Last reviewed 16 Sept 2026 · 8 min read
Purpose of valuation
Valuation is the art/science of estimating the present worth (value) of a property. It is required for:
- Buying or selling property.
- Taxation — property tax (rateable value), wealth tax/estate duty assessments, stamp duty.
- Mortgage — loans against property.
- Rent fixation.
- Insurance (reinstatement cost).
- Compulsory acquisition — compensation.
- Partition and auditing/balance sheets.
- Security for loans, court cases and settlements.
Cost, price and value
- Cost — the actual expenditure incurred in constructing or producing a property.
- Price — the amount actually paid in a transaction.
- Value — the utility/worth of the property, which may be more or less than its cost; it changes with time, location, demand and condition.
Types of value
| Value | Meaning |
|---|---|
| Market value | Price a property would fetch in the open market between a willing buyer and a willing seller |
| Book value | Value shown in the account books — original cost minus depreciation to date |
| Salvage value | Value of a building/structure at the end of its useful life without being dismantled, for use elsewhere (reusable) |
| Scrap value | Value of the dismantled materials (e.g. steel, wood) as scrap — excludes labour for dismantling |
| Rateable value | Net annual letting value used for municipal tax assessment (gross rent less repairs and certain outgoings) |
| Speculative value | Value based on expected future gains (e.g. land near a new project) |
| Distress value | Low value in a forced sale (financial distress, urgency) |
| Monopoly value | High value due to exclusive or unique features |
| Sentimental value | Extra value to an individual due to personal attachment |
| Potential value | Value of the future development potential (e.g. unused FAR) |
| Accommodation value | Price that a buyer is willing to pay in excess of market value for his own convenience |
Income, outgoings and capitalised value
- Gross income — total annual income (rent) from a property.
- Outgoings — annual expenses: taxes (municipal/property), repairs and maintenance, management and collection charges, insurance, sinking fund for replacement, loss of rent (vacancies).
- Net income = gross income − outgoings.
Years' purchase — capital sum required to receive an annual income of ₹ 1 at a given rate of interest.
For perpetual income (freehold land):
For a limited period of years (with a sinking fund at rate to redeem capital):
( = annual sinking fund instalment coefficient.) If the sinking fund accumulates at the same rate : (present worth of an annuity).
Sinking fund
A sinking fund is an amount set aside annually (and invested at compound interest) so that at the end of the useful life the accumulated sum replaces the building/structure.
= annual instalment; = amount required after years (cost − scrap value); = rate of interest (decimal).