Valuation Surveying
Introduction to Valuation Surveying :
Valuation is the vocational discipline within economics that attempts to aid that choice in terms of the value of property, that is, value within the framework of the specialized market that has evolved for the exchange of property rights, as well as objectives, currently referred to as an appraisal.
Property is purchased for use or as an
investment, but in both cases the purchaser measures the expected return or
benefits to be received from the property against the cost outlay. The valuer’s
task is to express these benefits in money terms and to interpret the
relationship between costs and benefits as a rate of return, thus allowing the
investor to make a choice between alternatives.
Functions of Professional Valuer :
A valuer is a highly skilled professional, who, with matured technical
expertise and skill, prepares valuation of the worth of land, buildings for
possessions for specific purpose. The scope of his work is very wide and
extends from residential property to large estates, factories, officers, shops
of every kind.
Some say that valuation is an art, others, it is a science – in fact it is
delightful & exciting blending of both. The art of judgment and foreseeing
required in the process of valuation has to be based on scientific analysis of
available data to arrive at practical, applicable and acceptable valuation. It
is a fact that valuation process is most delicate and soundly based requiring
balance of judgment to decide trickily issues with several options and variable
parameters.
Govt. of India in various letters has recognised
the pass in Final/Direct Final Examinations of Institutions of Surveyor as
equivalent to degree in Engineering. Govt. of India has also approved
employment to superior posts/services of Central Govt. through UPSC
(Engineering Services) for qualified surveyors from the Institution.
The professional valuer is in utmost demand now to cater to this emerging
situation especially in the field of Valuation of Real Estate for various
purposes like :
(a) Mortgage : In the majority of house purchases, buyers need to borrow
money to meet present day prices. Source of finance are banks, LIC, Public
sector undertaking etc. The valuer will make a critical appraisal of the
property, taking into account the nature of the location and proximity to
amenities. He will estimate the age and take into account the character,
design, plan, decorative and structural condition and many other factors which
affect the value of property. He will carry out an academic valuation where
appropriate by calculating the floor area in order to arrive at an estimated
building cost, allowing for essential repairs and adding the value of the site.
He will examine his recent sales records to find comparables and finally make
his written report to the mortgagee (tee lender) giving his recommendations.
(b) Insurance : Dwelling are subject to hazards such as
fire, flood, hence the need to protect them with insurance. They may be
partially damaged or totally destroyed but at least there remains the value of
the site. Consequently, the valuer is called upon to advise as to re-building
and replacement costs, to which he will add a percentage to cover professional
fees for the services of architects and surveyors necessary for the rebuilding
and site clearance. With insurance the valuer must keep up to date with
building costs.
(c) Rating : Local bodies levy appropriate taxes to the property,
dwelling as a return for various infrastructure obligations extended to the
locality. This include education, roads, sewers and a variety of other
outgoings necessary to maintain the system. The tax is based on ratable value.
These ratable values are calculated by the assessor of municipal authority.
These values are somewhat hypothetical and are open to criticism and appeal. A
part from the civil servant, valuers in private practice are asked to advise as
to the accuracy of these assessments, especially taking into account changing
environment and circumstances. They may be called upon to appear on behalf of
their clients at the local appellate Court to argue the case and endeavour to
obtain appropriate reductions in rates and taxes.
(d) Probate : When people die, leaving property, the estate may be liable
to Capital Transfer Tax as per law of the land, in which event the solicitor of
the deceased will seek a valuation of the dwelling and appropriate contents,
for submission when obtaining probate. Values may be with vacant possession,
tenanted or part possession and the valuer may be considering full or part
shares. The valuer in private practice must be prepared to argue his case and
go to appeal if necessary.
(e) Sale and Purchase : The valuer must be able to value property
on behalf of vendors, and he can also be retained to act for purchasers. In the
former case, he will explore the potential, seeking the highest possible
valuation for his client, whilst in the latter there is a natural tendency to
be more conservative. However, judicious balance is necessary in each case. The
basis of valuation under this heading is similar to that outlined under
‘Mortgage’ and at the same time, if the vendor client purchased the property in
recent years, to that purchase price can be added the cost of improvements plus
the calculated appreciation as a further addition on current open market value.
In addition, the valuer will advise the vendor as to the right price for
negotiations.
(f) Compulsory Acquisition for Public Purpose : From time to time, government or local
authorities decide to carry out planned city development including such works
as new highways, roads, airports or improvements to existing facilities which
require the acquisition from private owners of whole or part of the land and
buildings which they own and or occupy. The interests of these land owners must
be protected and proper compensation assured. The valuer must know the Land
Acquisition Acts and how to interpret them in each case.
(g) Direct Tax Acts : Under the Direct Tax Acts valuation is
required under Chapter XXC (Preemptive right of purchase) of Income Tax Act
which is now applicable to major cities throughout India. Even valuation are
required for Wealth Tax, Capital Gains Tax and Gift Tax.
(h) Financial Valuations : Financial Valuations are carried out for a
variety of reasons including, amongst others, balance sheet purposes, bank
loans and other funding activities, company takeovers and mergers, compulsory
purchase, and taxation. In essence, the valuer is required to assess the true
worth of a company of its real estate in its present location and role, as part
of the existing business.
Following a valuation, the specialist valuer may
well be instructed to negotiate on behalf of his client. Therefore, in addition
to his technical knowledge and valuation skills, an understanding of company
law and other relevant legislations is vital.
It will be appreciated that the valuation field
is indeed a wide one requiring extensive knowledge, expertise and experience,
and is one where a sound professional study and involvement is essential. It
will be seen that there are two sides of the fence, the government or local
authority employees as opposed to the valuer in private practice. The
opportunities are considerable and the qualified valuer is able, if he so chooses,
to gain experience in both spheres during his practicing life.
The candidates after completing the study will
be fully equipped to practice as a qualified valuer. This will enable the
candidate to become eligible either for self employment or for employment in
senior position in an established form of valuers.
In addition to self employment or employment in
an established firm of valuers, there are several State and Central Government
Departments where personnel with this specialized training are required in
senior positions.
- Valuation Cell under Income Tax
Department
- Town Planning and Valuation
Department
- Port Trust Authorities
- Rating expert in Municipal
Corporation
- Land Acquisition-Municipal
Corporation
- Land Acquisition State and
Central Government
- City Improvement Trusts
The scope for gainful self employment or
superior position in employment in any of the above stated establishments is
open to the candidates with this training. Personnel with this training are
also eligible for empanelment as Valuers in several banks.
In Essence : Rational decision making on most of the important issues
hinges on the quality of valuation report. Valuation is essentially a practical
profession with immense application of matured commonsense and requiring
ability to get along with the people of varied interests and priorities.
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Building Valuation in India,
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