Get value for money
Valuer assesses property based on factors such as location, infrastructure, terrain and road width.Net value of the building is calculated by taking into account depreciation from the reproduction cost, cost of ancillary works and prevailing land value.
is a term for the decline in value of an asset over its economic life.
This does not include loss due to accident, fire and theft or declining price level.
If the construction is done by land bearing wall method, the life of the structure is considered to be for 60 years.
If it is by RCC frame structure, the life expectancy is 80 years.
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You are planning to buy a built house and the deal is in the final stages. Yet, you are uncomfortable with the rate quoted by the seller. Is there a way of knowing the right price of the property? "Yes," says K.V. Srinivasan, a registered valuer and the chairman of the Bangalore Chapter of Institution of Valuers.
If you approach a valuer, he will collect the details of the property from the seller, study the documents in detail and visit the place for inspection.
He will assess the value of the property based on factors such as location, infrastructure (proximity to civic amenities, public transport, schools, colleges etc), terrain, road width, water, sewerage and electricity connection and the like, apart from the specifications of construction.
He will arrive at the net value of the building by reducing the depreciation from the reproduction cost (building the same structure at current rate).
He will then assess the cost of ancillary works such as compound wall, gates, sump and overhead tank, add the prevailing land value to this sum and arrive at the value of the property.
Depreciation
Depreciation is a term for the decline in value of an asset over its economic life. It covers wear and tear from constant use and physical deterioration from age and exposure. Obsolescence (loss of usefulness) due to availability of new or more efficient types of products serving the same purpose is also part of it.
This does not include loss due to accident, fire and theft or declining price level. In case of a building in which the first floor was constructed after a period of 10 years following the construction of the ground floor, the depreciation of the first floor will not be considered separately. The depreciation adopted for the ground floor will hold good for the first floor also.
If the construction is done by land bearing wall method, the life of the structure is considered to be for 60 years. If it is by reinforced cement concrete (RCC) frame structure, the life expectancy of the building is 80 years. The rate of depreciation per year is 1.5 per cent.
The compound wall is valued through running foot and the height of the wall too is an important factor. The value of the gate made of mild steel also depends on its height, while the sump and overhead tank are valued on their capacity.
For example, the value of a 20-year-old house located in Basavanagudi with a built-up area of 1,800 square feet, which includes ground and first floor on a site measuring 60' x 40', is calculated as follows:
Net value
If the estimated reproduction cost is Rs. 1,000 per sq. ft., the net value of the building would be 1,800 X 1,000 = Rs. 18,00,000.
If a compound surrounds the house, the perimeter of the site is 200 feet. The reproduction cost per running foot is valued between Rs. 500 and Rs. 550. If it is valued at Rs. 550, the value of the compound wall is Rs. 1,10,000. The gate made of mild steel is valued between Rs. 150 and Rs. 175 per sq. ft. If the height of the gate is 8 feet and the width 10 feet and if it is valued at Rs. 150 per sq. ft., the reproduction cost will be Rs. 12,000. If the house has an underground sump, which can hold about 5,000 litres of water, the cost is Rs. 6 per litre. It works out to Rs. 30,000.
For overhead tank, it is valued at Rs. 8 per litre. If the overhead tank can hold about 3,000 litres of water, the reproduction cost will be Rs. 24,000.
The concrete pavement is valued at Rs. 40 per sq. ft. and if the house has 1,200 sq. ft. of concrete pavement, the reproduction cost is Rs. 48,000. When the reproduction cost of the building is added to the reproduction cost of the ancillary works, the total amount will be Rs. 18,00,000 + Rs. 2,24,000 = Rs. 20,24,000.
The valuer will reduce 30 per cent (1.5 per cent per year x 20 years) as depreciation value from this amount and the total cost will be Rs. 20,24,000 - Rs. 6,07,200 = Rs. 14,16,800.
The prevailing land value is added to this amount to get the value of the property. If the prevailing land value is Rs. 4,000 per sq. ft, then the fair market value of the property is Rs. 96,00,000 + Rs. 14,16,800 = Rs. 1,10, 16,800.
It is utmost importance on your part to insist on assessing the value of the property only after the valuer has made the on-the-spot inspection as certain valuers consider the recent advertised selling rates on property irrespective of age of building under purview.
posted by Gaurav Malik @ 2:58 am
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