DIFFERENT FORMS OF VALUE

• Accommodation value: As the city or town develops, the surrounding agricultural area is to be converted into the accommodation land. For this purpose the owner of the land has to obtain the permission from the competent authority to convert his agricultural land into non- agricultural or accommodation land. Such accommodation land possesses building potential value and hence ,its value lies between the values of nearby building land and agricultural land. Thus, the accommodation value is greater than that of agriculture land and less than that of building land

• Annual value: The local authprity has to be decide the annual value of the property so that taxes ca be calculated on that basis. Such annual value of the property has to be fixed by observing the principles of rating valuation.
• Book Value: the book value is defined as an amount shown in the account book of a particular year after making due provisions for the depreciation of the previous years. Thus, the book value of a property depends on the depreciation allowed per year and it is no affected by market conditions. In this sense the book value represents the actual book cost.
• Distress value: A property is said to have distress value when it cab=n fetch lower value than the market value. The distress value is developed due to various reasons such as:

1. Fear of war, riots earthquake, etc.:
2. Financial difficulties of seller;
3. Intention to favour purchaser; etc.
4. In case of financial transaction between bank and the borrower, sometimes situatations arise when the borrower is unable to reply the advance he has borrowed . in such case, the bank has power to recover their dues by securitization act for the loss they have suffered and under such circumstances the valuer has to work out the distress value (D.V) of the property.

To arrive at the distress value of the property, first of all the valuer has to work out Fair market Value (F.M.V) of the property. Then he has to assess the various factors to determine the Distress factor (D.F.)

Distress value (D.V)      = (F.M.V) – (D.F) (F.M.V)

                                      = (F.M.V)-(1-D.F.)

The value of distress factor is always less than 1.

Following factors are to be kept  in mind while assessing D. F.

• If the borrower is an individual, D.F should be less but if the borrower is a financial institute, D. F should be more.
• Increase D. F for more number of mortgages that the property has been subject to.
• Whether there is a change or likely to be change in locality of surrounding neighbourhood, recently or in near future.
• As these are widely Varying factors, vast experience and maturity of valuer in the field of valuation practice might may help him to arrive at a suitable D.F.

• Goodwill value: This value represent the amount by which the value of abusiness premise in its present form exceeds the value of physical or other assets determined at market vale.
• Highest and best use value: the hioghest and best use value means the value resulted from the most probable use of the property which is physically possible, approximately justified, legally permissible and financial feasible.
• Liquidation value: the liquidation value is defines as an amount that can be realized from the property of concern is sold under forced circumstances or by the sale of enterprise on dissolution. While assessing liquidation value, the costs associated with the liquidation process should also be considered. The liquidation may be forced liquidation or an ordinary liquidation.
• Market value: The term market value is the most important term in valuation of real properties and it will be desirable to understand its meaning carefully at this stage.

 First of all, it will be worthwhile to know what is meant by the word market. The term market is used to indicate a place a reagion geographical or otherwise, or a commercial activity where or by which exchange of commodities between buyers and sellers takes place. The function of the market is to facilitate the exchange of commodities. Thus, the market are of the following three types:

• It may be a central or public place in a village, town or city where transportable commodities may be brought and exchanged by buyers and sellers
• It may be region wise at a place where transportable commodities like cotton, corn, etc may be brought and exchange
• It may also mean a commercial activity wherein actually commodities are not brought for display and inspection and wherein buyers and sellers themselves or along with their brokers and agents  or brokers or agents on behalf of their principals meet and transact business of exchange of commodities. This type of market maybe local, national or even international.

The shares and stocks market embrace any of these three types of markets because no commodities are to be displayed and transaction take place on the basis of information and paper work. The market of real property has peculiar characteristics and they are as follows :

