Valuation Of Building

Valuation Of Building

           Valuation of a building is done by working out its cost of construction of present day rate allowing a suitable depreciation.
Before valuation the age of the building should be obtained from record or by visual examination.
Present day cost may be determined by the following method:-

1. Cost from Record
2. Cost by detailed measurement
3. Cost by plinth area basis
4. Determination of depreciation

1. Cost from record:- From the record of estimate or from the bill of Quantities. if actual cost of construction is known this may increase or decrease according to percent rise fall in the rates which may be obtained by the P.W.D shedule of rates.

2. Cost by detailed :- If record is not available, the cost of construction may be calculated by preparing bill of quantities of various item of works by detailed measurement at site and taking the rate of each item as prevent in the locate locality or as current P.W.D schedule of rates.

3. Cost by Plinth area basis:- Plinth area of the building is measured and prevent day plinth area rate of the similar building in the locality is obtained by enquires and the cost is calculated.(Simple and Fast method)

4. Determination of depreciation:- Generally for the first 5 to 10 years there is a little depreciation of the building. the depreciation increases with for a building whose life is considered as 80 years if well maintained the following may be reasonable depreciation
Years                                        Depreciation/year                         Total Depreciation
0 to 5                                            Nil                                                       Nil
5 to 10                                         @1/2%                                                2.5%
10 to 20                                       @3/4%                                                7.5%
20 to 40                                       @1%                                                    20%
40 to 80                                       @1.5%                                                 60%
The balance 10% represents the net scrap value on Dismantling at the end of the utility.

Method's of Valuation:-

1.  Rental method of valuation.
2. Direct comparison with the capital value.
3. Valuation based on profit.
4. Valuation based on cost.
5. Development method of valuation.
6. Depreciation method valuation.

1. Rental method of valuation:-

• This method is used when rent is known.
• Net Income = Gross Rent-outgoing
• Y.P. 100/i  (i = preveiling rate of interest)
• Capitalized value = Net income * y.p.
• Valuation of the property = Capitalized value.

2. Direct comparison with the capital value:-

• when the rent value is not available but the sale price of the property is known.
• Capitalized value of the property is fixed by direct comparison with capitalized value of similar property in the locality.

3. Valuation based on profit:-

• Suitable for building like hotels,cinemas,theaters,etc. for which the capitalized value depends upon profit.
• Net annual income= Gross income - (Outgoings + All possible working expenses + interest on the capital invested ).
• Capitalized value = Net profit * y.p
• The valuation may be too high in comparison with the cost of construction. 

4. Valuation Based on cost:- 

•    Valuation= Actual cost in possessing the property - (Necessary depreciation + obsolescence)

5. Development method of valuation:-

• Used for the properties which are in undeveloped stage or party developed & partly undeveloped stage.
• If a building is required to be renovated by making additions, alterations or improvements this methods of valuation may be used.
• Anticipated capitalized value = Anticipated net income* y.p.
• If a large place of load is required into plots after providing the roads, parks, etc. This method of valuation is adopted.

6.Depreciation method valuation:-

• According to this method the building should be divided into four parts.

1. Walls
2. Roofs
3. Floors
4. Doors & Windows

• Cost of each part should work out on the present  days rates by detailed measurement.
• Life of each of the four parts should be determined.