VALUATIO

N
 WHAT IS
VALUATION:
• VALUATION IS AN ART OF JUDGEMENT BASED
ON EXPERIENCE AND RELEVANT STATISTICAL
DATA TO FORECAST THE VALUE OF A
PROPERTY AT PRESENT.
 IMPORTANT TERMS IN VALUATION:
• COST:
IT IS THE AMOUNT OF EXPENDITURE INCURRED TO PRODUCE OR ACQUIRE A
COMODITY HAVING A VALUE.
• VALUE:
VALUE IS THE PRICE ESTIMATED TO BE REALIZED IN A SALE PROCEED BETWEEN A
WILLING BUYER AND WILLING SELLER.
IN ORDER TO HAVE THE VALUE OF A COMODITY, IT SHOULD POSSESS THE
FOLLOWING:
IT MUST POSSESS UTILITY. IT MUST BE IN DEMAND.
IT MUST BE MARKETABLE OR TRANSFERABLE.
IN THE ABSENCE OF ABOVE, THE COMODITY MAY NOT HAVE ANY VALUE. VALUE
ALSO DEPENDS UPON OUTSIDE FACTORS SUCH AS:
LOCATION OF PROPERTY TIME OF VALUATION
SUPPLY AND DEMAND CONDITION.
• PRICE:
IT IS THE COST OF COMMODITY FIXED DEPENDING UPON THE DEMAND FROM
CONSUMERS AS COMPARED TO THEIR OTHER WANTS, AND FOR SALE
PURPOSE TAKING INTO ACCOUNT ITS UTILITY, DURABILITY, COST OF
PRODUCTION, SATISFACTION AND THE EXTENT TO WHICH IT IS IN DEMAND.
 IMPORTANT TERMS IN VALUATION:
• BOOK VALUE:
IT IS AN ORIGINAL INVESTMENT SHOWN IN THE ACCOUNT BOOKS OF A COMPANY
ON ITS ASSETS INCLUDING PROPERTIES AND MACHINERIES, LESS ANY
ALLOWANCE FOR THE PERIOD PASSED. IT WILL BE REDUCED YEAR TO YEAR
DEPENDING UPON DEPRECIATION AND WILL BE ONLY SCRAP VALUE AT THE END
OF UTILITY PERIOD.
• ASSESSED VALUE:
IT IS THE VALUE OF THE PROPERTY RECORDED IN THE REGISTER OF LOCAL
AUTHORITY AND USED FOR THE PURPOSE OF DETERMINING THE VARIOUS TAXES
TO BE COLLECTED FROM THE OWNER OF THE PROPERTY.
• REPLACEMENT VALUE:
VALUE OF A PROPERTY OF ITS SERVICES CALCULATED ON THE PREVAILING MARKET
RATE TO REPLACE THE SAME.
• RENTABLE VALUE:
NET ANNUAL LETTING VALUE OF A PROPERTY OBTAINED AFTER DEDUCTING THE
AMOUNT OF YEARLY REPAIRS FROM THE GROSS INCOME. TAXES ARE CHARGED
ON RENTABLE VALUE OF PROPERTY.
• ANNUITY:
ANNUAL PERIODIC PAYMENTS FOR REPAYMENT OF THE CAPITAL AMOUNT
INVESTED.
• DISTRESS VALUE:
VALUE AT WHICH THE PROPERTY IS SOLD AT LOWER PRICE THAN THAT OF OPEN
MARKET DUE TO DIFFICULTIES OF VENDOR.
 IMPORTANT TERMS IN VALUATION:
• POTENTIAL VALUE:
INHERENT VALUE GOT BY PROPERTY SUCH AS LAND. SUCH VALUE MAY GO ON
INCREASING DUE TO PASSAGE OF TIME OR CAN FETCH MORE RETURN IF USED
FOR SOME ALTERNATIVE PURPOSE.
• SALVAGE VALUE:
IT IS THE VALUE AT THE END OF THE UTILITY PERIOD WITHOUT BEING DISMANTLED.
• GROSS INCOME:
IT IS THE TOTAL REVENUE REALISED FROM A PROPERTY EITHER RENT OR LEASE
MONEY DURING A YEAR. THE OUT GOINGS AND COLLECTION CHARGES ETC ARE
NOT DEDUCTED.
• OUTGOING:
EXPENSES INCURRED TO MAINTAIN THE PROPERTY BY UNDERTAKING PERIODICAL
REPAIRS. IT ALSO INCLUDES TAXES LEVIED BY THE GOVERNMENT OR LOCAL BODY
ON THAT PROPERTY, SINKING FUND, INSURANCE ETC.
• NET INCOME:
NET AMOUNT LEFT WITH THE VENDOR AFTER DEDUCTING OUT GOINGS FROM
GROSS INCOME.
NET INCOME = GROSS INCOME-OUT GOINGS.
• SCRAPE VALUE:
AFTER A PROPERTY LOSES ITS UTILITY, THE VALUE OF DISMANTLED MATERIAL LESS
THE COST OF DEMOLITION IS KNOWN AS SCRAPE VALUE.
 IMPORTANT TERMS IN VALUATION:
• OBSOLESCENCE:
SOMETIMES A BUILDING THOUGH PHYSICALLY QUITE SOUND YET IT BECOMES
OUTDATED BECAUSE OF CHANGE IN DESIGN PATTERN, FASHIONS LIVING HABITS
OF ITS INHABITANTS AND THUS IT LOSES ITS FUNCTIONAL UTILITY. THIS IS
KNOWN AS OBSOLESCENCE.
IT IS VERY DIFFICULT TO PREDICT OBSOLESCESCE.
LOSS DUE TO NATURAL CALAMITIES ARE INCLUDED IN OBSOLESCENCE.
• RENT:
ANNUAL OR PERIODIC PAYEMNT MADE BY TENANTS FOR USE AND POSSESSION OF
LAND AND BUILDINGS.
• RENTAL VALUE:
IT IS THE RENT WHICH MAY REASONABLY BY EXPECTED TO BE OBTAINED IN THE
OPEN MARKET.
• GROUND RENT:
WHEN A PIECE OF LAND HAD BEEN LEASEDOUT, THE RENT RESERVED UNDER THE
LEASE IS GROUND RENT.
• CONTRACTUAL RENT:
RENT FIXED BETWEEN THE LANDLORD AND THE TENANT BY NEGOTIATIONS.
• STANDARD RENT:
RENT WHICH WOULD BE PERMISSIBLE UNDER THE LAWS TO BE CHARGED FROM A
TENANT.
 IMPORTANT TERMS IN VALUATION:
• RETURN FRONTAGE:
PLOTS SITUATED AT JUNCTION OF TWO ROADS HAVING THE
FRONTAGE ON THESE TWO ROADS ARE SAID TO HAVE RETURN
FRONTAGES. SUCH PLOTS USUALLY HAVE MORE MONETARY
VALUE THAN OTHER PLOTS IN THE SAME AREA.
• REVERSIONARY VALUE OF LAND:
IT IS PRESENT CONSIDERATION FOR THE FULL VALUE OF LAND
OBTAINABLE AFTER THE SPECIFIED PERIOD.
FOR EXAMPLE:
LIFE OF BUILDING = 30 YEARS. PRESENT VALUE OF LAND = 50000
THE PERSON INTERESTED WILL GET THE SAID 50000 AFTER 30 YEARS
HAS PASSED.
NOW IF HE WANTS ITS VALUE AT PRESENT, THEN HE GETS RS.
15,500 WHICH IF INVESTED AT PRESENT IN SOME SECURITIES AT
4% COMPOUND INTEREST WILL AMOUNT TO RS. 50220 IN 30
YEARS.
 IMPORTANT TERMS IN VALUATION
• SINKING FUND:
IT IS THE FUND WHICH IS BUILT UP FOR THE SOLE PURPOSE
OF REPLACEMENT OR RECONSTRUCTION OF A PROPERTY
WHEN IT LOSES ITS UTILITY EITHER AT THE END OF ITS
USEFUL LIFE OR BECOMING OBOSLETE.
THE FUND IS REGULARLY DEPOSITED IN A BANK OR WITH AN
INSURANCE AGENCY SO THAT ON THE EXPIRY OF PERIOD
OF UTILITY OF THE BUILDNG, SUFFICIENT AMOUNT IS
AFAILABLE FOR ITS REPLACEMENT.
THE CALCULATION OF SINKDING FUND DEPENDS UPON THE
LIFE OF A BUILDING AS WELL AS UPON THE RATE OF
INTEREST AND IT IS GENERALLY CALCULATED ON 8/10 OF
THE COST OF CONSTRUCTION AS THE OWNER WILL GET 10
PERCENT AS SCRAPE VALUE OF THE BUILDING WHEN THE
LIFE OF THE BUIDING IS OVER.
REQUIEMENTS TO BE A VALUER:
 PURPOSE OF VALUATION

