Valuation | Purpose of Valuation And Technical Term
Today I have the topic of valuation introduction of valuation purpose of valuation and the technical term of valuation. Valuation | Purpose of Valuation And Technical Term. this article has more information for civil engineers. Valuation | Purpose of Valuation And Technical Term
Valuation | Purpose of Valuation And Technical Term
Introduction of Valuations
The process of finding out the value of a building, plot, machinery, or any other property is called valuation.
Cost of The Building
The cost incurred during the construction of a building is called the cost of the building.
Which is a fixed amount of the worth of a building after it has been built is called the value. Value can be higher or lower than its cost. For example, if a building is constructed for residential purposes in a residential area and another building is constructed in the commercial area at the same cost, the cost will be the same for both buildings while the value in the business area will be more. Similarly, if a building is constructed in an area where there is no suitable way to reach it, its value will be less than the cost of that building. If the best-paved road is constructed after the construction of a building in such an area, then the value of the constructed building can be much higher than its cost.
Cost of The Building
The total cost incurred on the construction of a building is called the cost of the building. If the price of the plot is also included in it, then the total cost will be known. But the money that will be earned from the sale of this building will be called the cost of the building. Value changes over time while the cost remains constant. Which cost money spent to build.
The value of a building decreases over time and after the usable age of the building, its value remains only equal to the value of its scrap. Such a decrease in the value of a building or other property is called depreciation.
The value of a building also fluctuates due to the likes and dislikes of architecture and design in the eyes of the people. Such a decrease in value is called obsolescence. There are many methods used to determine the value of any building.
PURPOSES OF VALUATION
Valuation of property is used for various purposes. These goals can be as follows.
Selling and Buying of Property
At the time of buying and selling a property, both the selling party and the buying party try to find out the true value of the property. On this occasion, experienced people estimate the value of the property by taking into account various factors. The price agreed upon by both parties is the reserve value of the property.
Acquisition of Land
Sometimes the government acquires the property of private people for the completion of government projects Such as laying a road, canal, or railway line or building a hospital or educational institution. On this occasion, the value of the property is estimated keeping in view the location of the area. According to which payment is made to the property owners
Fixation of Rent
The value of a house or plot is also estimated in order to fix the rent. Whenever a house or plot is rented for government or non-government organizations, its value is set as per the rules and regulations. Then a certain percentage is determined as rent. This rate is usually 6 to 8 percent. The same procedure applies to NGOs or businesses.
For Property Tax Wealth Tax etc. The value of a property is determined so that it can be taxed according to its value. The owner’s income is also estimated from the cost of the newly constructed building. With the help of this, a rate is also fixed for fixing the income tax on the owner.
The Inheritance If a person dies leaving some property, the total value of his property is estimated to be distributed among his heirs. Similarly, at the time of inheritance distribution, it is also necessary to know the value of the property
Security of Loan
Sometimes a loan is obtained by mortgaging property. The lending authority determines the value of the property. And provides loans according to this set value.
In addition to this, some other occasions also need to know the value of the property. For example
- Insurance for protection from fire or other accidents. To bid for the auction.
- To compensate the government for natural disasters such as floods and earthquakes etc
There are some technical terms used in different stages of estimating the value of a property. The details are as follows.
After the construction of a building or after the installation of machinery certain amount of money is deposited monthly or annually in exchange for this property. This amount is determined in such a way that at the expiration of the building or machinery, an amount equal to its total cost is accumulated so that the building can be demolished or the machinery demolished and replaced with a new building. Or new machinery can be installed. The formula for finding out is as follows.
where I = Annual sinking fund.
Rate of Interest. The capital cost of the property. Useful life in years
When a building is unusable, it is demolished. The income honor 8xe sale of the demolished building is called the scrap value of the building. Similarly, the amount that can be earned by selling the material when a machine or a pump, etc. is no longer usable is called its scrap value.
If a building or a machine has run out of time, it does not have real performance. But can be used for other purposes. Thus, their value without falling and breaking is called Salvage Value.
The value of a property that can be obtained through open sale is called the market value of the property. The open sale means that everyone is allowed to buy the property and they should also be informed through appropriate means ie newspapers, radio, TV, or other means.
When a building is constructed or movable property is purchased, its cost is recorded on the account register. Since then, this price has been declining every year due to depreciation. And at no point does it increase. Every year the price is recorded in the register. The value of this property at any given time is called the book value. This value gradually decreases until the value of the property remains equal to its scrap value. If it is repaired etc., its value also increases. The cost of repairs is recorded by adding the cost.
Local bodies or other government agencies that are authorized to collect wealth tax or income tax, estimate the value of the property on their own. The value thus assessed of the property is called the assessed value. The value of the property is determined by taking into account the gross annual rent from the property.
If there is an environment in the vicinity of a property that is causing more profit than expected, then the value of the property will be much higher. This value of the property is called the potential value. Such as hotels located in recreational areas, the only filling station for a large area, the medical store near the hospital, etc.
If the sale and purchase in an area is completely closed, or the last plot, shop or flat, etc. is left or property has acquired individual status in terms of location and size. If so, the owner receives the requested price. The value of the such property is called the monopoly value.
The amount of annual payment agreed to pay for the cost of a building after construction is called the annual installment (Annuity). This installment can be paid at three months, six months, or other intervals. Payment of these installments does not end the life of the building.
The total income from a building or other property is called the gross income. This includes property protection and maintenance costs. Thus, the monthly gross income from a property is called gross rent.
Deducting all outgoings from the total income from a building of Yother property, the remaining income is called Net Income. Thus, the ly net income from a property is called net rent
Expenses incurred from the maintenance of a building or other called outgoings.
The value of a property that is appropriate for the income derived from the property is equal to the maximum interest rate according to the location of the property. The rate of interest ranges from 6 to 8%.
To find out the capital value of a property, the number multiplied by the annual net income from that property is called the year purchase. In fact, this figure represents the period of time during which the amount invested will be returned in the form of profit at a special interest rate. The following formula is used to determine the Year Purchase (Y.P).Year Purchase
For example= 1/Rate of interest
@7% interest Y.P=@ 6% interest Y.P
@ 8% interest Y.P=1/8×100= 12.50
If the rate of interest on the property as well as the sinking fund is to be credited, the formula for determining the year purchase will be as follows.
Rate of interest in points (decimal)
Ic=Coefficient of sinking fund and
Where “i” is the rate of sinking fund and “n” is the useful life of the structure.
Capital value =Net annual return x year purchase.
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