Valuation | swarajengineers

SWARAAJ ENGINEERS

Jodhpur, Rajasthan , India

Contact: +91 9414701141

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©2017 BY SWARAAJENGINEERS

Valuation

For valuating a building, we need to find out the actual cost of construction of the building at the present day rate and allowing a suitable depreciation.

Valuation of a building depends on the following:

  • Type of the building

  • The structure of the building

  • The durability of the building

  • Situation of the building

  • Size, shape, frontage, width of roadways.

  • The quality of materials used in the construction and present day prices of the materials

  • The height of the building or structure

  • The height of the plinth

  • Nature of the floor, roof, windows etc.

  • Thickness of the wall etc.

Different Methods of Valuation 

  • Rental Method of Valuation

  • Direct Comparisons of the capital value

  • Valuation based on the profit

  • Valuation based on the cost

  • Development method of Valuation

  • Depreciation method of Valuation

Rental Method of Valuation

In this method, the net income by way of rent is found out by deducting all outgoing from the gross rent.

A suitable rate of interest as prevailing in the market is assumed and Year’s purchase is calculated.

This net income multiplied by Year’s Purchase gives the capitalized value or valuation of the property.

This method is applicable only when the rent is known or probable rent is determined by enquiries.

Direct Comparisons of the capital value

This method may be adopted when the rental value is not available from the property concerned, but there are evidences of sale price of properties as a whole.

In such cases, the capitalized value of the property is fixed by direct comparison with capitalized value of similar property in the locality.

Valuation based on the profit

This method of Valuation is suitable for buildings like hotels, cinemas, theatres etc for which the capitalized value depends on the profit.

In such cases, the net income is worked out after deducting gross income; all possible working expense, outgoings, interest on the capital invested etc.

The net profit is multiplied by Year’s Purchase to get the capitalized value.

In such cases, the valuation may work out to be high in comparison with the cost of construction.

Valuation based on the cost

In this method, the actual cost incurred in constructing the building or in possessing the property is taken as basis to determine the value of property.

In such cases, necessary depreciation should be allowed and the points of obsolescence should also be considered.

Development method of Valuation

This method of Valuation is used for the properties which are in the underdeveloped stage or partly developed and partly underdeveloped stage.

If a large place of land is required to be divided into plots after providing for roads, parks etc, this method of valuation is to be adopted.

In such cases, the probable selling price of the divided plots, the area required for roads, parks etc and other expenditures for development should be known.

If a building is required to be renovated by making additional changes, alterations or improvements, the development method of Valuation may be used.

Depreciation method of Valuation

According to this method of Valuation, the building should be divided into four parts:

  1. Walls

  2. Roofs

  3. Floors

  4. Doors and Windows

 

And the cost of each part should first be worked out on the present day rates by detailed measurements.

The present value of land and water supply, electric and sanitary fittings etc should be added to the valuation of the building to arrive at total valuation of the property.

Types of Valuation

Business Valuation:-

Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. 

 

Valuation is used by financial market participants to determine the price they are willing to pay or receive to effect a sale of a business.

Real Property Appraisal:-

A real estate appraisal establishes the market value of the property – the likely sales price it would bring if offered in an open and competitive real estate market.

 

Lenders require appraisals when buyers use their new homes as security for their mortgages.

 

An appraisal provides the lender with assurance that the property will sell for at least the amount of money it is lending.

A real property appraisal is different from a comparitive market analysis and different from a home inspection.

An appraiser, is only concerned with valuating a home.

Appraisal :- Appraisals are detailed reports compiled by licensed appraisers. An appraisal is the only valuation report a lender considers when deciding whether to lend the money.

Comparitive Market Analysis : - A CMA is a sales report based on data entered into the multiple listing service, or MLS.

Real estate agents use CMAs to help their clients determine realistic asking and offering of prices.

Home Inspection : - Home inspectors test appliances and outlets, check the plumbing and confirm that a home's heating and cooling system is working.

Such information is helpful for the buyer to know before moving in.

Inventory Appraisal:-

An inventory valuation allows a company to provide a monetary value for items that make up their inventory. 

Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements.

Inventory appraisers should compare a company's current carrying costs to the current market prices for their “commodities”.

 

Appraisal values should not exceed current market prices.

Machinery and Equipment Appraisal:-

This term describes an item of equipment in excellent condition capable of being used to its fully specified utilization for its designated purpose, without being modified and not requiring any repairs or abnormal maintenance at the time of inspection or within the foreseeable future.

Personal Property Valuation

Personal property consists not only of antiques and the fine and decorative arts but also gems and jewelry and even machinery and equipment- in other words, all tangible property. 

There are many instances when you need to have your personal property or collections appraised, including before a potential sale, for insurance purposes, settlement of an estate, or even to donate an item to a museum.

Intangible Valuation

In practice intangible assets can refer to different things, but are generally used to mean economic assets which do not have physical substance or form, or are not tangible.Intangible assets include brands, goodwill, customer relationships, software and intellectual property related rights.