IN REAL PROPERTIES, THERE ARE VARIOUS

PURPOSES FOR WHICH VALUATION MAY BE
REQUIRED. IT IS ESSENTIAL TO KNOW EXACTLY FOR
WHAT PURPOSE THE IA BEING
PREPARED.
VALUATION IS AN ART AND
PROFESSIONALS
VALUATION HAVE TO CONSIDER ALL PROS
AND CONS OF VARIOUS FACTORS AFFECTING
VALUATION. BROADLY SPEAKING, VALUATION MAY
BE REQUIRED TO BE DONE FOR THE
FOLLOWING PURPOSES:
 PURPOSE OF VALUATION 1:
• SALE OF PROPERTY:
IF THE OWNER OF ANY PROPERTY WISHES TO OFFER THE PROPERTY FOR
SALE, IT IS NECESSERY TO FIND OUT WHAT IT WOULD FETCH HIM
IN MONETARY TERMS. ONLY THEN A SALE PRICE IS ADDED TO THE
PROPERTY AND IT IS OFFERED FOR SALE. IN REAL ESTATE BUSINESS,
WHEN SIMILAR PROPERTIES ARE NOT AVAILABLE FOR SALE, THE
SERVICES OF A VALUER BECOME NECESSERY. SPECIALLY IN CASE OF
LARGE CORPORATIONS AND PUBLIC COMPANIES, THE SERVICES OF
PROFESSIONALS IS OBTAINED BEFORE TAKING SUCH MEASURE.

• PURCHASE OF PROPERTY:
SIMILARLY, WHEN A PURCHASER SHORTLISTS A PROPERTY, HE ALSO TRIES
TO OBTAIN THE ASSISTANCE OF A VALUER AS TO WHETHER THE
PROPERTY VALUE IS APPROPRIATE CONSIDERING ALL FACTORS. THE
TOHER FACTORS WHICH INFLUENCE THE PURCHASER ARE LAND USE
OF THE PROPERTY, ZONNING LAWS, MUNICIPAL APPROVALS, NO
OBJECTION CERTIFICATES, FLOOR AREA RATIOS, TAXES, CONDITION
OF EXISTING STRUCTURE, LOCATION OF LAND ETC. THE VALUER,
INVESTIGATES ALL AND ADVICES THE CLIENT ON THE TENTATIVE VALUE
OF THE PROPERTY.
 PURPOSE OF VALUATION 2:
• VALUATION FOR CENTRAL GOVERNMENT TAXATION UNDER DIRECT TAX LAWS:
VALUE OF PROPERTY IS REQUIRED UNDER VARIOUS DIRECT TAX
LAWS ADMINISTERED BY THE CENTRAL BOARD OF DIRECT TAXES, MINISTRY OF
FINANCE. THESE INCLUDE WEALTH TAX ACT, CAPITAL GAINS TAX ETC.
VALUATIONS FOR SUCH PURPOSES ARE NORMALLY REQUIRED FOR A SPECIFIC
PURPOSE AND AS OF A SPECIFIC DATE.

