In general Valuation or appraisal is related to finding the value of any thing. It is mainly related to tangible assets. But as you know, intangible things can also be valued but this Value is highly dependent upon the person who is doing the process of Valuation. In other sense. there are two types of properties in tangible category, Movable and Immovable. Land, Estates, Quarries, Buildings etc comes under Immovable properties. Civil Engineers are the experts in doing the Valuation.
Property Valuation is the art and science of assessing the value of a property. The Valuer or appraiser evaluates the Value when the property is sold in the open market. The purpose of the Valuation Report is very important and based on the purpose the Value will change. There are mainly 3 types of purposes involved in it.
- For own information of the Owner
- To find out the cost of Construction (This may be required for the Income Tax Assessment purposes)
- For Mortage purposes, where a third party extends some favours to the Owner in lieu of his property considered as collateral security.
There are several methods adopted in Valuation of immovable Properties.
1) Land and Building Method – Here the value assessed separately for Land and Building. Here equal importance is given to Land and building. Similarly, in Land only properties (There is no Building constructed in the property). the same method is adopted with zero value considered for the property. This is the most simple way of doing a valuation of a property.
2) Composite rate method – This method is adopted in flats and properties with undivided share in the Land. Here more importance is given to the building part the land component. This method is more complicated compared to Land and building. with more complex calculations.
3) Rent Capitalization Method – This method is having significance in the commercial angle and the rate of return is linked to the rent received. Based on some complicated calculations, the Value is assessed. If the amount obtained by this method is less than the Land and Building Method, no doubt, we consider the highest value.