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.