• The real property market (i.e the commercial activity for pertaining to buy and selling of real property ) is generally local in region. For instance, the people of Ahmedabad will not be generally interested in real property of Mumbai, Kolkata, Delhi, etc. and vice vers.
• The real property market is local in character because the commodity cannot be displayed and inspected easily.
• Like other commodities the real property is not a standardized commodity and no estimate can be based from a sample. The units of even equal area, accommodation and appearance may greatly differ in matter of internal things. Again, the situation, size, locality, etc. greatly influence the value.
• The real property market is not an organised one like other commodities and hence, there is no central control whereby uniformity of information or rules and regulations for ethics can be regularized.
• Due to nonexistence of central control, even though the market embraces generally a local region only, the correct information regarding supply and demand is not easily available because information passes orally through buyers and sellers themselves  or through brokers and agents or advertisements display at site for at prominent places or through print in newspapers.
• The collection of information regarding the commodity takes a long time as legal and environmental issues have to be taken into consideration and many functionaries like a broker a surveyor, a lawyer or a solicitor, a mortgage lender, etc. participate in the transaction of real property . At the end, the transaction is done in private between the parties personally or through their brokers or agents and absolutely correct information regarding the transaction is not easily available.
• The supply and demand cannot be adjusted easily and in a short time like other commodities. Here the judgement of supply and demand is a long range problem
• The general competition like other communities is not a possible.
• Due to these peculiar characteristics of real property, as well as its market, the buyers who participate in the transactions are generally of the following three types
• Investor for income: This type comprises the individuals or groups who desire  regular income on their investments.
• Investor for capital gains: This type comprises the individuals or groups or institutions  who buy for their own uses like residences, commercial purposes, industries or other activities pertaining to themselves.
• The market value is that sum of money which a willing wise buyer, buying without any restriction or necessity or any physical, sentimental or mental influence, gives for a particular piece or parcel of real property with all interests therein, with all advantages and disadvantages in its existing condition to an offering willing wise seller who sells without any restriction or necessity or any physical, sentimental or mental influence, the aforesaid real property, as on the date on which the value is to be ascertained

Thus, the market value will be that fear and reasonable some of money which will be available at a particular time in a hypothetically ideal market wherein all physical, legal and environmental aspects of the real property, the supply and demand factors, market t and duly considered.

For this , the valuer will be required to bring into play his expertise knowledge experience and intelligence of no mean caliber.

• Monopoly value : In some cases ,the property possesses certain advantages with respect to the adjoining properties due to its size, shape frontage location, etc. The owner of such property may demand a fancy price for that property. Such a price is known as the monopoly value of the property and it does not represent the market value of the property.

       It may also happen the other way. The probable purchaser may be in a  commanding position and he may be able to dictate the value of property. The value offered by such a purchaser will be the Monopoly value of the property.

• Potential value:- The term potential value is used to indicate the potential possibilities of the property when developed in its most advantageous manner. For instance, the agriculture land on the outskirts of town possesses building potential. Similarly, an underdeveloped property possesses potential value and it can be realized by fully developing the property.
• Rateable value: Like an amount value, rateable value is also decided by the local authority. This value is used for determining the tax liability.
• Replacement value: The cost to be incurred to replace the property, either fully or in part , at the prevailing market rates for labour and materials, is known as the replacement value.
• Salvage value: Sometimes, the property after being discarded at the end of utility period, is sold as it is without being broken into pieces and the amount realized, over and above the cost of its removal and sale, is known as the salvage value of property. For instance, the sleepers used on a railway track maybe reused as posts of a fencing or buffer- stops, etc .
• Scrap value: At the end of the period of usefulness, a property is discarded and then, it can be scrapped of or broken into suitable units for disposal. The amount obtained by selling such unit is known as the scrap value of the property. For instance, a building is to be demolished  after its period of utility is over. Then, some amount maybe realised due to the sale of old materials . Such an amount is known as the scrap value or junk value of the building and it is usually about 10% of the original cost. Similarly, in the case of equipment, machines, etc. the broken metal will fetch some amount. It should be remembered that the material and equipment of special nature will have low scrap value. For instance, the scrap value of an R.C.C structure will be less than a corresponding timber structure. Similarly, an asbestos cement sheet will have lower scrap value then a corresponding corrugated galvanised iron sheet.
• Sentimental value: Sometimes, some sentiment or feelings of owner is attached to the property and because of such settlement , he will not be ready to part, with his property even when a fancy price is offered for the property. Such a price is known as the sentimental value and it has no relation with the market value of nearby properties.
• Speculative value: There are certain purchasers who are interested in purchasing the property and then selling it with the profit after short period. Such purchasers speculate on the properties and they are interested only in earning profit from them. They are not interested in developing the properties or for fetching more runs from the properties. The price paid by such purchaser is the speculative value of the property. In general, the speculative value will be less than the market value because the purchase will try to buy the property at low price and to sell it at a high price in future.