• VALUATION FOR FIXING RENTS AND FORECASTING EARNINGS:

ANY PROPERTY OWNER WOULD LIKE TO RECEIVE A RETURN ON HIS INVESTMENT
THAT IS IN CONFORMITY WITH RETURN ON OTHER INVESTMENTS. IF THE OWNER
HAD CONSTRUCTED A BUILDING ON HIS LAND WITH THE PURPOSE OF RENTING
IT, HE WOULD LIKE TO WORK OUT THE RENT. FROM THESE RENTAL
INCOMES AND OUTGOINGS, HE CAN FORECAST EARNING CAPACITY.

• VALUATION FOR INSURANCE PURPOSE:

INSURANCE POLICIES CAN BE MADE OUT AGAINST FIRE DAMAGE, THEFT AND LOSS,
EARTHQUAKE ETC. INSURED PARTIES NORMALLY BRING THEIR VALUATION
REPORTS UP TO DATE AT FREQUENT INTERVALS. CORRECT INSURANCE
COVERAGE IS NECESSERY. IF THE PROPERTY IS OVER INSURED, A HIGHER
PREMIMUM IS PAID UNNECESSARILY. ON THE OTHER HAN, IF THE PROPERTY IS
UNDER INSURED, THEN FULL LOSS AGAINST ACTUAL LOSS CAN NOT BE
RECOVERED.
 PURPOSE OF VALUATION 3:
• VALUATION UNDER LAND ACQUISITION ACT:
NORMALLY ALL DEMOCRATIC GOVERNMENTS PAY RIGHT COMPENSATION FOR ANY
PROPERTY WHEN IT IS TAKEN FOR A PUBLIC PROJECT OR FOR PUBLIC
GOOD, COMPENSATING THE ORIGINAL OWNER AT A FAIR MARKET PRICE IS
NECESSERY. IN SUCH A CASE THE ACQUIRING AUTHORITY AS WELL AS THE OWNER
OF THE PROPERTY MAY EMPLOY DIFFERENT AND INDEPENDENT VALUERS IN
ORDER TO DETERMIN THE AMOUNT OF COMPENSATION. THE COMPETENT
AUTHORITY HEARS EVIDENCE FROM BOTH SIDES AND THEN DECIDES ON THE
COMPENSATION.

IN SOME CASES A GOVERNMENT AGENCY MAY OCCUPY PRIVATE PROPERTY FOR A

CERTAIN LIMITED PERIOD OF TIME. IN SUCH CIRCUMSTANCES, RENTAL VALUE OF
THE PROPERTY HAS TO BE FIXED.

• VALUATION IN CONNECTION WITH MORTAGES:

PROPERTY OF VARIOUS KINDS CAN BE PLEDGED AS SECURITY AGAINST LOAN. THE
PROPERTY MAY BE LAND, A RESIDENTIAL HOUSE OR ANY OTHER ASSETS. IN
SUCH CASES, A VALUATION REPORT ON THE CURRENT MARKET VALUE OF THE
PROPERTY IS NECESSERY. ALSO, THE VALUER SHOULD GIVE AN IDEA OF THE
PROPERTY FORECAST, E.I. PROBABLE FUTURE TRENDS REGARDING THE PROPERTY. IF
THE PROPERTY IS INCOME PRDUCING, THE EARNING CAPACITY OF THE PROPERTY
SHOULD BE INDICATED. THIS DATA WILL ALLOW THE LENDER TO SET SPECIFIC
TARGETS FOR REPAYMENT OF LOAN AND RETURN OF CAPITAL.
MAINLY INSTITUTIONAL LENDERS SUCH AS BANKS AND STATE FINANCIAL
CORPORATIONS ARE BOUND BY LAW TO HAVE PLEDGED REAL ESTATE VALUED AND
NOT TO LEND MORE THAN A CERTAIN FIXED PERCENTATE OF VALUATION.
 PURPOSE OF VALUATION 4:

• VALUATION FOR PARTITION OF PROPERTIES:

THE DISTRIBUTION OF PROPERTY UNDER A FAMILY SETTLEMENT OF A WILL OR A
DISSOLUTION OF A PARTNERSHIP BETWEEN VARIOUS CLAIMANTS
WARRANTS VALUATION OF THE PROPERTY. SUCH VALUATIONS FORM THE
BASES OF THE SETTLEMENT OR THEY MAY BE USED IN ANY LEGAL
PROCEEDINGS.

• VALUATIONS FOR MERGERS-TAKE OVERS-ACQUISITIONS:

IN CASE OF TWO OR MORE BUSINESS OR ENTERPRISES COME TOGETHER, IT IS
NECESSERY TO PLACE A VALUE ON EACH SO THAT STOCKS OR SHARES OF THE
NEW MERGED CORPORATION CAN BE APPORTIONED BETWEEN
SHAREHOLDERS. ALSO WHEN PROPERTIES ARE EXCHANGED EACH ASSET SHOULD
BE VALUED.

