Valuation cannot be tied up by rigid laws of nature or science. It also can not work under fixed and unflexible set up of principles because it has great dependence in human nature and individual's thinking. It can not be said that vacant flats are always required to be valued on comparable sales method. Some times circumstances may demand value estimation by
rental method. Hence two flats in same building may have different values for same area.
Let us see how meaning or value of property goes on changing with different adjectives attached to it.
What is property valuation?
The process of estimating the value of real estate property is done by various method as illustrated below.
Comparable property method
The average value of rate per unit area at which similar properties in the neighborhood were actually sold at is multiplied by the actual area of the current property. Adjustments to the calculated
value are made to account for specific defects or advantages in the property under consideration.
Discounted value of rentals
The future rental earning capacity of the property is projected based on a detailed study of the growth of demand for real estate in the neighborhood as well as the potential supply of properties in the location to project likely capital and rental appreciation of the property. These future cash flows are discounted to the present at the current interest rate. This gives an estimate of the economic value of the property.
Most real estate valuers also estimate the remaining life of the building based on structural strength of the building design ,materials used and age of the property. In addition most valuers will also check whether the Title of the property is clear and not under any litigation.
To ascertain the value of the property the following factors would have to be considered
- Self-assessment of the property – In this one needs to do some initial hard work and ascertain the prevailing market rate in the locality for similar properties. One would need to find out informally what the prevailing market values of properties in the vicinity. One would also have to take into consideration various factors that would affect the value of the property, which have been detailed further down.
- Assessment of the property through an external source - There are various agencies through which one could assess the value of the property. One could approach some multinational real estate agencies that may provide valuation services. Another method would be to seek the professional services of a Government registered valuer for a fee as prescribed by the valuers association. The other method is to approach real estate agencies to seek information on your property value on a formal/informal basis.
Some of these factors that would affect the valuation of a property are mentioned below
- Location of the building in which the premises is located with reference to its proximity to the Central Business District and other important infrastructure facilities available at the location and in the building.
- Age of the building – As a normal market norm, new buildings would fetch higher capital values in comparison to older properties at a given location. However, this may not be the case everywhere.
- Upkeep & maintenance of building – The upkeep and maintenance of the building would determine the marketability and the prevailing market value of the premises in which the building is situated. Needless to say, better and fairly well maintained buildings would fetch a better value and would enhance the marketability of the premises in comparison to poorer maintained buildings.
- The profile of the other occupants in the commercial building would also help determine the premium on the price.
- Market perception/grading of the commercial building would also play a significant role.
- Smaller issues like number of elevators with waiting time, car parking spaces, etc could play a crucial role too.
- Upkeep and condition of the premises – The condition and the internal maintenance of the premises would again play an important role in determining the marketability and the prevailing market value of the premises. However, good premises in a badly maintained building may not necessarily fetch a price. Another aspect to the premises would be the fact of it being bare/semi-furnished/fully furnished. A semi-furnished office may not have much of a change over un-furnished premises. Fully furnished premises may at times fetch a better capital value if the purchaser were to think that the existing furnishing would suit their operational purpose. However, one has to keep in mind that the purchaser may take up a stand saying that they do not require the furnishings provided, as it doesn't suit their requirement. This stand taken may be out of a genuine mismatch or may be used as a negotiating tool by the purchaser. The air-conditioning provided and the computer cabling provided, etc also would play an important role here.
- Layout of premises – The layout of the premises in terms of optimum space utilisation in an efficient manner would help the premises score points. Issues like lesser columns, thereby providing for a large open space that may suit office planning, may play an important role. The number of toilets and vehicle parking spaces available with the premises would also play an important role in determining the value of the premises.
- Ancillary costs of holding the premises – Ancillary recurring costs like society outgoing for maintenance of the building, municipal taxes, etc would determine the marketability of the premises.
The Government of India has tried to make things simpler. It has introduced certain guidelines based on which the property valuation takes place. Now you will have to follow these guidelines if you want to know the official value of the property. Many websites offer you a property valuation calculator, or a property valuation estimator. You have to put the data of the property that is available and you will get to know the original value of the property. Now whether the market forces allow you to buy the property at that rate or not is a different matter altogether.
Government property valuation is important if you are going to apply for a loan based on your property. There you must be aware of the value of your property, as you will get a loan based on it. Other than that, it is the marker forces, which decide at what price can you buy or sell the property.
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