# Valuation of Building

Valuation of building is an analytical process of determining the current (or estimation) value of the property or company.

The process of determining a reasonable assessment of a property or company is known as a valuation.

It varies by time and location and is determined by the current market rate.

• What Is the valuation of a building?
• Purpose of valuation
• Methods of valuation.
• Calculations of valuation.
• Lots more.

Let’s dive right in.

## What Is Valuation of Building?

The method of evaluating the current commercial price of the structure is known as a valuation.

Valuation depends upon the type of building, its construction, durability, location, height, road width, and frontage.

It varies depending on the time and place and is defined by the current market price.

Purpose of valuation:

• To buy or sell real estate.
• When the debt is secured by the property, as in a mortgage.
• When the property rent is fixed, an assessment is also required. Property rents are typically between 5% and 10% of the property’s value.
• If the property owner wants to know the value of its replacement, the assessment of the property is calculated when evaluating the property.
• The assessment of the property is required for tax. Municipal taxes, real estate taxes, and other taxes are all based on the property’s worth.

### Calculation for Valuation of Building or Land:

The age of the property impacts its assessment, thus determined by documentation, investigation, or visually inspecting, and the future life of the building should be determined.

The present cost of the structure and correct loss accounting are used to determine the worth of the building.

These method can be used to determine the building’s current value as follows:

#### 1. Cost from the Record:

Estimates, goods bills, construction workers, and current rates can be used to calculate construction costs.

If the building’s actual cost is known, it can be changed by a % increase or decrease in current materials and labour costs.

#### 2. Cost by Detailed Measurement:

If an old record is unavailable, the development costs can be determined by carefully measuring the building and creating a bill of account for various work items.

The building’s cost is computed based on current material and labour costs.

#### 3. Cost by Plinth Area Method:

Calculating the cost of a structure using the Plinth Area Procedure is easier than using the thorough measuring system, which is time-consuming and costly.

This method involves measuring and calculating the plight area of the building, as well as the plinth-area rate of the same building in the area, and calculating the price.

If the building has not been thoroughly surveyed, the Plinth Area approach may not be as accurate as of the area’s existing building.

To solve this problem, different aspects of buildings such as foundation, structure, floors, roofs, doors, windows, and finish should be examined.

#### 4. Determination of Depreciation:

To determine the evaluation of the building or structure, depreciation at the current cost of the construction is allowed.

Depreciation is determined by the use of the building, age, and the type of management with other components.

In general, for the first 5 to 10 years, the building or structure is extremely low depreciation. As the building becomes old, the depreciation rate increases.

### Methods of Valuation of Buildings and Properties:

#### Rental Method of Valuation:

The net income in the building is determined by reducing the total rents by reducing the overall rental rent.

The price of one year purchase (YP) is calculated by assuming reasonable interest rates in the market.

For example,

if the interest rate is 5%, the year of purchase = 100/5 = 20 years.

The capital value or assessment of the property is calculated by multiplying net income according to the acquisition price of the year.

This strategy operates only when the rent is known or the inquiry is used to install a possible rent.

#### Direct comparison with the capital value:

This method is used directly to the capital value of the same property in that area when the rental value is unknown.

In this case, the cost of the property is determined directly in comparison to the value or capital value of the same properties in the area.

#### Valuation based on profit:

This method of evaluation for commercial property, including profit margins, such as restaurants, bars, stores, offices, malls, cinemas, and theatres is appropriate.

In such cases, the evaluation is based on net annual revenue after deducting all outgoings and costs after deducting total income and costs.

#### Valuation based on cost:

Net revenue is multiplied during the year of purchase of a building or property. In this case, the cost of the actual building costs may be high.

The actual cost or structure of the construction is used to determine the value of the property.

In this situation, enough depreciation is allowed and obsolete points are considered.

#### Development method of valuation:

This method is still suitable for the properties in the planning phase.

This strategy can be used, for example, when roads and other facilities are created, the large ground piece must be divided into plots.

For evaluation, the cost of selling plots, the area required for facilities, and other construction costs are considered.

The development method of evaluation is often used to import the properties or buildings that require renovation, such as changes, additions, or conservation.

When the renovation is completed, the estimated net revenue generated from the building is used to calculate the value of the revenue.

#### Depreciation method of valuation:

The valuation of the buildings is divided into four sections using the depreciation method:

1. walls

2. Roof elements

3. The Floors

4. Windows and doors

At the current rate, the cost of each part is calculated based on accurate measurements.

D = P [(100 – rd.)/100)] n

It is the formula for calculating the life of each part.

The cost of land, amenities, water supply, electrical and sanitary connections, and other costs are not included in the calculation, and it is only applicable to well-maintained structures.

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