Valuation can be defined
as the process of estimating value. Valuation depends on the circumstances of
the case purpose for which valuation is needed, and the given time, place and
market conditions prevailing on the date as on which valuation is required.
Valuation is an art
requiring judgement and forecast, in which conclusions about value are arrived
at by a scientific analysis of the available data. In valuation, mathematical
certainty is neither demand nor possible.
PURPOSE
The purpose of valuation
of property consisting of land and buildings can be any one of the following :
1. Purchase or sale of property.
2. Land acquisition.
3. Assessment of wealth tax, capital gains
tax and the like.
4. Probate/death duty.
5. Partition of property.
6. Mortgage, bank loans and other security
purposes.
7. Fire insurance, for fixing insurable value and
the premium payable.
8. Rent fixation.
9. Court fees/stamp duty payable in property
litigations.
10.Fixing rateable value
for municipal taxes.
11.Fixing betterment
charges.
12. Fixing minimum reserve
price in property auctions.
VALUE
In order to have value,
a commodity must simultaneously have three essential qualifications, namely :
1. It must posses utility.
2. It must be scarce.
3. It must be transferable or marketable.
For example, air is of
utmost importance for human life, but being freely available in plenty and not
being scarce it does not possess value. Rotten mangoes may be scarce in
November, but as they have no utility they will not have any value.
Value means the worth of
a commodity in exchange, and for the sake of convenience it is measured in
terms of money.
The market value of a
property is defined as the price that a willing purchaser would be prepared to
pay to a willing seller on the date of offer, having due regard to all factors
such as exisiting condition, advantages, risks, and potential possibilities of
the property.
NATURE OF VALUE
Value is a word of many
meanings. The same property will have different values depending on the purpose
for which valuation is required.
Some of the common uses
of the term 'value' are as follows :
1. Market value, fair market value or open market
value.
2. Assessed value or rateable value is that which
is worked out and recorded in the register of local municipal authority and
used for the purpose of determining the property tax payable by the owner.
3. Forced value or distress value is the value paid
to a seller who is in some kind of compulsion to sell, by a buyer who is not
particularly interested in buying the asset, or vice-versa, i.e. the value paid
by a buyer having an over-riding need to buy a particular property from a
seller who is not particularly interested in selling it. In such cases the
transaction materialises due to the low price payable or the high price
obtainable, as compared to the fair market value.
4. Earning value is the present value of a property
duly taking into consideration the income it will start yeilding in future.
5. Potential value takes into account future
utility, and means the value which a property is expected to develop if
and when probabilities like movement of building activity towards the piece of
land or property, due to proposed new roads, town planning schemes, division
into building plots and the like become actualities.
INTER-RELATIONSHIP OF COST, PRICE AND VALUE
Cost is defined as the
expenditure in producing a commodity having a market value.
Price is the cost of a
commodity plus additional reward to the producer for his labour and capital.
The extent of this additional reward depends on the utility, durability,
satisfaction, extent of demand and scarcity of the commodity in question.
Whereas the cost and
price reflect the sacrifice required to produce or acquire a commodity, value
denotes the advantage on account of ownership. Price is often considered as a
special form of value. Price however does not necessarily mean the value of a
commodity, and the two terms are not synonymous.