• VALUATION FOR LIQUIDATION:

VERY OFTEN IT HAPPENS THAT A COMPANY HAS BECOME SICK OR IS
NOT OPERATING FOR ANY OF SEVERAL REASONS. THERE MAY BE CREDITORS
OF THE COMPANY WHO HAVE GONE TO COURT FOR AFFECTING THE
LIQUIDATION. THE COURT IN TURN, MAY HAVE APPOINTED AN OFFICIAL
LIQUIDATOR TO LIQUIDATE ASSETS AND PAY OFF THE CREDITORS. THE OFFICIAL
LIQUIDATOR WILL REQUIRE AN INVENTORY OF ITEMS AND THE VALUE OR
MINIMUM PRICE AT WHICH THE ASSETS ARE TO BE SOLD. HERE ALSO VALUATION
WILL BE REQUIRED FOR THE LIQUIDATION PROCEEDINGS.
 PURPOSE OF VALUATION 5:
• VALUATION FOR LEASING PROPERTIES:
WHEN PROPERTIES ARE LEASED BY AN OWNER(LESSOR), IT IS NECESSERY TO
DETERMINE THE FAIR MARKET VALUE OF THE PROPERTY IN MONETARY
TERMS. ALSO, SINCE THE LESSOR IS LIKELY TO ASK FOR A RENT TOGETHER WITH A
PREMIUM ( A ONE TIME LUMP SUM PAYMENT) WHICH MAY OR MAY NOT BE
RETURNABLE ON EXPIRY OF LEASE. VALUATION IN SUCH CASES WOULD
INCLUDE PRESENT VALUE ESTIMATED FUTURE LIFE, ANNUAL MAINTENANCE
COSTS, AND RENTAL VALUE OF PROPERTY.
• VALUATION IN TRANSFER MATTERS:
FOR THE SUCCESSORS TO GET THE PROPERTY TRANSFERRED TO THEIR NAME, IS A
STATE SUBJECT IN INDIA. A VALUATION FOR THIS PURPOSE IS NECESSERY
AS ALL STATE GOVERNMENTS COLLECT STAMP DUTY UNDER THEIR OWN LAWS.
• VALUATION FOR CALCULATING COURT FEES:
WHEN ANY LEGAL PROCEEDINGS ARE STARTED IN COURT REGARDING
PROPERTY, NORMALLY A COURT STAMP FEE IS TO BE ESTIMATED. FOR THIS
PURPOSE, IF THE SUBJECT MATTER HAPPENS TO BE A REAL ESTATE IMMOVABLE
PROPERTY.

ALSO, A SITUATION MAY ARISE WHEN ONE PARTY, MAY CLAIM THAT FALSE FACTS
WERE PRESENTED TO IT. IN SUCH CASES, A VALUATION MAY HAVE TO BE
MADE TAKING INTO ACCOUNT THE POSITION THAT ACTUAL EXISTED AT THE TIME
OF SALE. THE DIFFERENCE IN SALE PRICE AND ACTUAL VALUATION MAY BE
ASESSED AS MONETARY LOSS TO THE PARTY.
 PURPOSE OF VALUATION 6:
• VALUATION FOR ACCOUNTING PURPOSES (ASSET VALUATION):

VERY OFTEN LARGE COMPANIES OR OTHER ORGANIZATIONS REVALUE

THEIR ASSESTS AND BRING UP TO DATE THE HISTORIC VALUE IN THEIR
BOOKS OF ACCOUNTS AND BALANCE SHEETS. THIS CONCEPT IS POPULAR
IN WESTERN COUNTRIES AND IS GAINING GROUND ALLOVER THE
WORLD WHEREBY THE CONCEPT OF COST ACCOUNTING HAS BEEN
INTRODUCED. IN FACT, BRITAIN HAS INTRODUCED LEGISLATION WHEREBY
LARGE COMPANIES ADOPT THIS NEW CONCEPT OF CURRENT COST
ACCOUNTING AGAINST TRADITIONAL HISTORIC ACCOUNTS SO THAT A TRUE
PICTURE OF THE PREVAILING ACTUAL FIXED ASSESTS CAN BE REFLECTED IN
THE BALANCE SHEET. VALUATION HAS TO BE DONE FREQUENTLY TO
KEEP UP WITH THIS CONCEPT.

• VALUATION TO STUDY ALTERNATATE INVESTMENT OPPERTUNITIES:

