METHODS OF

VALUATION

WELCOME

PROPERTY
DICTIONARY MEANING

THINGS OWNED POSSESSION

ALL USEFUL THINGS OWNED BY MAN
CLASSIFIED AS WEALTH
PROPERTY- INTANGIBLE CONCEPT BEING
RIGHT TO POSSESS WEALTH
PROPERTY- LEGAL RIGHT THAT
EXPRESSES THE RELATIONSHIP BETWEEN
OWNERS AND THEIR POSSESSIONS

PROPERTY
DEFINITION CONTINUOUS, EVER LASTING USE,
CONTROL AND DISPOSITION EXERCISABLE BY
OWNER OVER THING OR OBJECT.
PROPERTY SIGNIFIES SUM TOTAL OF ALL RIGHTS
AND POWERS INCIDENT TO OWNERSHIP.

PROPERTY
TYPES-1) CORPOREAL OR TANGIBLE

2) INCORPOREAL OR INTANGIBLE
TANGIBLEOWNERSHIP IN MATERIAL THINGS
WHICH CAN BE PHYSIALLY TOUCHED OR FELT,
E.G. LAND,FURNITURE, JEWELLARY ETC.
INTANGIBLEOWNERSHIP OF NON-MATERIAL
THINGS WHICH CANNOT BE POSSESSED IN
PHYSICAL SENSE E.G. COPYRIGHTS, LEASES,
GOODWILL, EASEMENT RIGHTS ETC.

PROPERTY
CUSTOMARY CLASSIFICATION
1) MOVABLE.
2) IMMOVABLE.
MOVABLEFURNITURE , PLANT AND
MACHINARY, STOCKS, SHARES,
DEBENTURES, INTELLECTUAL PROPERTY,
GEMS AND JEWELLARY, CURRENCY, ARTS
AND ARTIFACTS ETC.
IMMOVABLELAND AND BUILDINGS ETC.

IMMOVABLE PROPERTY
DEFINITION [AS PER SECTION 3(26)
OF
GENERAL CLAUSES ACT]
IMMOVABLE PROPERTY SHALL INCLUDE
LAND, BENEFITS TO ARISE OUT OF LAND
AND THINGS ATTACHED TO THE EARTH OR
PERMANANTLY FASTENED TO ANYTHING
ATTACHED TO THE EARTH.
ATTACHED TO EARTH MEANS1. ROOTED IN EARTH AS TREES
2. IMBEDDED IN EARTH AS WALLS, BUIDG.
3.ATTACHED TO EMBEDDED FOR
PERMANAT BENEFICIALENJOYMENT.

IMMOVABLE PROPERTY
(COND)
AS PER TRANSFER OF PROPERTY ACT
NO POSSITIVE DEFINITION
STATES THAT IMMOVABLE PROPRTY
DOES NOT INCLUDE STANDING TIMBER
GROWING CROPS AND GRASS.
AS PER JUDICIAL DECISIONS
IMMOVABILITY IS INCAPACITY OF A
THING OF SUFFERING ALTERATION IN
RELATION TO PLACE, WITHOUT INJURY
OR DAMAGING ITS SURROUNDINGS

IMMOVABLE PROPERTY
( CONTD)
CRITERIA
THE LINE OF DISTINCTION BETWEEN
MOVABLE AND IMMOVAVLE IS THIN.
THE INTENTION OF PARTIES KEY
THE MODE OF ANNEXATIONIMPORTANT
IF PLANT OR FIXTURE CANNOT BE
REMOVED WITHOUT GREAT DAMAGE
INTENDED TO BE ANNEXED IN
PERPETUITY.

LAND OWNERSHIP
LAND IS ORIGINAL AND BASIC FACTOR OF
PRODUCTION.
LAND AS NATURE PROVIDED CONSISTS
OF THE EARTHS CRUST.
LEGALLY, POSSESSION OF PART OF
EARTHS CRUST INCLUDES RIGHTS TO
CONTROL MINERALS, GAS AND OIL
BELOW THE EARTHS SURFACE AS WELL
AS AIR SPACE ABOVE THE GROUND.
SHAPEINVERTED PYRAMID.

REALTY
LAND ORIGINALLY PROVIDED BY NATURE NO
LONGER EXISTS ANYWHERE ON EARTH.
ALL LAND DIRECTLY ( BY CONSTRUCTION IF
IMPROVEMENTS ON SITE ) OR INDIRECTLY
(BY IMPROVEMENTS RELATED TO SITE)
MODIFIED BY MAN.
LAND TOGETHER WITH IMPROVEMENTS, IS
DESIGNATED AS REALTY
REALTY INCLUDES LAND AND BUILDINGS,
AS ALSO ANYTHING PERMANENTLY AFFIXED
TO LAND I.E. FIXTURES.

