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KINDS OF VALUES AND DEFINITIONS

KINDS OF VALUES AND DEFINITIONS

         Market Value: It is defined as the sum the property will fetch if it is sold in the open market.
Guideline Value : It is the value of the land which is recorded in the Register of Registrar’s Office and used for the purpose of determining the Stamp Duty at the time of Registration of the Documents.
Book Value: It shows the original investment of a Company on its assets, including properties and machinery less depreciation for the period passed.
Salvage Value: Value of Machinery realised on sales when its useful span of life is over but still it has not become useless.
Scrap Value: It is also called as Junk Value or Breakup Value of Demolition Value. It will represent the value of old materials in a building less cost of demolition.
Disposal Value: It is defined as the Value that can be realised if the assets were to be removed from the foundation and sold as separate stand alone items.
Insurance Value: It is the value of the Building for which the building is insured. Normally the Building is insured for the superstructure alone (not for the foundation).
Earning Value: It is the present value of a property which will start yielding an income in future.
Potential Value: It is an inherent value which may go on increasing due to passage of time or some other factor which will fetch more return.
Distress Value: If a property is sold at a lower price than that which can be obtained for it in an open Market, it is said to have “Distress Value”. It may be due to:-

  • Financial crisis for the Vendor
  • Panic due to War, Riots Earthquake, Floods, etc.,
  • Land Locked Land
  • Sentimental reasons
  • Nuisance.

Speculative Value: When the property is purchased so as to sell the same at a profit after some duration, the price paid is known as Speculative Value.
Monopoly Value: In a developed Colony, the value of the plot goes on increasing when number of the available plots goes on decreasing. The fancy price demanded by the Vendor for the remaining plots is known as Monopoly Value.
Sentimental Value: The extra price which is demanded by a Vendor when he attaches certain sentiments to his property is known as Sentimental Value having no relation with the Market Value.
Fancy Value: It is also called as Desired Value. If the Purchaser wants to have a property somehow since the procurement is an absolute necessity for him due to various reasons, he is prepared to pay more sum when compared with others. He attaches a special desire over the said property. The extra sum he is prepared to pay is called Fancy Value.
Accommodation Value: Small strips or lands cannot be developed independently due to their restricted lengths, depths etc and number of purchasers for this property is less. These strips could be sold only to the adjacent land owners who may be offering only a low value. This is called Accommodation Value.
Replacement Value: Replacement Value is the cost of reproduction of a similar Building with similar specifications at the current Market Price on the date of Valuation. It is also called as Reproduction Value or Reinstatement Value.
Depreciation Value: It is the reduction of Value of the Property due to age, deterioration, lack of maintenance, obsolescence, decay, wear and tear etc., Depreciation Value depends upon the age and its future life.
Present Value: It is replacement value less depreciation value.
The other Values are Liquidation Value, Intrinsic Value, Investment Value, Cost Value, Warranted Value, True Value, Written Down Value, Going Concern Value, Commercial Value, Rental Value, Exchange Value, Appraisal Value, Face Value, Utility Value, Use Value, Loss Value, Tax Value, Economic Value, Sale Value, Condemnation Value, Cash Value, Future Value, Capital Value, Mortgage loan Value, Forced Sale value, etc., etc.

FACTORS AFFECTING THE VALUE IN GENERAL

           

  • Supply and Demand
  • Cost of reproduction
  • Occupational value
  • Town Planning Act
  • Rent Control Act
  • Urban Land Ceiling Act
  • Any abnormal conditions like War, Riots, etc.

 

SINKING FUND:

   The fund which is gradually accumulated by way of periodic on annual deposit for the replacement of the building or structure at the end of its useful life, is termed as sinking fund. The object of creating sinking fund is to accumulate sufficient money to meet the cost of construction or replacement of the building or structure after its utility period. The sinking fund is created by regular annual or periodic deposits in compound interest bearing investment, which will form the amount of replacement at the end of the utility period of the property. The sinking fund may be created by taking a sinking fund policy with an insurance company or by depositing in bank to collect highest compound interest. The calculation of sinking fund depends on the life of the building and scrap value of the building for the cost of old materials. The cost of land is not taken into account in calculating Sinking fund as land remains intact.
The sinking fund may also be required for payment of loan. If  a property is owned or constructed by taking loan a sinking fund may be created by setting aside a sum of money annually to accumulate with compound interest in order to repay the debt at the end of the term of loan. The amount thus set aside is also known as Annuity payment. The amount which will be set aside may also be paid directly to lender by way of annual instalment. The amount of annual instalment of the Sinking fund may be found out by the formula.
I = ,
where S = total amount of Sinking fund to be accumulated, n- number of
years required to accumulate the Sinking fund, i = rate of interest in decimal
(e.g., 5% = 0.05); and I = annual instalment required.
2.1.0 Example 1: A pumping set with a mortar has been installed in a building at a cost of Rs. 2,500.00. Assuming the life of the pump as 15 years, work out the amount of annual instalment of Sinking fund required to be deposited to accumulate the whole amount of 4% compound interest.
The annual Sinking fund, I =  =
= 2500 x 0.05         =     Rs. 125.
The owner is to deposit Rs. 125/- annually in 4% compound interest carrying investment for 15 years to accumulate Rs. 2,500/-.
2.1.1. Example 2: An old building has been purchased by a person at a cost of Rs.30,000/- excluding the cost of the land. Calculate the amount of annual Sinking fund at 4% interest assuming the future life of the building as 20 years and the scrap value of the building as 10% of the cost of purchase.
The total amount of Sinking Fund to be accumulated at the end of 20 years.
S = 30000 x  = Rs. 27,000.00
Annual Instalment of Sinking fund. I  =  = =                                                       27000 x 0.336 =  Rs. 907.20
Annual Instalment for Sinking fund required for 20 years = Rs. 907.20
2.2. Depreciation: Depreciation is the gradual exhaustion of the usefulness of a property. This may be defined as the decrease or loss in the value of a property due to structural deterioration use, life wear and tear, decay and obsolescence. The value of a building or structure will be gradually reduced due to its use, life, wear and tear, etc., and a certain percentage of the total cost may be allowed as depreciation to determine its present value. Usually a percentage on depreciation per annum is allowed. The general annual decrease in the value of a property is known as Annual depreciation. Usually, the percentage rate of depreciation is less at the beginning and gradually increase during later years.
The amount of depreciation being known, the present value of a property can be calculated after deducting the total amount of depreciation from the original cost.
2.2. a. The factors that cause depreciation are:

  • Wear and tear
  • Fall in market value
  • Accidents like fall of a tree
  • Obsolescence
  • Decay
  • Changes in demands
  • Changes in Arts and fashion
  • Calamity like flood, lightning etc.
  • Actions of elements of Nature like heat, cold, wind etc.,
  • Structural deterioration.

2.2.b. Method of calculating depreciation:
The various methods of calculating depreciation are as follows:

  • Straight line Method
  • Constant percentage method
  • Sinking fund method and
  • Quantity survey method.

In all these methods, it is necessary to decide the economic or effective life of the property.
2.3. Straight line method: In this method it is assumed that the property loses its value by the same amount every year. A fixed amount of the original cost is deducted every year, so that at the end of the utility period only the scrap value is left.
The present value minus salvage value is distributed uniformly for its service life. It is assumed the property looses its value by the same amount every year.
Annual depreciation D =   =
Where, C – Original cost or Replacement Value
S – Scrap value or Salvage value
n - life of the property in years
D – annual depreciation.
Example:
Cost of New Building                             =     Rs. 4,00,000
Salvage Value 10% at the end of life     =     Rs. 40, 000
Life assumed                                         =     60 years
Annual Depreciation       =     Rs. 6,000
Depreciation value after 10 years          =     Rs. 60,000
Depreciation value after 60 years          =     Rs. 3,60,000
Depd. Value after 10 years = 400000 – 60000                        =        Rs. 3,40,000
Depd. Value after 60 years = 400000 – 360000
(which is the salvage value assumed)    =     Rs. 40,000

Linear Method: (or Constant Percentage Method or Written Down Value Method or Declining Balance Method):
In this method, the depreciation % age remains constant through the life of the building. But the capital sum or base goes on reducing every year by an amount equal to the depreciation of previous year. Thus the quantum of  depreciation in this method will go on reducing every year and in this respect, it is contrast with the straight line method wherein the quantum of the depreciation remains constant. The depreciated value is calculated by using the formula:
Example:                P = A ( 1 - ) n
Where    P = Depreciated value of the  Building
A = Replacement value of the Building
r = rate of depreciation per year
n = Age of the Building in Years
Example to calculate the depreciated value:
Replacement Value of the Building      =   Rs. 20,00,000
Age of the Building (n)                          =   15 years
Depreciation assumed                          =   2 %
Depreciated value                                 =   20,00,000 ( 1 - )15
=   20,00,000 (0.98)15
=   20,00,000 (0.73857)
=   Rs. 14,77,140
Depreciation factor = 1 – 0.73857         =   0.26143 (vide the table also)
Depreciation value (20,00,000 – 14,77,140)                                                      =          0.26143 x 20,00,000
=   Rs. 5,22,860
Depreciation Percentage                       =   26.143%

