What is Valuation of Immovable Property?
Meaning of term “Valuation”:
The term Valuation refers to examining and estimating the value of a particular thing, at given point of time. It is to know the fair market value of the particular object or asset. It can be done for various things like Valuation of Plant and Machineries/ Immovable Property, valuation of business, etc. Valuation has three characteristics that cannot change whatever the nature of the object is. These characteristics are-
- Valuation is time specific.
- It is not exposed to the open market
- There cannot be any negotiations while valuation of an object.
Meaning of Immovable Property:
Immovable Property refers to any property that cannot be moved from one place to another. It generally remains or connected at one place on which it is. Here is a list of immovable property-
- Hereditary allowances
- Lease land
- Right to collect rents
- Life interest in the income from immovable property
- Rights to ways
- Benefits arising out of land
- Things attached permanently to the earth not including grass or standing timber or crops growing on it.
Valuation of Immovable Property:
When we say valuation of immovable property, we mean that estimating the market price value of the given immovable property. It is done for various reasons like-
- For retaining the exact market value of the property.
- For buying and selling of immovable property.
- For taxation purposes.
- For transfer of the property Valuation of the Immovable Property is done.
- For mortgaging a property.
- For compulsory acquisitions.
- For the purpose of raising a loan on immovable property.
Land is an Immovable property however it can be further classified into sub groups to make it easy to do its valuation. Types of landed property are-
- Agricultural land
- Residential land
- Various types of houses
- Commercial land
- Shops and establishments
- Industrial land
- Factories or industries
Methods of Valuation of Immovable Property:
There are different methods that can be used for Valuation of Immovable Property. These methods include-
- Investment Method- for Valuation of Immovable Property with this method a potential on return through the investments made is taken into consideration.
- Contractor’s Method- Also called as Capital Value Method. The contractor’s method, generally take into account estimated value of existing used land, estimated value of cost of construction of the building and the depreciation cost to calculate the capital value. This method of valuation is generally used in assessing the properties that are incapable of being sold or are not intended for selling. These are classified in three different groups namely:
- Properties with public utility facilities like railway Station, electricity plants, water works, etc.
- Public properties like school, colleges, museum, etc.
- Properties with a potential of profit like theatres, music halls, stadiums etc.
- Comparative Method- As the name suggests in this method of Valuation of Immovable Property is done by comparing the prices of other similar properties prior three to five years from the date of valuation in the locality or area. Factors like location, facilities, level of amenities, size of the property, situation, user of the property and its age are considered for valuation service.
- Residual Method- This method of Valuation of Immovable Property uses latent value that is the potential of development to know the value of the property.
- Profits or Accounts Method- It involves the total profits made out of the immovable property to consider its value.