Unit - 3
Valuation

* Valuation

→ The art of evaluating the present fair value of a property at a stated time is called valuation.

→ In general, valuation of a property is an estimate of the value of that property in terms of money.

* Purpose of valuation

1) Purchase for investment
2) Tax fixation
3) Sale
4) Rent fixation
5) Insurance premium
6) Mortgage value
7) Betterment charges
8) Auction bids
9) Wealth tax
10) Probate etc.

(1) Purchase for investment

→ For the investment, the real value of any property at the particular time of investment must be known. Valuation helps in knowing the real value of the property.

→ The investment becomes secured only by knowing the fair value of property at the time of investment.

(2) Tax fixation

→ The valuation helps in calculating the tax on a property.

→ The valuation helps in processing the rating for calculating the local taxes of the properties.

(3) Sale

→ Valuation helps in finding the fair value of the property at the time of selling the property.

→ The fair value of property helps in selling and purchasing.

(4) Rent fixation

→ Valuation of the property also helps on finding out or justifying the rent of property.

→ Rent is usually fixed in 6% to 10% of the valuation amount.

(5) Insurance premium

→ To finalize the amount of the insurance premium, the fair price of property is necessary.

→ The valuation of the property helps in fixing the insurance premium.

(6) Auction bids

→ During selling and purchasing of property through the auction bids, fair price of the property at that time is necessary.

→ Valuation of the property helps in fixing the price.

(7) Probate

→ A legal process that occurs when a person dies that involves the validation and administration of their will is called probate.

→ In order to verify the property is legally valid and authentic the review of the property is necessary.

→ For this purpose as well as valuation of property is necessary.

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* Principles of valuation

→ A good valuator is an engineer or architect who must possess sound knowledge about estimating and costing, planning and design, surveying and levelling, law of contract, land acquisition and town planning act, time value of money etc.

→ A good valuator adheres to the principles of valuation.

→ The main principles of valuation that should be observed at the time of valuation to get fair and reasonable value of the property are as follows:

1. Cost of the property depends upon the supply and demand of property.

i) If demand of a property in market is higher than the supply, the market value of the property is higher.
ii) If the demand of property in market is lesser than the supply, the market value of property is lesser.
iii) If the supply and demand of a property is balanced, the value of property will be constant.

2. Cost of the property depends upon its design, specification of the materials used and location of the property.

i) If the design and specification of materials used in a property are of high quality then the market value of the property is higher.
ii) If the location of the property is in urban and highly populated area then the market value of property is higher and vice-versa.

3. Cost of the property is affected by the age of the property and its physical condition.

The structure of the property or property built or manufactured will deteriorate with the time so as the time increases the market value of such property decreases.

Similarly, the market price of property such as land increases with increasing time.

4. Cost of the property varies with the purpose for which the valuation is made.

5. Cost analysis of any property must be based on statistical data, that help as an evidence in the future.

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Factors Affecting the Value of Property

1. Location

  • The location where the property is situated affects its value.

  • If the property is located in a highly facilitated area, then the value of the property is higher.

  • If the property is located in an underdeveloped or remote area, its value is lower.

2. Forces of Demand and Supply

  • The value of property is highly affected by demand and supply.

  • If the demand for property is high and supply is low, the price of property increases.

  • If the demand is low and supply is high, the price of property decreases.

  • If demand and supply are balanced, the value of property remains constant.

3. Rise in Population

  • Population is another major factor that affects the value of property.

  • A rise in population will result in heavy demand for land, due to which the price of property increases.

4. Cost of Production

  • The value of property is affected by the cost of production of that property.

  • If cost of production is high, the property value increases, and vice versa.

5. Purpose of Purchase

  • The value of property also depends upon the purpose of purchase.

  • If the purchaser buys the property for commercial views, its value becomes more.

6. Rent Restriction Act

  • Rent restriction acts are one of the major factors that affect the value of property.

  • The value of property is calculated from its probable annual income through rent.

  • Hence, rent restriction acts directly affect the value of property.

Last modified: Thursday, 4 September 2025, 1:25 AM