PURPOSE OF VALUATION

SINKING FUND AND DEPRECIATION

        STANDARD RATE OF DEPRECIATION (AS PER TN PWD)  

  1.  

Buildings built in lime mortar and in which teak wood has been used throughout

1.01% per year

  1.  

Buildings built partly in brick in lime mortar, and partly in mud mortar and in which teak wood has been used

1.5 % per year

  1.  

Buildings built in brick in mud and in which country wood has been used

2.0 % per year

  1.  

Buildings like police lines which are inferior to class 3 above with brick in mud unplastered walls, mud floors and in which country wood has been used

4.0 % per year

The depreciation factor for different percentages for various years are given in the following table as a ready reckoner.

Method  or Linear Method
The value of Depreciation:  is given in the following tables.


Years (age)

1%

1½%

2%

4%

1

0.01000

0.01500

0.20000

0.04000

2

0.01990

0.02978

0.03960

0.07840

3

0.02970

0.04433

0.05880

0.11526

4

0.03940

0.05866

0.07763

0.15065

5

0.04901

0.07278

0.09608

0.18463

6

0.05852

0.08669

0.11416

0.21724

7

0.06793

0.10039

0.13187

0.24855

8

0.07726

0.11389

0.14924

0.27861

9

0.08648

0.12718

0.16625

0.30747

10

0.09562

0.14027

0.18293

0.33517

11

0.10466

0.15311

0.19927

0.36177

12

0.11362

0.16587

0.21528

0.38729

13

0.12248

0.17838

0.23098

0.41180

14

0.13125

0.19070

0.24636

0.43533

15

0.13994

0.20284

0.26143

0.45791

16

0.14854

0.21480

0.27620

0.47960

17

0.15706

0.22658

0.29068

0.50041

18

0.16549

0.23818

0.30486

0.52040

19

0.17383

0.24961

0.31877

0.53958

20

0.18209

0.26087

0.33239

0.55800

21

0.19027

0.27195

0.34574

0.57568

22

0.19837

0.28287

0.35883

0.59265

23

0.20639

0.29363

0.37165

0.60894

24

0.21432

0.30422

0.38422

0.62459

25

0.22218

0.31466

0.39654

0.63960

26

0.22996

0.32494

0.40860

0.65402

27

0.23766

0.33507

0.42043

0.66786

28

0.24528

0.34504

0.43202

0.68114

29

0.25283

0.35486

0.44338

0.69390

30

0.26030

0.36454

0.45452

0.70614

31

0.26770

0.37407

0.46543

0.71790

32

0.27502

0.38346

0.47612

0.72918

33

0.28227

0.39271

0.48659

0.74001

34

0.28945

0.40182

0.49686

0.75041

35

0.29655

0.41079

0.50693

0.76040

36

0.30359

0.41963

0.51679

0.76998

37

0.31055

0.42834

0.52645

0.77918

38

0.31745

0.43691

0.53592

0.78801

39

0.32427

0.44536

0.54520

0.79649

40

0.33103

0.45368

0.55430

0.80463

41

0.33772

0.46187

0.56321

0.81244

42

0.34434

0.46994

0.57195

0.81995

43

0.35090

0.47789

0.58051

0.82715

44

0.35739

0.48573

0.58890

0.83407

45

0.36381

0.49344

0.59712

0.84070

46

0.37012

0.50104

0.60518

0.84708

47

0.37647

0.50852

0.61308

0.85319

48

0.38271

0.51590

0.62081

0.85906

49

0.38888

0.52316

0.62840

0.86470

50

0.39500

0.53031

0.63583

0.87011

51

0.40104

0.53736

0.64311

0.87531

52

0.40703

0.54429

0.65025

0.88030

53

0.41296

0.55113

0.65725

0.88509

54

0.41883

0.55786

0.66410

0.88968

55

0.42465

0.56450

0.67082

0.89409

56

0.43040

0.57103

0.67740

0.89833

57

0.43609

0.57746

0.68386

0.90240

58

0.44173

0.58380

0.69018

0.90630

59

0.44732

0.59004

0.69637

0.91005

60

0.45284

0.59619

0.70245

0.91365

61

0.45831

0.60225

0.70840

0.91710

62

0.46373

0.61082

0.71423

0.92042

63

0.46909

0.61409

0.71995

0.92360

64

0.47440

0.61988

0.72555

0.92666

65

0.47966

0.62558

0.73104

0.92959

66

0.48486

0.63120

0.73641

0.93241

67

0.49001

0.63673

0.74169

0.93511

68

0.49511

0.64218

0.74685

0.63771

69

0.50016

0.64755

0.75192

0.94020

70

0.50516

0.65283

0.75688

0.94259

71

0.51011

0.65804

0.76174

0.94489

72

0.51501

0.66317

0.76651

0.94709

73

0.51986

0.66822

0.77117

0.94921

74

0.52466

0.67320

0.77575

0.95124

75

0.52941

0.67810

0.78024

0.95319

76

