Overview of Property Valuation

Service of Property valuation comes under the real estate sector and has several benefits to it. The sector is growing and developing at a good speed in India. Valuation of property is one of the important aspects when parties are dealing with matters related to the transfer of property. It helps in calculating the market value of a property. A valuation report contains details of all the assets and the procedure by which the valuation has been made. The valuation can be done by a person himself or get it done through an external source. A person can contact external sources such as real estate agents, professional agencies or government valuers for the valuation of property in consideration of a fee charged for the valuation. It is mostly based on the present market value of the property.

It is usually suggested that people should prefer the valuation of their property should be conducted by an official expert in the valuation of the property. The valuation report is useful for certain purposes. Using the property as a mortgage with the submission of a certified report made by an official valuer will fasten the loan process. A certified report also helps in finding out the exact value of the property for an insurance purposes and distribution of property through will or intestate, etc.

It involves an expert visiting the property and taking notes stating all the details of the property. The expert considers various factors affecting the value and mentions them in the report. This helps the interested party to have complete knowledge and details of the property. A valuation report is used when the property is transferred from one person to other in the form of a sale, lease, or securing the property for a loan.

Corpbiz helps people in evaluating their property with the help of certified and well-qualified professionals.

Importance of Property Valuation

There are categories of people who are interested in the value of the property and its valuation report. The importance of property valuation has been stated below:

• For a seller, the correct property valuation will prevent the sale of property at lower rates than its present market value. It also saves a potential buyer from paying more money for the property than its actual rate in the market.
• An insurance company is also considered an interested party to property valuation. The monetary value of the company helps in providing monetary coverage if an unforeseen event occurs. A valuation report also helps in reducing the coverage of insufficient insurance policies.
• It is important for a tenant to determine the market value of the property which a tenant is willing to take on rent. It helps in finding out the estimated monthly rent payable to the landlord. Such a report plays a crucial role in the calculation of prevailing rates about the area where the property is situated so that a tenant can check all the possible rental properties.
• It helps an individual with payments of taxes on property, income and wealth. It also helps in lessening the tax burden upon an individual.
• Repair and renovation of the property increase its monetary value. Therefore, a person willing to the renovate his property must contact a professional to know the actual present value of the property and to receive an opinion as to whether will it be feasible to invest money in renovation or not.
• It is important to value property as a few financial institutions might ask for the submission of a valuation report to decide the rate of interest on the home loan. It also helps in ascertaining terms and conditions related to the mortgage.
• Litigation with regard to property is very common in India. Thus, the valuation of property helps in the distribution and disposal of property to the successors of a deceased person to avoid any conflicts and disputes.
• The valuation of property saves the potential investors from fraudulent practices by sellers which lead to the payment of higher prices for the property from the actual prices. It helps the investors in making better and more rational decisions related to the purchase of a property.

Major factors that influence property valuation

Following are some major factors that influence property valuation:

Location

The location of the property is a major factor influencing the value of the property. The properties situated in commercial areas have a higher valuation than other properties situated in other localities. The property brokers are found to charge higher rates for properties located in urban and developed areas as compared to properties located in rural and less developed areas. The properties developed on freehold land have higher valuation as compared to the property constructed on lease hold land.

Structure

The type of raw material used in the construction of the building, the design of the property, and the life cycle of the property act as an important factor. The valuation is based on factors such as the wages to labour, cost of raw material, nature and height of the building, etc.

Amenities

The properties which are sold with attached facilities like good telecommunication lines, water reservation, electricity connections, etc and other infrastructural facilities such as swimming pools gym, park, clubhouse, general grocery stores and community center, etc come with high monetary value as compared to the properties with no additional amenities.

Infrastructure

Infrastructural development is one of the most important factors which influence property valuation in India. The availability of services such as well-constructed roads, airports, railway stations, markets, etc near the property increases the worth of the property. This helps in understanding as to why properties built near public entertainment places, business offices, schools and colleges, etc have a higher value as compared to the properties built in remote places with fewer facilities.

