Practising Valuers Association(India)
Continuing Education Programme At FUN POINT RESORTS , AHMEDABAD
Session on Valuation Practice 15th Aug. 2005
VALUATION OF ASSETS
By M.K.Gupta, Jammu
What is an ASSET Types of Assets Tangible Intangible
Valuer also an auditor
what to look into for Purpose, Place, type of assets, circumstances which affect the present realisable value such as delay in disposal of salvage, damaged/scrap/rejected goods: shall result into national loss if not disposed off immediately.
VALUATION A LOGICAL, ANALYTICAL & SCIENTIFIC APPROACH
• BACKED BY KNOWLEDGE, EXPERIENCE & HIS DATA BANK TO BE ADOPTED BY A PRUDENT VALUER WHAT , WHERE WHY, WHO, HOW
• ASSETS, HOW MUCH, PRESENT
• STATUS REGARDING TYPE OF OWNERSHIP OCCUPATION,
• TYPE: WHETHER COMMERCIAL, RESIDENTIAL,& WITH BOUNDARIES IF IMMOVABLE WITH LANDMARK IF ANY.
• Full name of the unit if other than House or plot or flat.
• If vehicle then its particulars etc. and
• more such details and data currently collected and available in case of P&M.
• Circumstances vary value: Purpose ,scope, location,utility, methodology ,techonolgy,stage /status. Rent for leasing and subsequent renewals or for such other use like damages in case of LIC case. As percaution every valuer should keep ready querry form for gethering required information from client in writing with sign regarding the assignment to enable him to prepare the report and if possible with some token money and also asking him for documents without any commitment for the total amount of valuation.
• Role of valuer as on date is more challenging and gone are days having a casual approach of issuing a certificate of few lines giving an opinion of value of a property/asset. It is because of this attitude and casual approach of some of our senior colleagues that certain end users like some banks have issued a foot note on empanelling form that persons above 60 need not apply or their EOI shall not be considered. The denial by some other banks come diplomatically with one excuse or the other
• Now is the time that we take up strongly with the end users that it is this clan of 60 and above whose matured experience and knowledge are to guide the younger generation to perform in such a manner to act as world class professional valuer.
• We should now wake up and realise that it is never too late and should act in highly professional manner to compete with the international valuers who are operating in India as brought and introduced by some MNC and banks such as ADB and EXIM ,WORLD BANK ETC.
• Consider every report as an acid test and perform as a good professional valuer.
• WHAT IS VALUE
VALUE: A WORD OF MANY MEANINGS A PRICE IS A FACT AND A VALUE IS AN ESTMATE OF WHAT THE PRICE OUGHT TO BE COST, PRICE AND VALUE ?
COST,PRICE & VALUE COME IN TO EXISTANCE ONLY WHEN EXCHANGE OF COMMODITY, SERVICES TAKE PLACE & THIS DEPENDS UPON UTILITY,TRANSFERABILITY & TO THE EXTENT OF ITS AVAILABILITY
i) It must possess utility,
ii) It must be Scarce, &
iii) It must be transferable or marketable.
Missing of any one of these shall adversely affect value Say plenty of air …only utility :Rotten Apples potatoes
• A property has all these three hence got value. But it is affected by the place,the buyer,the seller and the laws applicable to the asset, and the best could be defined as the ratio between the price of the money to the price in return.
Types and elements of Value:Assessed Value, Book Value, Salvage value,Scrap value,Replacement Value,Earning Value,and Reinstatement value for insurance purpose after the loss to the property.
Besides above, other terms of values given hereunder also play an important role for the value of a given property:
Market value, for Banks/ FI’s potential value for banks/mortgage
Forced sale or distress sale value,Monopoly value,
Intrinsic value,Sentimental value,Antique value,Rent value & Purpose of valuation.Location of property,ie in Delhi,Mumbai or in rural area. Scarcity???
Value a word of many meanings
– Art or Science
– Art of judgement and knowledge
– Scientific analysis of data.
– Like an unbridled Horse.
– Value as an opinion by the I.Tax officer
Purpose of Valuation A MUST
• To be INCORPORATED IN valuer’s report
• Mortgage, rent,Auction sale, takeover of an asset.
• Willing Purchaser, Willing Seller
• Distress sale
• Inherited property for family division.
• Stamp Duty
Who Fixes the value
Valuer or Market
Estimation by valuer does not create value , He attempts to foresee the price through his method and skills
Some examples which affect value.
Changes in Insurance Industry for value of vehicles and others are some examples
• IDV FROM IEV ( Declared/estimated )/excess clause Fixed value of land as per Govt. Order
• Fixation of rates of immovable property by Govt.
• Market trend for liking of a particular location/property
• DISCONTINUATION/ closure of some activity in the area.cinema houses.
• REMOVAL OF facilities
IDV INSURED’S DECLARED VALUE
• FOR VEHICLE AGED UPTO 5 YEARS IDV SHALL BE ON THE BASIS OF MANUFACTURER’S SELLING PRICE PLUS ACCESSORIES IF ANY LESS SPECIFIED DEPRICIATION.
• FOR TOTAL LOSS/CONSTRUCTIVE TOTAL LOSS IDV SHALL BE THE BASIS OF INDEMNITY IRRESPECTIVE OF MARKET VALUE
• FIXED AT COMMENCEMENT OF EACH POLICY PERIOD
• FOR TL/CTL CLAIMS IDV WILL NOT CHANGE DURING THE POLICY PERIOD
• IDV FOR VEHICLE BEYOND 5 YEARS AND OBSOLETE MODELS IS TO BE DETERMINED ON THE BASIS OF UNDERSTANDING BETWEEN INSURER AND INSURED (MARKET VALUE ) NOW LET US HAVE YOUR QUESTIONS TO CLEAR ANY DOUBTS BASED ON THE INPUT DURING THE SESSION