PROPERTY OWNERSHIP
OWNERSHIP OF REALTY CLASSIFIED AS
PROPERTY.
TWO TYPES.
PERSONAL PROPERTY OWNERSHIP IS FOR A
LIMITED TERM OF YEARS.
REAL PROPERTY OWNERSHIP OF REALTY
EXTENDS FOR A LIFETIME.
LESSEE POSSESSES PERSONAL PROPRETY IN
REALTY, WHERE AS LESSOR OWNS REAL
PROPERTY.
REAL PROPERTY CONSISTS OF LAND AND
OBJECTS PERMANENTLY ATTACHED TO
GROUND.

DEFINITION OF MARKET
VALUE

THE MARKET VALUE OF A PARTICULAR

INTEREST IN LANDED PROPERTY MAY BE
DEFINED AS THE AMOUNT OF MONEY
OFFERED BY A WILLING PURCHASER TO A
WILLING SELLER OF THAT INTEREST,IN THE
OPEN MARKET, WHERE THERE IS
COMPETITION, AND BOTH PARTIES ARE
BEING ACTUATED BY ECONOMIC
CONSIDERATIONS, AND WHERE THERE IS NO
UNDUE PRESSURE ON EITHER OF THEM.

TECHNIQUES OF VALUATION
OF IMMOVABLE PROPERTIES.

PROPERTY.
IMMOVABLE.
VALUATION.
TECHNIQUE.
COST.
PRICE.
VALUE.

VALUATION
OF IMMOVABLE PROPERTIES
PROPERTY: - Right to own and possess and
to put to Legal and possible
uses.
- Land together with building
improvements plus anything
permanently affixed to it.
IMMOVABLE: Land + Anything attached to
it
+ Anything embedded in it.
VALUATION: For highest, best and most
profitable legal use.

COST AND PRICE

COST Expenditure on inputs.

PRICE Expenditure on input +
Profit.

VALUE
Result of Interaction of Demand and supply.
Value is not intrinsic in Object. People create
Value.
Individual / Subjective Value.
Market / Objective Value.

CHARACTERISTICS OF
VALUE
FUNDAMENTAL PRINCIPLE OF ECONOMICS IS
THAT,FOR AN OBJECT TO HAVE VALUE. IT MUST
SATISFY FOLLOWING BASIC CONDITIONS
UTILITY The power to render a service or fill a need.
SCARCITY in relation to supply and demand and
possible alternative uses.
DEMAND Need with monetary power to fill demand.
TRANSFERABILITY Rights of possession and control
of ownership of property.

SPECIAL
CHARACTERISTICS OF
LANDED PROPERTY
1) IT IS MORE DURABLE THAN OTHER COMMODITIES.
2) LANDED PROPERTY IS HETROGENEOUS.
3) THE PRICE OF LANDED PROPERTY TENDS TO BE
HIGH
RELATIVE TO CURRENT INCOME.
4) LANDED PROPERTY IS OFTEN PURCHASED AS AN
INVESTMENT.
5) THE SUPPLY & DEMAND & ALSO VALUE OF
PROPERTY IS
USUALLY AFFECTED BY LEGAL FACTORS.
6) DEALING WITH LANDED PROPERTY REQUIRES
LENGTHY
AND COMPLICATED PROFESSIONAL ADVICE.
7) LANDED PROPERTY IS IMMOVABLE.

FACTORS AFFECTING THE

DEMAND FOR LANDED
PROPERTY
1] INCREASE OR DECREASE IN POPULATION.
2] CHANGES IN THE GENERAL STANDARD OF
LIVING.
3] CHANGE IN TASTE AND FASHION.
4] CHANGE IN TYPE OF SOCIETY.
5] CHANGE IN TECHNOLOGY.
6] MOVEMENTS OF POPULATION.
7] IMPROVEMENTS IN METHODS OF TRANSPORT
AND COMMUNICATIONS.

FACTORS AFFECTING SUPPLY

OF LANDED PROPERTY
1] CHANGES IN TASTE AND FASHION.
2] CHANGES IN GOVT.POLICY & LEGISLATION.
3] CHANGES IN PRICES OF BUILDING
MATERIAL.
4] CHANGES IN TECHNOLOGY.
5] CHANGES IN THE ECONOMIC SITUATION.
6] INSTITUTIONAL FACTOR INSTITUTIONAL
PLANNING.

VALUATION
It is an art or science of estimating the value
for a specific purpose of a particular interest
in property at a particular moment in time
taking into account all features of the
property and considering all factors of the
market.

PURPOSE OF VALUATION

I) PURCHASE FOR INVESTMENT OR FOR OCCUPATION.