0.53412

0.68293

0.78463

0.95506

77

0.53878

0.68769

0.78894

0.95686

78

0.54339

0.69237

0.79316

0.95859

79

0.54796

0.69699

0.79730

0.96024

80

0.55248

0.70153

0.80135

0.96183

81

0.55695

0.70601

0.80532

0.96336

82

0.56138

0.71042

0.80922

0.96482

83

0.56577

0.71476

0.81303

0.96623

84

0.57011

0.71904

0.81678

0.96758

85

0.57441

0.72326

0.82044

0.96888

86

0.57867

0.72741

0.82403

0.97012

87

0.58288

0.73150

0.82755

0.97132

88

0.58705

0.73552

0.83100

0.97247

89

0.59118

0.73949

0.83438

0.97357

90

0.59527

0.74340

0.83769

0.97462

91

0.59932

0.74725

0.84094

0.97564

92

0.60332

0.75104

0.84412

0.97661

93

0.60729

0.75477

0.84723

0.97755

94

0.61122

0.75845

0.85029

0.97845

95

0.61510

0.76207

0.85328

0.97931

96

0.61895

0.76564

0.85622

0.98014

97

0.62276

0.76916

0.85909

0.98093

98

0.62654

0.77262

0.86191

0.98169

99

0.63027

0.77603

0.86467

0.98243

100

0.63396

0.77939

0.86738

0.98313

(3) Sinking fund method: In this method the depreciation of property is assumed to be equal to the annual sinking fund plus the interest on the fund for that year, which is supposed to be invested on interest bearing investment. If A is the annual sinking fund and b, c, d, etc., represent interest on the Sinking fund for subsequent years, and C = total original cost, then –

 

At the end of

 

Depreciation for the year

 

Total depreciation

 

Book value

1st year

A

A

C – A

2nd  year

A + b

2A + b

C – (2A + b)

3rd  year

A + c

3A + b + c

C – (3A + b + c)

4th year

A + d

4A + b + c + d

C – (4A + b + c + d)

So on …………

(4) Quantity survey method: In this method the property is studied in detail and loss in value due to life, wear and tear, decay, obsolescence, etc., worked out. Each and  every step is based on some logical ground without any fixed percentage of the cost of the property. Only experienced valuer can work out the amount of depreciation and present value of a property by this method.
Obsolescence: The value of property or structures become less by its becoming out of date in style, in structure in design, etc., and this is termed as Obsolescence. An old dated building with massive walls, arrangements of rooms not suited in present days and for similar reasons, becomes obsolete even if it is maintained in a very good condition, and its values becomes less due to obsolescence. The obsolescence may be due to the reasons such as progress in arts, changes in fashions, changes in planning ideas, new inventions, improvements in design technique, etc., A machine of old design may become obsolete, though it may be in good running condition and its value will be less. Thus, though the property is physically sound, it may become functionally inadequate and its economical return becomes less.
Annuity: Annuity is the annual periodic payments for repayments of the capital amount invested by a party. These annual payments are either paid at the end of the year or at the beginning of the year, usually for a specified number of years.
If the amount of annuity is paid for a definite number of periods or years, it is known as Annuity certain. In such cases the amount of annuity will be higher, the lesser the number of the years the higher will be the amount and vice versa to clear up to the whole amount of capital.
If the amount of annuity is paid at the beginning of each period of year and payments continued for definite number of periods, it is known as Annuity due.
If the payment of annuity begins at some future date after a number of years, this is known as Deffered Annuity.
If the payments of annuity continue for indefinite period, it is known as Perpetual Annuity.
Though annuity means annual payment, the amount of annuity may be paid by twelve monthly instalments or quarterly or half-yearly instalments.

