Investment in property is one such decision, which is done in order to get appreciation in future. To
get an idea how much the value has appreciated, property valuation is done. It is the process, which
determines the market value of a property on a given date, based upon factors such as property size,
demands and supply, location, infrastructure, connectivity etc. Valuing property accurately is very
important to sellers, home purchasers, lenders, and real estate investors for better financial
decisions. Valuation experts do property valuation.Property valuation typically seeks to
determine fair market value, the price at which a knowledgeable seller would sell the property and a
knowledgeable buyer would willingly purchase it and are neither forced to buy or sell.
Purpose of Valuation
Following are few of the purposes for which one gets the property evaluated,
Tax (Income, Wealth and Capital Gains, Rent and Depreciation, Gift)
Disputes (Legal/ Family)
Factors affecting property value
DUST is what the property valuation lies upon.First is Demand, the magnitude of interest and
buying power in the market for purchasing property.Next is Utility, the ability of the real estate to
satisfy the use or need of prospective purchasers.Scarcity, the third, recognizes that there is a
limited supply of real estate.The last is Transferability, which refers to the ease at which the
property can be transferred to a new owner, legally. Apart from these, some other factors, which
affect the value, are,
Location and adherence to bye-laws: Location of the property is very important. Property
near to the commercial area, main road etc. demands a premium. Construction as per the
bye-laws/ Master plan/ Zonal Plan of the area also affects the value of the property. Proper
deed of the property also decides the value.
Structure and Age: Type of civil structure and the age of the property also affect the value.
Newly constructed or renovated property shall always command a premium. Value of the
property is also dependent on the specifications of materials used, layout, design, durability
and life cycle of the building.
Condition and Amenities: The upkeep of the property, how it has been maintained over the
years affects the value, when one wants to sell, rent or lease the property. The amenities
available within and nearby the property, also decides the value. Property valuation is also
based on the availability of necessities and facilities connected with concerned property.
Neighbourhood, Connectivity: Connectivity is one of the most important requirements for
investors looking towards purchasing land or property. The neighbourhood or the locality in
which the property is available also decides the value of the property. Its connectivity with
the nearest city or town and other facilities such as hospitals, schools, shopping malls etc.,
plays a major role in the valuation.
Ownership and Type of Property: Properties on “free-hold” has a higher value and same is
true for commercial properties. It always has more value per unit, as compared to the
Availability: The value also depends upon the demand and supply. If property in the region is
scarce, the value would go up as compared to the region where abundant properties are
Affordability:Affordability refers to the cost incurred by the owner in the process of enjoying
or retaining a property. It is the term, which establishes a relationship between interest
rates, property prices and wages. If any of above three variables reach their maximum level
in a particular area, then the potential buyers/ renters start looking elsewhere.
Methods of Valuation
Knowing the main property valuation methods is vital to for real estate appraisal. While landlords
and investors do not necessarily have to know the ins and outs of the property valuation methods,
it’s always a good idea to have a basic idea. The following methods are used for property valuation,
Income Capitalisation: This approach takes into account the return on investment and the
net income of a property. The income is mainly through rent and hence this method is also
called as Rent capitalisation method. It is calculated using “Direct capitalisation method” or
“Gross income multipliers method”.
Comparison Method: Also known as the market data or comparable sales approach.
Valuation in this method is done by comparing a real estate property with similar properties
in terms of sales prices and in the nearby areas, hence the name of the method. It is a
commonly used method and takes into account several important factors, such as the timing
of the sale and the price at which adjacent properties have been sold.
Cost Approach: The concept of the cost approach is that a real estate investor should not
buy a rental property for more than what it could cost to construct a replicate of said
property. This approach uses one of the common property valuation methods, the sales
comparison approach. The sales comparison approach is used to find the value of the
property’s land based on comparables. Then the costs of building the property are
estimated, considering depreciation.
These days, valuation is done by registered valuers, who are trained and experienced in the area of
property valuation and offer better assessment of the fair market value of the property. Although he
uses a combination of the above methods, due to his experience and know-how, he can provide a
reasonable estimation of the market value of a particular property.
The information on the top real estate valuers in India can be found in the list below, which could
help in locating nearby local real estate valuers.