per site measurements and plotted in AutoCAD.
 Triangulation method is used in area measurements.
 As the shape of land varies within its topography, rectangle or irregular
shaped land are to be examined. For such irregular type of lands, number
of triangles are formed from every corner and edge of the plot and
triangulation method is used to calculate the area of land.
Value of the property
 As per the importance of the property, location, type of structure,
accessibility to the property, ability of public facilities, government
and commercial rates, value of property is determined.
 Considering the government rates and commercial rates, fair market
value rate is calculated.
 Fair Market Rate is the rate usually taken by considering 60% of
commercial rate and 40 % of government rate.
Fair market rate= 60% of commercial rate + 40% of government
rate.
Ratio of fair market rate varies according to bank laws. It is usually
taken as 60:40, 70:30, 80:20, 90: 10 as per bank laws.
Value of property is calculated in consideration to the area of plot
multiplied by its fair market rate.
Value of Property= Considered Area of plot * Fair Market Rate of plot
Types of Work to be accomplished
1. Valuation of land only
2. Valuation of land and building
3. Valuation of Building Only
4. Valuation of existing assets of building
5. Valuation of machines in factories/industries.
6. Valuation of vehicles
Within report, we are assessed to submit following report formats for
proposed type of work as per bank guidelines.
7. Complete Valuation Report (R-A-P-D & B-K-D-Ka format)
8. Preliminary Valuation Report
9. Re-valuation Report
10. Progress Report of Building Underconstruction
Preliminary Valuation Report
As per bank’s requirement, we are assessed to prepare preliminary
valuation report which includes only the summary part of the valuation
report, not to go for the loan process but for the inspection of the
property’s fair market value. Bank will pay the report fees to the
consultancy according to the type of report submitted.
Consultancy should give the pre information to the bank that the
preliminary valuation report is only for the bank process, not for the loan
dispersement. Consultant will not be responsible if loan is dispersed
without final valuation report.

Re-valuation Report
As per bank’s requirement, we are assessed to re- valuate the property in
reference to the previous valuation report and calculate the present fair
market value of the property.

Progress Report of Incomplete Building

Progress report contains the estimated cost required to finish the
complete construction of the building, present value of the building
under construction with respect to the proposed rate defined for fully
completed building.
Progress Report of Incomplete Building
For example : A bank has considered rate Rs 2500 per sqft for the
completely constructed building, and rate Rs 2000 per sq ft. for
building under construction, we have to calculate the cost needed to
complete the remaining construction of the building.