Availability of land

The cities where there is ample space for the construction of properties for residential and business purposes, have lower property values as compared to the places where the availability of land is a bit scarce.

Demand and Supply

Demand and supply are the major factors affecting an economic sector. The real estate sector is one of those sectors which get influenced by demand and supply. If in an area, the supply of property decreases, the value of the property increases. Whereas if the supply increases the value of the property decreases. Factor such as population in a specific area affects the demand for the property. In cases of demand in this sector, if the demand increases, the value of property increases whereas if the demand decreases, the valuation of the property also decreases.

Who Carries Out a Property Valuation?

The institution of valuers is a national body established for regulation and providing licenses to the valuers. A competent person who has attained a degree from the Institution of valuers has the authority to carry out property valuation in India. Such professionals are required to get a license from the state authority as well before starting the valuation of properties.

Valuers prepare a report stating several details of the property along with pictures and a plan of the property to the seller of the property. The valuation report contains information such as:

• Location of the property
• The number of floors and rooms in the property
• Measurement and boundaries of the site
• The present condition of the property
• Structural defects, if any
• Associated risks and benefits, if any, etc.

Different valuation methods

The valuation of a property involves various factors influencing the decision. Factors such as ease to local transport facilities, access to the market, quality of the property, etc affect the value of the property. Some properties having quality structure might have a lower value due to their location whereas a small property might have a higher value due to its location.

The properties built near Special Economic Zones or developed areas have high value than a property located in an unsafe area of a city. The below-mentioned methods are the methods which can be used to evaluate a selected property based on the nature, location and purpose for which the property will be used.

Comparison method

This method is used when a buyer buys a property with the intention of living in the same property. Under this method, a valuer considers the market value of existing properties in that area and forms a valuation report. It is one of the most common methods of the valuation if the property is being purchased for residing purposes. 

Profits method

Profit is the main aim to be achieved while running a business. If a person wants to rent out, purchase or lease out a property for business purposes, then the evaluator evaluates the worth of the property after considering the gross revenue and the expenses being incurred in the business. This method will help the buyer to save some money and earn profits. 

Costs method

There are certain situations where there are no existing properties near to the intended property to be purchased by the buyer, and then the evaluator can study and understand the average cost incurred in the purchase of land, and calculate an estimated amount of building another property in the area. This data can help in comparing the present value of the property.

Residual method

There are certain properties in which an investor puts money for renovations and repairs so that the value of the property can be increased. Such properties bought for investments are valued using the residual method of valuation. The value is ascertained keeping in mind the future increased value of the property.

Contractors Method

Under this method, a valuer finds out the value of the property based on the theory that if the landlord demands a higher amount of rent or if there is no property available to be rented out, then the tenant may build a similar type of property.

People who require the valuation of the property

The below-mentioned list contains categories of people who might need a valuation report of a property. These are:

Seller 

A person willing to sell his property can contact a professional to know the actual value of the property at the present time. The expert will prepare a valuation report considering all the factors. With the help of the report, the seller can have an idea about the value of the property. This can save him from selling the property at lower rates. No one will be able to question the valuation as it will be calculated by a professional in the field.

Property investor 

If there is a potential property investor, then the property valuation report will help him in investing money in the properties that are worth investing.

Property taxpayer 

A valuation report gives an idea about the estimated tax amount to be paid on the property. This might save the owner of the property from paying huge taxes than required.

Buyer 

If a buyer is willing to purchase a property, it is essential for him to know the exact worth of the property. This will protect the buyer from overpaying for the property. Such a report will be helpful for the buyer to seek an amount from the financial institution required for the purchase of the property.

Businesses 

The businessmen who are willing to expand their business or set up a new business require a perfect location which attracts a lot of customers and is not situated on the outskirts of a city. This will help the businessmen to earn profits and pay off their debts which were taken from the business. The best-suited method of valuation under such circumstances is the profit method.