VERY OFTEN INVESTORS ARE FACED WITH A CHOICE BETWEEN ALTERNATIVE

INVESTMENTS. AGAIN IN EACH INVESTMENT PROPOSAL, THERE ARE
SEVERAL QUESTIONS LIKELY TO ARISE LIKE THE COST OF ACTUAL
ACQUISITION, MARKET VALUE OF THE PROPERTY AND THE LIKELY RETURN ON
INVESTMENT.
 FACTORS AFFECTING VALUATION 1:
• SUPPLY AND DEMAND CONDITIONS:
BASICALLY THE VALUE OF A PROPERTY IS DETERMINED BY SUPPLY
AND DEMAND.
FOR EXAMPLE PLENTIFUL SUPPLY OF A COMMODITY AND LITTLE OR
NO DEMAND, LOWER THE VALUE OF COMMODITY, WHEREAS, IF THERE
IS LITTLE SUPPLY AND A GREAT DEMAND, HIGHER THE VALUE OF
PROPERTY.
IN THE PROPERTY MARKET, THE SUPPLY OF PROPERTY IS RELATIVELY FIXED
AT ANY ONE TIME. IN ORDER TO INCREASE THE SUPPLY, MORE
PROPERTIES NEED TO BE BUILT. HOWEVER, THIS PROCESS TAKES
TIME. DEMAND, IN CONTRAST, CAN CHANGE RELATIVELY QUICKLY.
THEREFORE PROPERTY VALUES TEND TO BE INFLUENCED BY DEMAND
RATHER THAN SUPPLY.
• LOCATION:
PROPERTY PROXIMITY TO PUBLIC TRANSPORTATION, TRAIN
STATIONS, SHOPPING FACILITIES, SCHOOLS ETC PLAYS AN
IMPORTANT FACTOR IN DETERMINING YOUR PROPERTY’S MARKET
VALUE. EVERY AREA HAS A HIGH END AND A LOW END. THE MARKET
VALUE OF YOUR PROPERTY IS AFFECTED BY THAT REALITY. PEOPLE THAT
PURCHASE HOMES IN LOWER END AREAS EXPECT TO PAY LESS THAN
THEY WOULD IF THEY BOUGHT THE SAME HOME IN A HIGHER END
NEIGBOURHOOD.
 FACTORS AFFECTING VALUATION 2:
• FEATURES:
ONE OF THE KEY FACTORS IN PROPERTY’S VALUE IS THE FEATURES IT PROVIDES. FOR
EXAMPLE, SOME HOUSE STYLES ARE MORE POPULAR WITH BUYERS THAN
OTHERS. THE AGE AND SIZE OF YOUR HOME COMPARED TO OTHER AVAILABLE
PROPERTIES ALSO PLAYS A PART IN AFFECTING YOUR HOME’S VALUE.
• CONDITION:
THE VALUE OF PROPERTY ALSO DEPEND UPON ITS CONDITION AND ITS FUNCTIONAL
UTILITY. FOR EXAMPLE, A HOME IN IMMACULATE CONDITION HAS A MUCH
HIGHER POTENTIAL FOR A TOP TOLLAR SALE THAN ONE THAT IS LACKING THE
MOST BASIC ROUTINE MAINTENANCE.
• PROPERTY IMPROVEMENTS:
PROPERTY IMPORVEMENTS ARE UNQUESTIONABLY IMPORTANT FACTORS THAT
AFECT THE PROPERTY VALUE. FOR EXAMPLE IMPROVEMENTS LIKE
ROOM ADDITIONS, BEDROOMS, BATHROOMS, KITCHENS AND OTHER ITEMS
LIKE FLOOR TILES, SWIMMING POOLS ETC CAN INCREASE THE VALUE OF YOUR
HOME.
• AGE:
THE AGE OF A PROPERTY CAN BE A FACTOR IN VALUE. IF A PROPERTY HAS
HISTORICAL CONNECTIONS, IT CAN MAKE IT MORE VALUABLE AND
IMPERFECTIONS SUCH AS UNEVEN WALLSA AND SLOPING FLOORS THAT WOULD
NT BE TOLERATED IN A NEW PROPERTY WOULD PERHAPS BE SEEN AS QUAINT
AND CHARMING.
SOME OLDER PROPERTIES MAY NEED MORE MAINTENANCE AND REPAIRING THAN A
MODERN PROPERTY AND A NEWER PROPERTY WOULD MEET ALL THE LATEST UP
TO DATE .
 FACTORS AFFECTING VALUATION 3:
• SELLER MOTIVATION:
SELLER MOTIVATION IS ALSO A MAJOR FACTOR WHICH
AFFECTS THE OFFER PRICE MADE BY THE BUYER.
FOR EXAMPLE, IF YOU BOUGHT A HOME IN A
NEW AREA, YOU MAY BE WILLING TO ACCEPT A
LOWER PRICE TO QUICKLY COMPLETE THE SALE
OF YOUR CURRENT HOUSE.
• MARKETING:
THE MARKETING PLAN THAT YOUR AGENT EXECUTES ON
YOUR BEHALF WILL DETERMIN THE AMOUNT
OF INTEREST THAT IS SHOWN IN YOUR PROPERTY.
YOUR AGENT’S LEVEL OF SKILL AND EXPERTISE
IN THE NEGOTIATIONS PROCESS WILL AFFECT THE
AMOUNT OF MONEY YOU WILL BE ABLE TO
GET FOR YOUR PROPERTY.
 ETHICS IN VALUATION:
VALUATION INVOLVES FINANCIAL MATTERS. CODE OF CONDUCT
PRESCRIBED BY THE INSTITUTION OF VALUAERS FOR IS MEMBERS INCLUDE,
AMONG OTHER, THE FOLLOWING RULES, BY FOLLOWING
WHICH PROFESSIONAL ETHICS CAN BE PRACTICED BY A VALUER.

