Before we go for different methods of Valuation, it is important to know as what value is and what the difference between Cost, Price and value is.
In short, Cost is a Fact, Price is a policy, Value is an Opinion
Leaving the cost and price topics we come to Topic Valuation.Before coming to Valuation we study as to What is Value?
Term Value is used in politics, social life, religious field and finally Business Economic dealings
1. Assessed Value : Value recorded in register of local authorities such as MCD / DDA used for determining property taxes etc.
2. Book Value : Also known as book cost which shows the original investment of company on asset including Property and machinery less Depreciation for the period passed.
3. Salvage Value : B.E.R ( Beyond Economic Repairs) value of machinery realized on sale when useful span of life is over but not become useless.
4. Scrap Value : (B.L.R) Beyond limit of Repair, When Property / Asset becomes absolutely useless except to be sold as scrap. For
- Machinery – Scrape rate
- Buildings – Value of old retrieved material less cost of Demolition.
5. Replacement Value : Value of building or portion thereof if these have to be replaced at the current market rate.
6. Earning Value : It is present value of Property which will start yielding an income in future. Such as in cinemas, conference/marriage Hall etc.
Apart from these, following values play important role as far as valuation is concerned
- Market Value, Fair Market Value, Open Market Value
- Forced Value or Distress Value
- Monopoly Value
- Speculative Value ( Hypothetical)
- Sentimental Value
- Accommodation Value
Valuation is an art of assessing the value of a Property. For doing valuation it is important to know from the client what the purpose of valuation is.
Purpose of Valuation may be for any one of the purposes given below:
a) Accounting Purpose – Present value of old properties
b) For Loans i.e. mortgaging
c) Dissolution of Firm
d) Insurance Purposes
e) Partition in Family
g) Establishment of new Projects
h) Ascertaining goodwill for investment purposes
i) Purchasing for investment / Self Occupation
j) Compensation for Land acquisition.
k) Assessing Property tax, Income tax, Wealth tax, Capital Gain and Gift tax
l) Fixing MRP for auction
m) By DRT (Dead Recovery Tribunal) for Sale
n) Rent fixation
o) Court Fees, Stamp duty.
p) Visa Purposes
q) Court orders to help Evaluation of various rights in Disputed Property by Police crime branch to assess the property accumulated by noted criminal under Mac coca Cases.
After understanding the meaning of Valuation and its purpose, we will proceed to as to how to do valuation i.e. what are the different methods of Valuation.