Question

How does Property evaluate

Answer 1

Answer: sales comaprison method,cost method,income method

Explanation:

•    Sales comparison method:
•    This is by far the most commonly used method for property valuation in India.
•    As the name suggests, in this method, a buyer will compare the property he/she wishes to buy with similar properties in the same locality.
•    If the properties are dissimilar, then, adjustments in valuations are made.
•    If the property you wish to buy is superior to the other properties in the same locality, then, valuation will be high.
•    However, if the property you wish to buy is inferior to the other properties in the same locality, then, valuation will be low.
•    Please note, you should only try to compare highly similar properties to arrive at the proper valuation.
•    In other words, one shouldn’t compare apples with oranges.
•    Cost method:
• In this method, one generally adds the cost of construction to the market value of land.
•    In other words, you ask yourself, how much it will cost if you were to build the property yourself.
•    Therefore, you take the market land value and then add the construction cost to it.
•    Income method:
•    This method is based on the income generating capacity of a property and is much suited to commercial properties.
•    Income generating properties are typically office space, warehouse, retail, industrial, and institutional properties.
•    Income generating properties are valued on the basis of prevailing capitalization rate in the market.
•    Therefore, rent or income from these properties is deciding factor in their valuation.
•    For example, if the rent from an income generating property is 1 Million (10 Lacs) per year. And the market capitalization rate is 10%, then, the valuation of this income generating property will be 1 Million/10% or 10 Million (1 Crore).
•    Capitalization rate is decided by considering various factors such as prevailing interest rates, liquidity risk, etc.