1. TO ENSURE MUTUAL COOPERATION AMONGST

MEMBERS BY FREE INTERCHANGE OF OPINION AND
EXPERIENCE.
2. TO ENDEAVOR TO PROTECT THE PROFESSION OF
CONCERNING ALLVALUATION
CATEGORIES FROM MISREPRESENTATION AND
MISUNDERSTANDING.
•TO EXPRESS AN OPION ONLY WHEN IT IS FOUNDED ON
ADEQUATE KNOWLEDGE AND HONEST CONVICTION IF HE IS
SERVING AS A WITNESS BEFORE A COURT OR A COMMISSION.
•TO HOLD IN REGARD THE PROFESSIONAL REPUTATION OF OTHER
CORPORATE MEMBERS AND NOT TO INJURE DIRECTLY OR INDIRECTLY
THE PROFESSIONAL REPUTATION OR PRACTICE OF ANOHTER
CORPORATE MEMBER.
•TO EXERCISE THE RESTRAIN CRITICIZING THE WORK OF ANOTHER
CORPORATE MEMBER.
 ETHICS IN VALUATION:
1. TO REFRAIN FROM ASSOCIATING IN WORKING WITH OTHER VALUERS
WHO DOES NOT CONFORM TO ETHICAL PRACTICE.
2. TO REFRAIN FROM MISREPRESENTING HIS QUALIFICATIONS TO A
CLIENT OR TO THE PROFESSION.
3.TO TREAT ALL INFORMATION ACCQUIRED DURING THE COURSE OF
THE BUSINESS STRICTLY CONFIDENTIAL UNLESS RELEASED BY THE
CLIENT OR DEMANDED BY A COURT OF LAW.
4.TO PRESENT CLEARLY THE CONSEQUENCE TO BE EXPECTED IF
THE PROFESSIONAL JUDGEMENT IS OVERRULED BY A NON
PROFESSIONAL ADEQUACY OF WORK.
5.TO OBSERVE INTEGRITY AND FAIR PLAYING THE PRACTICE OF
THE PROFESSION OF VALUATION.
6.TO REFRAIN FROM UNDTERKING TO REVIEW THE WORK OF ANOTHER
CORPORATE MEMBER OF THE SAME CLIENT EXPECT
UNDER GOVERNMENT ORDERS AND/OR WITH THE KNOWLEDGE OF
THE FIRST CORPORATE MEMBER.
7.TO PRESENT THE INFORMATION TO THE COUNCIL OF THE
INSTITUTION FOR ACTION IF A CORPORATE MEMBER CONSIDERS
THAT ANOTHER COROPORATE EMMBER IS GUILTY OF THE
UNETHICAL, ILLEGAL OR UNFAIR PRACTICE.
 ETHICS IN VALUATION:
1. TO ORDER HIS CONDUCT ACCORDING TO THE PROFESSIONAL
STANDARDS AND CUSTOMERS OF COUNTRY WHEN A CORPORATE
MEMBER IS ENGAGED IN VALUATION WORK IN A COUNTRY ABROAD
AND TO ADHERE AS CLOSELY AS IS PRRACTICABLE TO THE PRINCIPALS
OF HIS CODES.
2. TO GIVE UNBIASED VALUATION REPORTS CONFIRMING TO THE
OBJECTIVE OPINION OF THE PROPERTY AND NOT TO ATTEMPT MRELY
TO ACCOMMODATE THE INTEREST OF THE CLIENT.
•TO STEER CLEAR OF SITUATION WHERE INTEREST AND DUTY CLASH.
•TO REFRAIN FROM ENTERTAINING A CLIENT WHO EITHER FAILS
TO DECLARE THAT HE HAD NOT ENGAGED ANOTHER VALUER FRO
THE SAME VALUATION WORK OR PRODUCE A CLEARANCE CERTIFICATE
OF NON OBJECTION FROM THE VALUEER IF ALREADY ENGAGED.
•TO CONDUCT YOUR SELF AND THE PROFESSION IN A MANNER WHICH
WILL NOT PREJUDICE YOUR PROFESSIONAL STATUS OR THE
REPUTATION OF THE INSTITUTION.
•TO FOLLOW THIS CODE AS AMENDED AND OR REVISED FROM TIME TO
TIME.
 FUNCTIONS OF VALUERS:
• SITE INSPECTION:
• COLLECTION OF INFORMATION AND DATA: INTEREST TO BE
VALUER.
PURPOSE OF VALUATION. DATE OF VALUATION.
• STUDY OF PROPERTY MARKET: SALES INSTANCE. RENTAL
INSTANCE.
COMPARE RATE OF RENTALS COMPARE SALES PRICE/UNIT PRICE.
GENUINE OF SALE INSTANCE. YEAR’S PURCHASE.
ROI YIELDED.
COMPARE ROI WITH OTHER ALTERNATE FORM OF INVESTMENT.
• ANALYSIS OF SALE:
• ESTIMATING FAIR RENT:
 FUNCTIONS OF VALUERS:
• WEIGHTAGE SCENE SYSTEM: LAND
WEIGHTAGE OF COMPARISON FACTORS
LOCATION OF LAND
AMENITIES AND FACILITIES BUILDING
UTILITY SERVICES LEGAL ASPECTS ECONOMIC
ASPECTS SOCIAL ASPECTS
 FUNCTIONS OF VALUERS:

• CAPITAL VALUE
• BLACK AND WHITE MONEY
• RATE OF INTEREST
• ECONOMIC CONDITION
• CAPITAL APPRECIATION AND CAPITAL
EROSION.
 METHODS OF VALUATION:
• THERE ARE FIVE MAIN METHODS USED WHEN CONDUCTING A
PROPERTY EVALUATION. A VALUER CAN EMPLOY MORE THAN
ONE METHODS TO WORK OUT A VALUE OF A PROPERTY. THE
FOLLOWING ARE THE METHODS:

• THE COMPARISON METHOD:

THE COMPARISON METHOD IS USED TO VALUE THE MOST COMMON
TYPES OF PROPERTY, SUCH AS HOUSES, SHOPS, OFFICES AND
STANDARD WAREHOUSES. IDEALLY THE MARKET SHOULD BE
STABLE AND THERE SHOULD BE MULTIPLE, RECENT LETTINGS OR
SALES OF COMPARABLE PROPERTIES OF SAME SIZE, LOCATION
AND CONDITION CRETERIA. THE BEST COMPARABLE FACTORS
SHOULD BE SELECTED AND ANALYZED, AND THEREAFTER
ADJUSTMENTS CAN BE MADE FOR THEIR DIFFERENCES. FINALLY,
AN ESTIMATED MARKET VALUE CAN BE CREATED.
 METHODS OF VALUATION:
• PROFITS METHOD:
THE PROFITS METHOD COULD BE APPLIED WHEN NO COMPARABLE RENTAL
OR SALE TRANSACTIONS ARE AVAILABLE, AND ITS OFTEN USED FOR
PUBS, HOTELS, NURSING HIMES, TYPICALLY A BUSINESS PROPERTY WITH
AN ELEMENT OF A MONOPOLY, WITH RESULTS IN LACK OF COPARABLE
VARIABLES. THE METHOD ESTIMATES A BUSINESS GROSS PROFITS AND
THEREAFTER DEDUCTS ALL WORKING EXPENSES EXCLUDING ANY
RENTALS PAYMENTS MADE: THIS GIVES THE DIVISIBLE BALANCE OR THE
AMOUNT OF CAPITAL TO BE SHARED BETWEEN TENANT FOR RUNNING
THE BUSINESS AND THE LANDLORD FOR RENT.