 

 

 

Valuation can be done of many structures :

 

1. Agricultural Valuation Types

Orchards & Vineyards 

 

Grain silo's

 

Commercial farms

 

Trading stores

 

Quarries

 

Pastures and grazing farms

 

Irrigation farms

 

Township establishment

 

Annual crop farms

 

Game farms

 

Intensive crop farms

 

Grain/Wheat farms

 

Servitudes

 

Special rights

 

Specialised farming

 

Hydroponics

 

Tunnels

 

 

 

 

2. Commercial Valuation Types

 

 

Light and heavy industrial

Retail in general

Offices and office parks

Regional shopping Centers

Community shopping Centers

 

Neighborhood shopping Centers

Local convenience stores

Retail warehouses

Specialized centers

Value centers

 

Residential developments

High rise developments

High tech developments

Techno parks

 

 

 

 

3. Specialised Valuation Types

 

 

Churches and religious properties

Schools, educational and related institutions

Sport fields and clubs

Golf courses

Mines

Public and private open spaces

Sporting and recreational properties

Abattoirs

Crematoria and Cemeteries

Township establishment

 

Reserves

Hotels/lodges/guest houses

Conference centers

Filling stations

Depots

Theatres

Water and sewer works

Apportionments

Expropriations

Land restitution Insolvency

Deceased estates

Divorce cases

Arbitrations/litigations

Assessment rates

Rights in land

Servitudes

Movable assets,

 

Plant and machinery,

 

Cars,


Commercial and residential content etc.

 

Valuation Engagement

There are several different types of valuation engagement that can be undertaken depending on your circumstances. These include:

1.Calculation Engagement

 

2.Limited Scope Engagement

3.Full Valuation Engagement

4.Shadow Expert Report

5.Business Appraisal

 

All valuation engagements are completed for a fixed price which is quoted up front.

The valuation can be turned around within a week.

Calculation Engagement

A calculation engagement is an engagement where the Valuer and the client agree on the valuation approaches, valuation methods and valuation procedures the Valuer will employ.

A calculation engagement is normally undertaken in the following circumstances:

  • Where there is a shareholders agreement setting out how the business is to be valued.

  • For micro businesses where a rule of thumb is applied to calculate the business value.

  • When a vendor wants to determine the listing price for the potential sale of their business.

  • At the early stages of negotiation where the client wants an independent option of valuation.

Limited Scope Engagement

The scope of work is limited or restricted where the Valuer is not free to employ valuation approaches, valuation methods and valuation procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the engagement.

A limited scope valuation engagement is normally undertaken in the following circumstances:

  • Where all the information requested by the Valuer has not been made available.

  • When a minority shareholder engages the Valuer and does not have full access to all the business records.

  • When the spouse of the business owner engages the Valuer to value a business for a family law property settlement and they do not hold an ownership interest in the business.

  • Where the financial reports have not been completed by the business accountants for a number of years.

  • Where the financial reports and other information provided to the Valuer have errors.

  • Where the financial reports and other information provided to the Valuer do not reflect the actual trading of the business, this may occur in industries where there are large cash payments or for businesses that have dealings with related parties.

Full Valuation Engagement

A valuation engagement is an engagement where the Valuer is free to employ the valuation approaches, valuation methods and valuation procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the engagement available to the member at that time.

This is the highest level of engagement when preparing a business valuation and is the engagement that needs to be undertaken if there is any chance the valuation will be used as evidence in court.

A valuation engagement is the most common form of valuation that is undertaken, and is the default engagement unless one of the circumstances listed under the calculation engagement or limited scope engagement occur.

Shadow Expert Report

Where a valuation has already been undertaken that needs to be reviewed, a shadow expert report can be completed to address any issues or concerns with the valuation.

This report is normally undertaken when:

  • There may be issues with independence in relation to the original valuation report

  • To provide a second opinion on the valuation

  • The underlying assumptions in relation to the valuation have changed

  • Material events subsequent to the preparation of the valuation have occurred

Business Appraisal

Often when clients are considering purchasing a business they seek the advice of a valuation specialist to determine whether they should go ahead with the acquisition.  Rather then undertaking a valuation engagement, often in this situation it is more appropriate to undertake a business appraisal.

A business appraisal not only reviews the purchase price but also summaries the risk profile of the business and industry in which it operates. 

 

The appraisal has a much broader focus then a business valuation and provides the purchaser with an overall picture of the business to allow them to make an informed decision about the purchase.

Business appraisals address the following areas in detail:

  • Summary of the acquisition cost including legal fees, stamp duty and initial working capital requirements.

  • Analysis of the current business operations.

  • Summary of the businesses financial performance, including:

    • Major expenses

    • Budget projections

    • Payback period

    • Return on investment

    • Break even point

  • Business benchmarking

  • A breakdown of the assets being acquired, including:

    • Plant and equipment

    • Stock

    • Goodwill

  • Review of competition

  • Summary of the financing options 

  • Recommendation in relation to the acquisition.