Title Book IBBI(31.12.2022).docx ✅

1 | Page CHAPTER-1 Valuation of Real Estate
2 | Page Chapter-1 Valuation of Real Estate Valuation is an art of judgment based on experience and relevant statistical data to forecast the value of a property at present. Value is the amount that a potential buyer will pay for the possession of a thing desired. Correspondingly, it may also be termed as the amount that a potential seller desires for parting with a thing. It is true that the amount which a potential buyer may be willing to pay may be quite different from what a potential seller wants for the same thing. But in that case the deal will not be struck and the value for the buyer and the value for the seller will remain to be abstract figures, which is not of much use in market application. The study of principles of valuation does not contemplate estimation of such abstract figures. It basically contemplates development of expertise in determining the value as that amount which is acceptable to both the buyer as well as the seller. It involves an estimation of the figure on which the minds of the seller and the buyer meet 1.1 Cost, Price and Value 1.1.1 Definition of Price Price is the amount of money paid by the buyer to the seller in exchange for any product and service. The amount charged by the seller for a product is known as its price, which includes cost and the profit margin. For example- If you buy a product for Rs 250, then it is the price of that product. 1.1.2 Definition of Cost Cost is the amount incurred on the inputs like land, labour, capital, enterprise, etc. for producing any product. It is the amount of money spent by the company in the manufacturing of a product. For example- If a company manufactures shoes, then the expenses incurred on raw materials, salaries, rent, interest, taxes, duties, etc. determines the cost of the product. 1.1.3 Definition of Value Value is the usefulness of any product to a customer. In terms of money and varies from customer to customer. For example- If you are going to a gym by spending 1000 bucks a
3 | Page month, the output seen is worth the expense, then it is the value that you create for a gym, regarding the service being offered there. Here the worth is its value. Property value refers to the worth of a piece of real estate based on the price that a buyer and seller agree upon. According to economic theory, the value of a property converges at the point where the forces of supply meet the forces of demand. In other words, the value of a property at a given time is determined by what the market will bear. What buyers are willing to pay for property depends on a number of issues, including how motivated they are is to make the purchase, their negotiating skills and the condition of other properties in the area.  The word ‘value’ is highly subjective. Value or worth of the property depends on individual persons own the property depends on individual persons own perception of ‘Better life’. Persons from different economic strata in the society will have different viewpoints on the fair value of an asset.Thus we can say that value is mainly person specific concept. But we must understand the difference between value to the individual and value to the market Meaning Price is the amount paid for acquiring any product or service. Cost is the amount incurred in producing and maintaining something. Value is the utility of a good or service. Ascertainment Price is ascertained from the consumer's perspective. Cost is ascertained from the producer's perspective. Value is ascertained from the user's perspective. Estimation Through Policy Through Fact Through Opinion Impact of variations in Prices of product increase or Cost of inputs rise or fall. Value remains unchanged.
4 | Page market decrease. Money It can be calculated in terms of money. It can also be calculated in monetary terms. It is not calculated in terms of money. However from a quantitative prospective it can be calculated in terms of money 1.1.4. Cost price and value from real estate aspect  Cost is past history whereas Value embraces future.  Cost is the amount actually spent on creation of the asset. It includes the purchase price of land and the amount spent on construction, if the property is self-constructed. If the property was purchased by the present owner in the same shape as it is that is built up property, then cost is the price that the present owner paid for its acquisition. If the present owner made some improvements, then cost includes the amount spent on such improvements.  Value is the present worth of the future enjoyment of the property. The value is what a person is prepared to pay for possessing the property. The cost thus is not the value. But cost, or a small variation of the same, may provide a means to determine the value of the property. For example, replacement cost concept gives a most commonly method of determining the value of the owner-occupied properties. - 1.2 Types of Value  1.2.1Theoretical value – mathematical value worked out for the property  1.2.2 Economic value - is a measure of the benefit that an economic actor can gain from the property& is generally measure in terms of currency.  1.2.3 Social and Cultural value- Socially factors are things that affect someone's lifestyle. These could include wealth, religion, buying habits, education level, family size and structure and population density. There are several types and definitions of value sought by a real estate appraisal. Some of the most important are: