What is valuation in civil engineering?
Valuation is the technique of assessing the present fair value of a property such as a building, factory, other engineering structure of different types, land, etc. At a stated time.
The value of a property depends on its life, location, legal control, structure, maintenance, bank interest, etc. Valuation of anything is an estimate of the value of that thing in terms of money.
Valuation is not an arbitrary process. The value also depends on supply and demand and the purpose for which valuation is needed. The fair price can rise or fall from time to time.
Various purposes of valuation
Buying and selling of the property –
When it is needed to buy or sell a property, its valuation becomes essential. Many times, the seller or buyer acts as a guardian, trustee, partner of the company, or in such other capacity and he desires the certificate or report of the valuer to protect himself for the decision he is taking for the sale of actual property.
Taxation –
To calculate tax on a property, its valuation is required. Taxes may be property tax, municipal tax, a wealth of tax, etc. The process of rating is to be adopted for calculating local taxes.
The market value of the property on the material date of valuation is to be fixed for working out the government taxes like capital gain tax, gift tax, wealth.
Security of loans or mortgage –
When loans are taken against the security of a property, its valuation is essential. The quantum of money that be advanced against the mortgage of the property is worked out by valuation.
Rent fixation –
Valuation of property is essential to find out or justify the rent of a property. Rent is generally fixed on a certain percentage of the amount of valuation.
Compulsory acquisition –
Sometimes, the property is acquired by law for some public or semi-public purpose. In that case, compensation against such acquisition is paid to the owner by the government.
Betterment charges –
The value of a property may increase when the property comes under some town planning scheme of the area. In this case, the owner of the property is required to pay additional tax, called the betterment charge.
Insurance –
The owner requires to know the replacement value of the property for the purpose of taking out an insurance policy of the property. To fix up insured value of a property, valuation is needed excluding the cost of land in order to replace the same and thus to find the insurance premium.
Speculation –
When a buy is intended for the sale of the property and to make some profit, a small period valuation is essential for that purpose and this is called speculative value.
Reinstatement –
When the owner of a property wants to reinstate his property, the valuation of the property becomes necessary. While valuing the property for this purpose, the possible use of old materials and requirements of new material should be considered.
Methods of valuation
The different valuation methods are given below –
Rental method of valuation –
In this method, the net rental income is determined after deducting all outgoing from the gross rent, and years purchase is found out after adopting the current bank interest.
Then valuation of a property is calculated by multiplying the net rental income with the year purchase.
Direct comparison with the capital value –
This is the simplest and most direct method of valuation. This method may be adopted when the rental value is not available for the property concerned, but there are facts available about the sale price of properties as a whole.
It is based on comparing the property to be valued with similar properties sold in the recent past.
Valuation based on profit –
This method of valuation is suitable for building such as hotels, public places, cinema houses, shops, etc. For which the capitalized value depends on the profit.
Valuation based on cost –
In this method, the biggest and best value of open land with due provision for burden factors is calculated and then it is included in the depreciated cost of the property.
Development method of valuation –
This method of valuation is used for the properties which are in the underdeveloped or underdeveloped stage. If a big place of land is needed to be divided into plots after providing for parks, roads, etc.
Depreciation method of valuation –
In this method structure should be divided into four parts 1) wall, 2) roofs, 3) floors, 4) door, and 5) window.
D= P[(100-rd)]n
D= depreciated value
P= cost at present market rate.
rd = fixed percentage of depreciation
n= number of years.
Concepts of valuation
Valuation of a building depends on the type of the building its durability on its condition, shape, size width of roadway, frontage, quality of materials, and present rates of materials.
This also depends on the height of plinth, thickness of wall, height of the building, nature of doors, window, roof, floor etc.a building located in the area having water supply, electricity and sewer will have higher value.
The value of a building also depends on the demands for buy which differ from time to time.
Valuation of building
Cost from the record –
Cost of construction may be worked out from the bill if quantities, from the estimate, from the record at present.
Cost by detailed measurement –
If the record is not available, the construction cost may be determined by making the bill if quantities of different items of works by detailed measurement at the site and taking the rate for each item as a common market.
Cost by plinth area basis –
This is the simplest method to determine the cost of construction. The plinth area of the building as measured and the current rate of the plinth area of similar building in the locality is obtained by enquiry and then the cost is worked out.