Value lies in the eyes of the beholder

How much is your house worth? The price of a property may not necessarily reflect its value. To get an idea, engage a valuer empanelled with a professional body
Sachin Sandhir
For a majority of citizens residential property represents their single largest financial commitment. Built with huge sums of hard earned money, homes are something that every individual takes pride in, which is often reflected through notional value. To get information, people will have discussions about the same in their social circles, among family and relatives. These create speculation and curiosity amongst people, even who have no intention to sell, to know what their property is worth. While people tend to use the terms price, worth, and value interchangeably, these differ in meaning and implication. The price of a property may not necessarily reflect value, which is governed by various other factors and considerations. Therefore, when selling, it is essential to determine the value of property.
An informal and simple way to determine value is to approach a real estate agent, who provides comparative data on similar properties that he has transacted in and the rates at that point in time. However, this value is only an estimate and should not be considered as the `market value'.
In order to get a true picture of all economic/financial aspects of a particular property, it is advisable to engage a valuer, empanelled with a professional body, to determine the `market value' of the property. RICS accredited valuers carry out credible valuations based on the RICS Red Book of Valuation Standards and are, therefore, considered as the mark of professionalism worldwide and across India.
Valuation is a soft science involving high level of judgment where different assumptions lead to different values. Considering the risks associated with valuation tasks, meticulous application and specialised skills are required, which come at a cost --the cost of a valuation report. Therefore, this approach should be adopted when seriously considering sale of your property, as the stakes are high and the accuracy of the `market value' will determine your financial gains. A professional valuation, backed by consistent valuation standards, is a thorough exercise conducted by a competent valuer who will spend time collecting data, inspecting the location and property and a thorough due diligence of all important legal, economic and financial aspects. Some aspects that form part of a professional valuation and which will significantly impact the property values include: Freehold and leasehold property Land value: This forms a major component of the overall property value, the extent to which verification of land records and title deeds was incorporated as part of the valuation report, is laid down in the `scope of work' and `assumptions' for estimating the market value.
As is: The value of the property in the "as is" state Highest and best use: This is the process used to determine property use which is legal and yet produces the highest value for land Cost approach: The value of the building is based on how much it would cost if one was to construct the property today; this approach is more relevant and applied in case of newly built properties Sales comparison approach: A comparison of the purchase prices of similar properties that were sold in the recent past is considered; upon data collection, upward/downward adjustments are made, to account for differences in year built, construction quality, condition of the property; attractiveness of location, lot /apartment size, available facilities and other such factors Given the level of activity in the residential space, it is essential to institutionalise valuation standards. These coupled with higher professionalism in this practice, I am certain will ensure that valuation of land and properties will no longer be artificially inflated and this will contribute significantly in containing land prices, which are very important when it comes to providing homes at affordable prices. The author is Managing Director and Country Head, RICS India

Courtesy: HT Estates 20th Feb 2010
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