TECHNICAL DATA

TECHNICAL DATA

SPECIFICATIONS     

Prescribed by the P.W.D. for their Plinth Area rates

Residential

Non – Residential

Hospital

 

The rates are inclusive of provision for internal water supply at 7.5%, sanitary arrangements at 7.5% and internal electrifications at 10%.

 

 

The rates are inclusive of provision  for internal water supply at 7.5%, sanitary arrangements at 7.5% and internal electrifications at 10%. The rates are inclusive of mosaic in situ works and dadooing with glazed tiles in toilets.

 

The above rates are  inclusive of provision for internal water supply at 7.5%, sanitary arrangements at 7.5% and internal electrifications at 15%. The rates are also inclusive of provision for mosaic flooring, Mosaic dadooing in wards and dadooing walls with glazed tiles in operation theatres and in toilets.

EXTRA:

EXTRA:

EXTRA:

External Water supply     – 7.5%

External Water supply     – 7.5%

External Water supply     –7.5%

External Sanitary      – 7.5%

External Sanitary      – 7.5%

External Sanitary     – 7.5%

External Electrification – 7.5%

External Electrification– 7.5%

External Electrification – 7.5%

OR ACTUALS

OR ACTUALS

OR ACTUALS

 

 

 

VALUATION OF LAND:

            In the Land Valuation generally Lands are broadly classified into
 (1) open lands                (2) Land with Structures.
Further the open land classified as

  1. Urban Land,       (2) Agricultural (or) form land

The urban land again classified into three categories:

 

 

The market value of the land should be arrived by multiplication of Total Extent of Land or Plot and the unit Rate of the land.
Land Value = Total Extent x Unit Rate of Land
Calculation of Extent:
The extent is calculated based upon the Documents (or) actuals. The following documents is to be utilized to found the extent

  1. Peruse of title Deeds & Settlements / will deeds
  2. Encumbrance Certificates
  3. Site plan which is given by the local administration Authority
  4. Survey Book
  5. Previously approved plans etc….
  6. Legal opinions

Even though over the above documents a valuer may be the case, physical measurements to be executed in the site while doing valuation.


UNIT RATE:
There are two types of the unit rates system’s applied in  the assessing of Land Valuation

  1. Guideline Rate
  2. Prevailing market rate

Guideline Rate:
Guideline Rate is the unit rate fixed by the local Registration Dept authorities for the purpose of deciding the stamp Duty for any sale transaction between the Buyer and Seller. This rate is fixed based on the recent transactions and sale instants.
Prevailing Market Rate:
This is the rate to be adopted while assessing the present market value. This rate is to be arrived from comparable/ recent sale instances, transacted in the surrounding or near by areas.
Unit Rate Application Methods:
The unit rate application in the valuation of land will not be same for all types of plots. It varies with the shape, size, Nature etc.,

DIFFERENT SHAPES OF LANDS OR PLOTS:

      1) Regular shaped plots:
Usually Rectangular or square in shape, and the rates can be adopted 100% of the unit rate to the entire area of plot or land.
2) Land locked land:
This type of land, do not have any access or approach road is called Land located Land. This property will not be used any outsiders, any adjoining owners only purchased. Hence 70 to 75% of unit rate will be adopted.
3) Recess Land:
Recess Land is a part or portion of the land which has zero frontage on the road. It lies between the boundary of the plot and makes obtuse angle with the line of the Road. The portion BCD is called the Recess land.
 

 

 


4) Strips of Land:
There are lands where the depth is much more than the width. Such types of lands are valued by Belting Method. While assessing the value of Land, the depth plays vital role. Front land has more value and value goes on decreasing as the depth increases. In this method the front land will  be adopted 100% unit rate, The central land will be adopted 65% and the Rear land or end portion will be adopted 50%. This is the principle of Belting Method of Valuation of Land.