NAMAVAT I 002- CHAPT ER 16- ELEMENT S OF VALUAT IONS

PART I- ELEMENT S OF VALUAT ION

Architectural Procedure refers to an orderly process of estimating the value of a proper at a stated
time and place depending upon the def1Oition of "Market value" or "Fair market value" as given in the Act and
the methods by which the quantum of this value is estimated. Today's valuation practice depends heavily on
the ideas and knowledge created by the economists, Hon'ble Judges and valuers in the field.
Essential characteristics:
Value:
• In order that a commodity can have value, it must possess. essential qualifications, namely:
o It must possess utility.
o It must be scarce.
o It must be transferable or marketable.
• It can be said to be a ratio between the price of money and the price of commodity in return.
• It is necessarily the price of a Commodity.
• It can be an unearned increment or an unfortunate decrement in the price.
Price:
• It is the cost of a commodity plus additional reward to the producer for his labor and capital.
• It is a special form of value.
• It is fixed depending upon the demand from consumers as compared to their other wants and this
adjustment of price brings into existence the "value".
• It depends on utility, durability, satisfaction and the extent which at commodity is scarce.
Cost:
• Expenditure to produce a commodity having a value.
• Depreciation is usually worked out on the cost of a Commodity either then on its value.
Market value:
• "' In the open market" means the property is offered for sale in such a manner that every person who
desires to purchase can make an offer and that the necessary steps are taken to advertise Its sale to
papers and all necessary means are adopted to bring to the notice of all the purchasers that the
property is for sale in the market under the most favorable condition.
• "A ' Willing seller' is a person who will not sell the property unless he obtains something more than his
reserve price. He is given the necessary advantages to fix a reserve bid for the. property, thus making
him a free person to sell and not forced to sell due to certain unforeseen difficulties.
• In short it must be a "Free will sale". "Might be expected to realize>' refers to tbc: expectations of the
purchases after they have been supplied with all the necessary data, etc., and after they know the
conditions of the market.
Essential characteristics of market value:
• Vendor must be willing to sell.
• Purchaser must be willing to purchase and must be a prudent One who can put the land to the most
beneficial use.
• No compulsion on either in the transaction.
• Urgent necessity of purchase ~ sale 10 be discarded.
• Disinclination of vendor 10 be Ignored.
• Sentimental value 10 the vendor will have no place.
 • Present and future uses known as potentials are to be taken into account.
Value classification
• Assessed value
• Book value
• Salvaged value
• Scrap value/ junk value
• Replacement value,
• Earning value
• Potential value
o Future usefulness.
o Special suitability for a definite purpose.
o Better layout
o Beneficial present use of land.
• Distress value
o Financial difficulties of vendor.
o indirect benefit to vendor or purchaser.
o Part consideration paid otherwise
o Panic due to war and nots.
• Monopoly value
• Sentiment value
• Accommodation Land and Accommodation Value
Classification of ownership
• Freehold tenure
o Right to its occupancy and use.
o Right to sell in whole or in part
o Right to gift.
o Right to contract for its use to others for a period of time.
• Leasehold tenure
• Lease
• Lessor
• Reversion
• Lessee
• Premium or Salami
Types of leases
• Building lease
• Ground rent
• Secured ground rent
• Unsecured ground rent
• Head rent
• Improved rent
• Rack rent
• Profit rent
• Virtual rent
Restrictions
• If the lease covenants restrict the user of the plot to residential zone, it will not be permissible to use
the same for a commercia] purpose even if the Municipal ru1es permit.
 • II at all the permission is granted by the lessor for the change of user, it 'will be after payment of
heavy premium.
• Expenses for maintaining the property as per lease terms.
• Payment of premium and other expenses to obtain the permission of the lessor for additions and
alterations to the building or for repairs.
• Restrictions on the free use of compulsory open spaces, the lessee construct a pump house, suction
tank. etc., in to be compulsorily open except with the permission.
• Prohibition on putting up or displaying illuminated signs or sign boards. signs and advertisements.
• Payment of ground rent in time.
• Permission of lessor for assignment.
Purpose of valuation
• Purchase for investment or for occupation. • Insurance.
• Salary • Wealth tax.
• Mortgage. • Capital gains etc.
• Rent Fixation. • Stamp duly.
• Land acquisition. • Gift tax.
• betterment charges • General court purpose in order to
• Auction bids. determine the amount of Court Fee, Stamp
• probate in a suit., etc.
• Speculation.
For mortgage:
In case of a mortgage proposal, the valuer has to advise the mortgagee as to what one can safely be
advanced to the property. Thus, the function of the valuer here is to safeguard the position of the mortgagee,
his client.
For sale and purchase:
In the case of purchase, the valuer desires that his client should get a bargain proposal, whereas in case of
sale, he will value at a price that could be obtained in the market
For Acquisition proceeding:
For acquisition proceedings, the valuer is likely to take a liberal view as the seller is an unwilling person and
due to acquisition, he may have to undergo a lot of trouble and expense.
For Government taxes:
For the purpose of Government taxes, the valuer determines the market value of the property that is what a
willing buyer would pay to a willing seller.
Factors affecting value of a property:
• Supply and demand
• Cost of replacement
• Occupational value
• Interest and security at capital
• Rent restriction act
• Abnormal conditions
• Town planning act
PART II- MET HODS OF VALUAT ION
Income capitalization technique
 • Income capitalization technique or call it rental basis.
• Land and building basis.
• Profit basis.
• Development method or plotting scheme.
Rental method
• Net rent = gross rent - outings
• Capitalized value = net rent * years purchase
Rent for the purpose of valuation
• It must be fair rent which is maintainable over a considerable period of duration with no Threat of
being reduced in future.
• Its limit will be the standard rent.
• Chance higher rent need not be considered
Outgoings
• Municipal taxes.
• Repairs.
• Insurance.
• Collection and management charges, cost of services and amenities.
• Vacancies and bad debts.
• Ground rent in case in leasehold properties.
Hypothetical rent
• The tenant has paid a premium for the premises.
• The tenant is a relative of the owner.
• Premises are let out to poor people as an act of charity.
• The owner may not be paying any rent when the premises are self-occupied.
• Premises let out to Government servants at rents not exceeding 10% of their salaries.
Consideration for Fixing Rateable Value
• Tenants taxes
• 10% statutory deduction
Valuation and municipal taxes
• Repairs
Factors on which the Allowance for Annual Repairs Depend
• Situation of the Property
• Class of tenants occupying the building
• Age of building
• Nature of construction
• Condition of building
• User of building

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