• RESIDUAL METHOD:
THE RESIDUAL METHOD COULD BE USED TO VALUE PROPERTY WITH
DEVELOPMENT POTENTIAL OR VACANT LAND THAT IS HAVING ITS
CURRENT USED CHANGED TO SOMETHING MORE PROFITABLE. WHEN
CALCULATING LAND VALUE, ONE MUST TAKE THE GROSS DEVELOPMENT
VALUE MINUS THE COST OF DEVELOPMENT INCLUDING THE
DEVELOPERS PROFIT. THE RESIDUAL SUM IS THEN THE CAPITAL THAT
THE DEVELOPER CAN SPEND ON THE PROPERTY IN ITS UNDEVELOPED
FORM. THIS METHOD IS QUITE FAMOUSLY, INACCURATE DUE TO
NUMBER OF INPUTS AND COSTS THAT ARE CHALLENGING TO
DETERMINE, AND ALSO HAVE A TENDENCY TO CHANGE OVER TIME.
 METHODS OF VALUATION:
• THE CONTRACTOR METHOD:
THIS METHOD IS A COST METHOD OF VALUATION, AND CAN SOMETIMES BE USED
WHEN COMPARATIVE, PROFITS OR INVESTMENTS METHOD CANNOT BE USED.
THE SITUATION OFTEN OCCURS IF A PROPERTY HAS A SPECIALIST NATURE,
MEANING THERE ARE NO MARKET TRANSACTIONS. THE METHOD ASSESSES ALL
THE COSTS OF PROVIDING A MODERN EQUIVALENT PROPERTY, AND THEREAFTER
ADJUSTING IT TO REFLECT THE AGE OF THE SUBJECT PROPERTY. THIS METHOD IS
OFTEN REFERRED TO AS THE METHOD OF LAST RESORT DUE TO ITS
UNRELIABILITY, AS THE MARKET VALUE IS DETERMINED BY THE ECONOMIC
FORCES OF SUPPLY AND DEMAND AND NOT BY THE COST OF PRODUCTION.

• INVESTMENT METHOD:
THIS METHOD CAN BE APPLIED TO DETERMIN THE MARKET VALUE OF A FREEHOLD
OR LEASEHOLD INTEREST IN PROPERTY FROM ITS POTENTIAL TO GENERATE
FURTURE INCOME. IT IS TYPICALLY USED FOR THE MAIN FORMS OF PROPETIES
WHERE A TENANT IS PROVIDING THE LANDLORD WITH AN INVESTMENT RETURN
ON HIS CAPITAL COST (PURCHASING THE BUILDING). USING THIS METHOD, THE
COMPARABLE PROPERTY TRANSACTIONS OF SALES AND LETTINGS ARE ANALYZED
TO FIND REVENUE. THE PROFITS IS THEREAFTER APPLIED TO THE FUTURE RENTAL
INCOME, WHICH IS DISCOUNTED BACK TO THE PRESENT DAY GIVING THE NET
PRESENT VALUE. THIS IS FINALLY USED AS AN INDICATOR OF HOW MUCH THE
BUILDING IS PRESENTLY WORTH.
 METHODS OF VALUATION:
• RENT RETURN METHOD:
CAPITALIZED VALUE OF THE PROPERTY IS WORKED OUT AS UNDER: NET RENT=
GROSS RENT – OUTGOINGS
YEAR OF PURCHASE YP = 1/R+Sc (Sc IS COFFICIENT OF SINKING FUND) CAPITALIZED
VALUE: NET RENT X yp
IN CASE THERE ARE IMMEDIATE REPAIRS, (CAPITAL REPAIRS) TO BE UNDERTAKEN,
THEN
NET VALUE = CAPITALISED VALUE – CAPITAL REPAIRS.
• LAND AND BUILDING BASIS:
WHEN RENT CANNOT BE ASCERTAINED BY DIRECT METHODS FOR BUILDNG LIKE
SCHOOLS, CLUBS ETC, THE VALUATION IS DONE ON THE COST OF LAND TO
WHICH DEPRECIATED COST OF BUILDING IS ADDED.
COST OF BUILDING IS APPROXIMATELY DETERMINED BY TAKING THE AVERAGE OF
SALE DEEDS OF THE NEAR PAST.
DEPRECIATED COST OF THE BUIDING IS ARRIEVED BY KNOWING ITS LIFE AND ITS
AGE.
SINKING FUND DEPOSITED IS ALSO TAKEN AS DEPRECIATION FOR THE PURPOSE OF
CALCULATION OF NET VALUE OF A PROPERTY.
 METHODS OF VALUATION:
• RESIDUAL OR DEVELOPMENT METHOD:

