Methods of Valuation
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Methods of valuation
- Land And Building Valuation
- Rental Valuation
- Direct Comparison Method
- Profit Based Valuation
- Development Method
Rental Method Of Valuation:-
Net income by way of rent is found by deducting all outgoings from the gross rent. A suitable rate of interest as prevailing in the market is assumed and years of purchase are calculated. The net income multiplied by the year’s purchase gives the capitalized value or the valuation of the property.
Direct Comparison With Capital Value:-
This method is used when the rental value is not available for the concerned property. Capitalized value is fixed by direct comparison with a capitalized value of similar property in the locality.
Profit-Based Method:-
This method is suitable for buildings like hotels, cinema theatres, etc. where the capitalized value depends on the profit. The net annual income is worked out by deducting all outgoings from the gross income. The net profit is multiplied by the year’s purchase to get the capitalized value. In these cases, valuations work out to be much higher than the original cost of construction.
Cost-Based Method:-
The actual cost incurred in the construction of the building or possessing the property is taken as the basis for the determination of the value of a property. Necessary depreciation should be allowed. Points of obsolescence should be considered.
Development Method:-
This method is used for properties that are in an undeveloped or partly developed stage. - Large pieces of land to be divided into plots, developed, and sold. - If a building is renovated by making additions, alterations, or improvements. The anticipated future net income that the building/site may fetch is determined. The net income multiplied by the year’s purchase gives the anticipated capitalized value.
Depreciation Method:-
The value arrived at will be exclusive of the cost of land, water supply, electrical and sanitary fixtures, etc., and will apply only to those buildings that are perfectly maintained. The present values of these have to be added to the valuation of the building in order to arrive at the total valuation of the property. If repairs have been neglected, and the building is dilapidated, suitable deductions shall be made.
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| Methods of valuation |
- Land And Building Valuation
- Rental Valuation
- Direct Comparison Method
- Profit Based Valuation
- Development Method
Rental Method Of Valuation:-
Net income by way of rent is found by deducting all outgoings from the gross rent. A suitable rate of interest as prevailing in the market is assumed and years of purchase are calculated. The net income multiplied by the year’s purchase gives the capitalized value or the valuation of the property.
Direct Comparison With Capital Value:-
This method is used when the rental value is not available for the concerned property. Capitalized value is fixed by direct comparison with a capitalized value of similar property in the locality.
Profit-Based Method:-
This method is suitable for buildings like hotels, cinema theatres, etc. where the capitalized value depends on the profit. The net annual income is worked out by deducting all outgoings from the gross income. The net profit is multiplied by the year’s purchase to get the capitalized value. In these cases, valuations work out to be much higher than the original cost of construction.
Cost-Based Method:-
The actual cost incurred in the construction of the building or possessing the property is taken as the basis for the determination of the value of a property. Necessary depreciation should be allowed. Points of obsolescence should be considered.
Development Method:-
This method is used for properties that are in an undeveloped or partly developed stage. - Large pieces of land to be divided into plots, developed, and sold. - If a building is renovated by making additions, alterations, or improvements. The anticipated future net income that the building/site may fetch is determined. The net income multiplied by the year’s purchase gives the anticipated capitalized value.
Depreciation Method:-
The value arrived at will be exclusive of the cost of land, water supply, electrical and sanitary fixtures, etc., and will apply only to those buildings that are perfectly maintained. The present values of these have to be added to the valuation of the building in order to arrive at the total valuation of the property. If repairs have been neglected, and the building is dilapidated, suitable deductions shall be made.
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