Valuation is the process of estimating the cost of a property based on its present conditions. The properties may be immovable properties like land, buildings, mines, trees, etc., and movable properties such as coal, oil, steel, cement, sand, etc. Deep dive into Purpose and Types of Methods for reaching the right valuation.
Purpose of Valuation:
The purpose of valuation are as follows:
- Tax Fixation: To fix up municipal tax of property the valuations is essential by municipal authority which depend upon class of city and trade importance.
- Rent Fixation: Valuation of property is necessary to find the rent of property and usually required for standard rent.
- Sale: For sale of property, Valuation becomes necessary which depends upon price that can be obtained in the market and the sellers consider this amount as reserve price below which any offer is not acceptable to them.
- Insurance Premium: For fixing up the insured value of property excluding cost of land, We use the valuation in order to replace the same and thus, find out insurance premium.
- Mortage value or security of loans: To raise loans against security of property it’s valuation is necessary.
- Gift Tax: When property is gifted, valuation of gifted property is necessary to pay gift tax to the government by person to whom property has been gifted.
Methods of Valuation:
Methods of valuation of property are as follows:
1.Book Value Method
2.Present land value method
3.Rental Method of Valuation.
1.Book Value Method:
- It is the simplest method of valuation usually adopted for the properties which do not fetch any rent such as property occupied by owner school etc.
- The calculation of Book value is –
Book Value=(original cost of construction)-(depreciated by straight-line method)+(original cost of land)
2.Present land value method:
- In this method, the calculation of land value is:
The Valuation of property=(original cost of construction)-(depreciation for past life)+(present market value of land)
3.Rental method of valuation:
- It is useful method when one uses the building on rental basis.
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