II) SALE/TRANSFER OF THE PROPERTY.
III) MORTGAGE AND OTHER SECURITY.
IV) RENT FIXATION.
V) LAND ACQUISITION.
VI) BETTERMENT CHARGES.
VII) AUCTION BIDS.
VIII) PROBATE.
IX) SPECULATION.
X) TAXATION.
XI) INSURANCE.
XII) PARTITION.
XIII) COURT FEES & STAMP DUTY READY RECKONER.
XIV) RATABLE VALUE.
XV) ARBITRATION.
XVI) LEASES INTEREST/LESSEES INTEREST.
XVII) MERGER AND ACQUISITION OF INDUSTRIAL UNITS.
REVALUATION OF ASSETS FOR MARKET CAPITALIZATION.

INTERESTS IN LANDED
PROPERTY
1]
2]
3]
4]
6]
7]
8]

FREEHOLD INTEREST.
LEASEHOLD INTEREST.
SUBLEASEHOLD INTEREST.
LIFE INTEREST.
RIGHTS OF OCCUPANCY.
RIGHT OF WAY.
RIGHT OF LIGHT AND VENTILATION.

PARTICULAR MOMENT IN TIME

The valuation of a property is related to the date of

valuation and is different at different moments in
time.

FEATURES OF THE PROPERTY

Location
Situation
User
Residential/Industrial/Commercial
Size Small/Gross
Shape Regular/Irregular
F.S.I. permissible
Road Frontage Small/Large,
Important Road/Local
Road

FACTORS OF MARKET

Impact of Political, Legal, Social, Urban and Economic

forces influence the valuation of the property.

TYPES OF LANDED PROPERTY

1] RESIDENTIAL.
a) HOUSES OF VARIOUS TYPES.
b) FLATS AND TENEMENTS.
2] INDUSTRIAL.
I) FACTORIES.
II) WAREHOUSES AND GODOWNS.
3] COMMERCIAL.
a) SHOPS.
b) OFFICES.
4] AGRICULTURAL.

TYPES OF VALUATIONS
1] STATUTORY VALUATIONS
VALUATIONS GOVERNED BY
LEGISLATION.
2] NON STATUTORY VALUATIONS
VALUATIONS,WHICH STEM FROM
NATURAL EVENTS.

METHODS OF VALUATION
1] THE DIRECT COMPARISON OR
COMPARATIVE METHOD.
2] THE CONTRACTORS METHOD.
3] THE PROFITS OR ACCOUNTS
METHOD.
4] THE RESIDUAL METHOD.
5] THE INVESTMENT METHOD.

COMPARATIVE METHOD
FIND OUT CONSIDERATION ACTUALLY PAID FOR OTHER SIMILAR
PROPERTIES IN THE SAME LOCALITY AND THREE TO FIVE
YEARS PRIOR TO THE DATE OF VALUATION.
FACTORS TO BE TAKEN INTO CONSIDERATION:
1] LOCATION OF PROPERTY.
2] SITUATION.
3] LEVEL OF AMENITIES & FACILITIES.
4] USER OF PROPERTY.
5] AGE OF PROPERTY.
6] CONDITION OF PROPERTY.
7] FACILITES AVAILABLE IN THE PROPERTY.
8] SIZE (FLOOR AREA) OF PROPERTY.

COMPARATIVE
METHOD.
The evidence
The
Evidence

The Market
Market
The

Should be based
on
Transactions
Transactions
ofof
similar
similar
properties
properties

Comparative
COMPARATIVE
Valuation
VALUATION

Should
Should be
be
fairly stable
stable
Fairly

thesame
samearea
area
InINthe
Obtained from
RecentRecords
Records
Recent

of

Frequent
Frequent
transactions
Transactions

Underlying
Underlying
economic
Economic
factorsshould
should
Factors
be
Bestudied
studied

Belting Method

If the depth of the plot is more than then the

depth of the comparable plots in sales considered,
this method is adopted to value the land.

Belting Method
3rd Belt

Remaining

Value
Of 1st Belt

Recess Land
of Belt
Value

Recess Land
of Belt
Value

2nd Belt

1
X

1st Belt

R O A D

3/4th Value
Of 1st Belt

Full Value

CONSIDERATION FOR
DIFFERENT
LANDS
Land with return frontage :- Give positive
allowance depending on the importance of road
on which return frontage.
Land with irregular shape :- Carve out regular
shape by drawing perpendiculars to road and give
negative allowance to remaining land.

CONTRACTORS METHOD
OR CAPITAL VALUE METHOD.

