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Introduction to Real Estate Valuation

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Introduction to Real Estate Valuation

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  1. Introduction to Real Estate Valuation Mr. Sahil Shah Regional Manager RE/MAX Mumbai Gujarat Maharashtra

  2. What is meant by • Value • Price • Cost

  3. Value • Value of anything means its worth or utility as also the qualities inherent in the thing on which its utility or worth depends. • Value can be defined as the power of one commodity to command other commodities in a transaction which is not vitiated with fraud, duress or ignorance. • Value is measured by price.

  4. Price • A price is a fact and value is an estimate of what the price ought to be. • Value is an estimate of price and pricing always takes place under conditions of marketing dependent on the forces of supply and demand.

  5. Cost • Cost looks at the matter from the side of supply. • Cost is not same as the value. It is a measure of what it requires to build the asset. • Cost could be more or less than the value depending upon the prevailing market conditions.

  6. Different types of values • Value in use • Value in exchange • Market value • Open market value • Liquidation of forced value • Potential value • Special value • Salvage value • Replacement value

  7. Existing use value • Highest and best use value • Rateable value • Investment value • Insurable value • Deprival value • Book value • Residual value • Reversionary value • Going concern value

  8. Purpose of valuation • The value of a property depends on the purpose of valuation. • The valuation for the purpose of land acquisition is not the same as that mortgage. Similarly valuation for the purpose of insurance is not the same as that for taxation. • Since valuation is an essential exercise for assessing the present value of future benefits, certain macro-economic indicators like inflation, fiscal and monetary policies of government, inflow of foreign money, GDP growth rate of country, etc. influence value.

  9. Valuation is also influenced by the law of the land. • Real estate valuation also has to take into account the legal issues because development includes value addition to land and building as well as conformity to legal provisions in force.

  10. Methods/approaches used in real estate property valuation • Market approach – sales comparison method • Income approach – capitalization and residual method • Cost approach – land and building method

  11. Thank You

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