A BID PLOT DIVIDED INTO SMALL AVAILABLE UNITS WHICH ARE PLANNED AND
PROVIDED WITH BEST OF AMENITIES BUT AT LEAST POSSIBLE EXPENSES. ABOUT
30% OF LAND SHOULD BE PROVIDED FOR NECESSARY AMENITIES LIKE
ROADS, GARDENS, PARKS, ELECTRIC SUB STATION AND WATER FACILITY LIKE WELL
ETC.
IN EXISTING BUILDING IF SOME EMPROVEMENTS ARE TO BE MADE, THE
DEVELOPMENT METHOD OF VALUATION MAY BE USED.
THE ANICIPATED CAPITALIZED VALUE WILL BE EQUAL TO THE PRODUCT OF NET
INCOME AND YEAR’S PURCHASE.
• VALUATION BASED ON PROFIT BASIS:

SUCH VALUATION GENERALLY DONE FOR COMMERCIAL BUILDINGS LIKE HOTELS AND
CINEMAS AND IS BASED ON THE PROFIT OF BUSINESS IN SUCH PROPERTIES.
NET YEARLY PROFIT IS WORKED OUT BY REDUCING ALL POSSIBLE OUTGOINGS AND
INTEREST OF CAPITAL INVESTED BY THE OWNER OF THE BUSINESS AND
REMUNERATION OF HIS LABOR. THIS NET PROFIT IS TAKEN AS NET RENT.
CAPITALISED VALUE IS DETERMINED BY MULTIPLYING NET RENT WITH YEAR’S
PURCHASE.
 METHODS OF VALUATION:
• VALUATION BASED ON COST:
IN THIS METHOD THE COST OF PROVIDING A NEW CONSTRUCTION AT THE
PREVAILING RATE OR IN POSSESSING THE PROPERTY IS TAKEN AS THE BASIS
TO DETERMINE THE VALUE OF THE PROPERTY.
IN SUCH CASE NECESSARY DEPRECIATION SHOULD BE ALLOWED.
FINALLY THE COST OF LAND AND ADJUSTED REPRODUCTION COST ARE ADDED
TOGETHER TO GET THE VALUE OF THE PROPERTY.
 RESPONSIBILITES OF A VALUER:
•
A VALUER DETERMINES THE VALUE OF ASSESTS BASED UPON MARKET CONDITION
AT A GIVEN TIME. AS SUCH, A PROFESSIONAL VALUER MUST POSSESS ON THE
GROUND UNDERSTANDING AND KNOWLEDGE OF THE RELATIVE FORCES AND
INFLUENCES THAT CREATE, MAINTAIN OR DIMINISH THE VALUE OF TANGIBLE OR
INTANGIBLE ASSESTS UNDER EVALUATION, AND AT THE SAME TIME, PORTRAY
VARIOUS PROFESSIONAL QUALITIES AND CAPABILITIES.
•IN THIS RESPECT, A VALUER HAS TO SATISFY VARIOUS OBLIGATIONS AND
RESPONSIBILITIES WHICH ENSURES AN IMPARTIAL IMPLEMENTATION OF DUTIES.
WHEN IT COMES TO VALUATION, THERE ARE SEVERAL BASES OF VALUE AND
•METHODOLOGIES. HENCE, IT IS THE VALUER’S OBLIGATION TO DETERMINE WHICH
ARE PERTINENT TO A PARTICULAR UNDERTAKING AND HELPFUL IN DETERMINING AN
OPENION. THE IMPORTANT OBLIGATIONS AND RESPONSIBILITIES OF A VALUER ARE
DETAILED AS UNDER:
AVOID GIVING A FALSE RESULT: THE PROFESSIONAL VALUER IS OBLIGATED TO AVOID
•REPORTING A FALSE AMOUNT. THE RESULT OF A VALUATION COULD BE FALSE FOR
TWO REASONS: IT IS GROSSLY INCORRECT ESTIMATE OF THE APPROPRIATE VALUE OR
EVEN THOUGH IT IS NUMARICALLY ACCURATE, IT IS AN ESTIMATE OF AN
INAPPROPRIATE VALUE.
SATISFY THE CLIENT: THE VALUERS PRIMARY OBLIGATION TO HIS CLIENT IS TO REACH
•A COMPREHENSIVE, ACCURATE AND PERTINENT CONCLUSION. HENCE, ETHICS AND
MORALITY FORM A VERY IMPORTANT PART OF THE VALUERS OBLIGATION.
 RESPONSIBILITES OF A VALUER:
PRESENT DATA WITHOUT BIAS: WHEN ENGAGED BY ONE OF THE PARTIES IN
A CONTROVERSY, IT IS UNETHICAL FOR THE VALUER TO SUPPRESS THE
FACTS, DATA OR OPENION, WHICH ARE CONTRARY TO THE CASE HIS CLIENT
IS TRYING TO ESTABLISH. IT IS THE VALUERS OBLIGATION TO PRESENT
DATA, ANALYSIS AND VALUE WITHOUT BIAS REGARDLESS OF THE EFFECT
OF SUCH UNPREJUDICED PRESENTATION.
PROVIDE SERVICE ONLY IN ONE’S COMPETENT FIELD: IT IS NOT SUITABLE
FOR A VALUER TO ACCEPT AN ENGAGEMENT FOR THE VALUATION OF
ASSETS, A TYPE FOR WHICH HE IS NOT QUALIFIED TO VALUE OR IN A FIELD
OUTSIDE HIS PROFESSIONAL CLASSIFICATION.
SERVING CLIENTS WITH CONFLICTING INTEREST: WHEN TWO OR MORE
POTENTIAL CLIENTS SEEK A VALUERS SERVICE WITH RESPECT T THE SAME
ASSET OR WHERE CONFLICTING INTERESTS MAY BE AT PLAY, THE VALUER
SHOULD AVOID GIVING SERVICE TO BOTH PARTIES.