USED IN ASSESSMENT IN CASE OF PROPERTIES NOT USUALLY SOLD,

NOT INTENDED TO BE SOLD OR EVEN INCAPABLE OF BEING SOLD IN
OPEN MARKET.
PROPERTIES CLASSIFIED INTO THREE GROUPS:
1] PUBLIC PROPERTIES -MUSEUMS,SCHOOLS,COLLEGS,LIBRARIES.
2] PROPERTIES HAVING POTENTIAL FOR PROFIT
STADIUMS, THEATRES,MUSIC HALLS,RACE COURSE ETC.
3] PROPERTIES OF PUBLIC UTILITY UNDERTAKINGS
RAILWAYS, WATER WORKS, ELECTRICITY UNDERTAKINGS, DOCKS.

CONTRACTORS METHOD
METHOD
1] ESTIMATE VALUE OF LAND IN ITS
EXISTING USE.
2] ESTIMATE COST OF CONSTRUCTION
OF BUILDING.
3] ALLOW FOR DEPRECIATION ON
ACCOUNT OF AGE,OBSOLESANCE ETC.
4] CAPITAL VALUE = LAND VALUE PLUS
DEPRECIATED COST OF BUILDING

CONTRACTORS METHOD

1.
2.
3.

Methods to determine replacement cost of

building:Plinth area rate.
Cubical content rate.
Item-rate.

Contractors Method
Depreciation

Depreciation is calculated for period of

present life with due consideration to its
future life and total life.

Methods:1. Straight-line Method Allocates

depreciation uniformly throughout its
service life
Depreciation=original cost salvage value
Total life
2. Declining balance Method Fixed % of unit
cost at the beginning of the year is allowed
to be deducted at the end of year annually.

Contractors Method
Depreciation
3. Sinking Fund Method

Depreciation=1-Y.P. future life at certain

%
Y.P. full life at same %
Presumes normal and regular
maintenance
and repairs. If neglected, more allowance should be
made, depending on the state of maintenance and
repairs.

CONTRACTORS METHOD

1.
2.
3.
4.
5.
6.

Approximate life span:R.C.C. framed Structure 75-90 years

R.C.C. Brick built
60-65 years
C.G.I.Sheet+BBMasonary 50-60 years
A.C.C.Sheet+BBMasonary 40-50 years
Country Tiled + bricks
20-30 years
Temporary sheds
10-20 years

Weakness of Contractors
Method
No direct co-relation between cost
of property and Market value,
which depends on forces of supply
and demand.
Requires assumptions relative to
unit costs. More probability of
assumption being wrong.
Requires assumptions as to original
economic life and/or remaining
economic life. Greater probability
of assumptions being in error.

PROFIT METHOD
PROFITS MADE BY AN OCCUPIER DETERMINES THE RENT A
TENANT WOULD BE WILLING TO PAY FOR HIRING THE PREMISES.

METHOD.
1] ESTIMATE THE GROSS AVERAGE RECEIPTS OF THE OCCUPIER.
2] DEDUCT THE EXPENSES INCURRED FOR EARNING THOSE
RECEIPTS.
3] DEDUCT THE TENANTS SHARE OF REASONABLE
PROFITS,WHICH
INCLUDE INTEREST ON HIS CAPITAL, REMUNERATION OF HIS
SERVICES AND COMPENSATION FOR HIS RISK.
4] THE RESIDUE WILL BE THE LANDLORDS SHARE OF RENT.
NOTE: BEAR IN MIND THAT WHAT IS ASSESSIBLE IS THE
PROPERTY AND NOT THE TRADE.

RESIDUAL METHOD
This method is used to value property with
Development potential.
Development potential is also called Latent
Value.
Increased value of property after carrying out
development will be more than expenditure
incurred.

RESIDUAL METHOD

Assess optimum development for the property.

Estimate gross Development value [A].
Assess cost of development [B].
Assess Developers risk and Profit [C].
Residual Value= [A] {[B] +[C]}.

RESIDUAL METHOD
Cost of each item of infrastructure is estimated and
Allowances made for each relevant factor which
are deducted from sale value of small plots, carved
out from larger plot.

RESIDUAL METHOD
Cost of development will include:1.Building costs
2.Architects fees [% of cost of development]
3.Engineers fees
4.Other professional fees [% of proceeds of sell]
5.Advertising and legal fees

THANK YOU

CONCEPT
FUNDAMENTAL PRINCIPLE OF ECONOMICS
IS THAT,FOR AN OBJECT TO HAVE VALUE.
IT MUST SATISFY THREE BASIC
CONDITIONS.
1) SCARCITY IN RELATION TO DEMAND.
2) UTILITY AND
3) FUTURITY.
VALUE IS EXPRESSED AS THE PURCHASING
POWER OF A COMMODITY EXPRESSED IN
TERMS OF MONEY.