KNOWLEDGE BANK 

LET KNOWLEDGE SPREAD

Message from B K Aruna 30.08.2023

Ten points to be remembered while doing valuation by land and building method :

1. In this method, plot is valued separately, building is valued separately and then these two values are added to get the total value.

2. Value of land can be estimated either by applying prevailing market rate or by guideline rate depending on the purpose.

3. If the purpose of valuation is to find out the market value for collateral security, then the prevailing market rate alone is to be adopted.

4. If the building is old, suitable depreciation is to be considered while arriving at the value of the building.

5. There are generally two methods to calculate depreciation :

i) Straight line method
ii) Constant percentage method

6. Depreciation percentage by straight line method :

Age / life (100 – salvage)

7. Depreciated value by constant percentage method can be calculated by applying the formula :

A = P (1 – r/100)^nWhere A = Depreciated value
P = Replacement value
r = Rate of depreciation (100 ÷ life)
n = Age of the building

8. The addition of market value of land and depreciated value of building indicates the present worth of the property. If market value is required to be certified, then the factors affecting the marketability are to be thoroughly analysed.

9. Out of all the methods, this method is widely adopted by a valuer when he does valuation for bank purposes.

10. The value arrived at by this method cannot be compared with the value arrived at by rent capitalisation method if the FSI is very low.

With best wishes,

B. KANAGA SABAPATHY
[email protected]
www.bkanagasabapathy.com