Market Value of a Property: How to Calculate Property Valuation?

Market Value of a Property in India

Market value is the price at which a property can be sold in typical situations. This excludes sales prompted by unforeseen events such as the passing of a family member, relocation, or urgent circumstances necessitating a forced sale.
An appraiser specialising in real estate can aid in determining the market value of a property. This assessment takes into account factors such as the property’s location, prevailing market conditions, size, condition, and comparable sales. Online calculators and tools are also available to assist with property valuation.

Methods of Property Valuation in India

The following methods can be used to value a property, land, building or house:

Belt Method

The belting method is commonly used to calculate the market value of large properties in urban areas. It involves dividing the plot into three belts and assigning different prices to each belt. The belt closest to the main road receives the highest value. The second belt value is assigned two-thirds of the first belt, and the third belt only half of the first belt.

Land and Building Method

This method involves separately determining the value of the land and the building on the property. The valuation of the building is then added to the land’s value to calculate the entire property’s market value. Multiple factors are taken into consideration during this estimation process.

Comparative Property Valuation Method

Also known as the sales comparison approach, this method assesses the value of similar properties in the area to estimate the value of the property being evaluated. However, it’s important to note that even properties in the same locality or housing society can have price variations due to direction, size, interiors, and legal issues. Nonetheless, this method provides an approximate valuation.

Development Method

The development method focuses on evaluating the potential of a house or plot by considering the scope of development in the surrounding area and any proposed development plans. This helps determine the potential increase in the property’s market value, aiding in informed buying or selling decisions.

Guidance Value Method

The state government sets a minimum value, known as the guidance value, for properties in different areas. This value represents the minimum price at which a property must be registered. To ensure a fair transaction, it is crucial to be aware of this value when buying or selling a property. Registering a property at a price lower than the guidance value is considered illegal. The guidance value is periodically updated to align with current market standards.

Fair Market Value

Fair market value, also known as the sales comparable method, is commonly used to determine the market value of ready-to-move apartments. Start by examining the prices of similar properties in the vicinity. Look for properties with similar sizes, amenities, and locations to get an idea of the market value.

Next, calculate per square foot rate. 

Per Sft Rate = Total Property Value / Super Built Up Area

For example,
if a 3 BHK flat in Bengaluru has a super built-up area of 2000 sq. ft and a value of INR 80 lakhs, the per square foot rate would be 

80,00,000 / 2000 = INR 4000 per sq. ft.

To this, consider adding the following:

• Premium Factors: If your property is located near a bus stop, metro station, park, or has a desirable floor level, you can add a premium amount to the calculated value before selling the property. These factors can enhance the market value due to their added convenience and desirability.
• Furnishings: If you are selling a furnished property, you may need to consider the depreciation of the furniture and appliances. Deduct the depreciated value from the overall property value, and then add a lump sum amount based on the remaining value of the goods to the property’s market value.
• Additional Amenities: If your property is constructed according to Vastu guidelines or offers additional amenities such as a swimming pool, gym, or clubhouse, you can add an amount representing the value of these features to the overall property value.

Find the Fair Market Value of Mutual Funds as 31.01.2018

Factors Influencing the Valuation of a Property in India

The following are the factors that influence the value of a property in India:

External Factors

External factors include elements outside the house that affect its valuation, such as the condition of the pavement, the roof’s appearance, overall attractiveness, and curb appeal.

Internal Factors

Numerous internal factors contribute to estimating the value of a house. These factors include whether the house is furnished or unfurnished, the size of the carpet area, and the number of bedrooms it has. Internal factors represent the fundamental characteristics of the house from the inside.

Location of the Property

Location plays a significant role in determining the valuation of a property. Houses in upscale areas generally have higher prices than those in suburban neighbourhoods. Similarly, properties located in commercial zones have greater value than those in residential or less popular areas.

Homebuyers often prioritise proximity to utilities, good schools, markets, restaurants, hospitals, and other amenities. Additionally, a desirable location with convenient access to public transportation, office complexes, major highways, neighbouring cities, and tourist destinations can command a higher price.

Size and Condition of the Property

The size, condition, age, and features of a property significantly impact its market value. Newly constructed houses or those with recent renovations and updated features tend to have higher appraised values. The overall size of the house, including the number and size of bedrooms, bathrooms, living areas, outdoor spaces, and the presence of modern amenities like a smart home system or a renovated kitchen, also contribute to a higher selling price.

Homeowners should consider making upgrades and updates that align with current market trends to maximize the property’s value and generate positive returns on their investment.

Comparables

Comparables refer to the selling prices of properties in the same neighbourhood with similar features and amenities as the property being evaluated. Conducting a market analysis of recent sales helps determine the market value of a property. Real estate appraisers can provide valuable data on comparable properties in the vicinity, which can be used to set an appropriate price for the property being sold.

Construction Quality

The quality of construction is another important factor that affects the value of a property. In the same location, a building constructed with premium materials will command a higher price compared to a building constructed with average-quality materials, even if they are of similar age. It is advisable to seek the assistance of technical experts who can evaluate the construction quality, as it may require specialized knowledge.

Builder Reputation

In the case of buildings, the reputation and brand of the developer can impact pricing. A project developed by a well-known and reputable developer will typically have a higher cost compared to a project by a relatively lesser-known developer.

Supply and Demand in the Market

Market conditions play a significant role in valuing any property. Even if your house is large, recently renovated, and located in a prime area, unfavourable market conditions can impact its valuation. 

Property prices are influenced by the balance of supply and demand in a particular market. The demand is determined by the number of homes available for sale in a specific area, while the supply is based on the number of potential buyers. The demand-to-supply ratio also considers the speed at which properties sell in the area.

Even if a house is in an ideal location and boasts impressive features, its value is influenced by the supply and demand dynamics of the neighbourhood. If demand is high, but the supply is limited, it can lead to an increase in house valuation.

Economic Factors

Changes in the overall economy can impact the property market. For example, a decrease in purchasing power may affect people’s ability to afford homes, thereby affecting property prices. It is essential to study the latest economic trends and factors that could influence the market to accurately calculate a property’s market value.

Level

Depending on the city, apartments on higher floors may have higher value due to factors like flooding or preferred views.

Frontage

Corner flats or plots with more accessible entry and exit points often carry a premium compared to other properties.

Legal Issues

Ownership disputes or unresolved legal matters can delay the sale and result in property value depreciation.

Difference Between the Market Value and the Fair Value of a Home

Fair value represents an estimated amount that a home is expected to fetch based on factors such as current price trends, the property’s age, location, and other relevant parameters. It provides an indication of the property’s value.

On the other hand, market value refers to the actual amount agreed between buyer and seller in a transaction. It is the price at which the property is bought or sold in the open market. The market value is influenced by various factors, including supply and demand dynamics, negotiation between parties, and other market conditions.

While the factors considered in calculating both fair value and market value may be similar, the key difference lies in their purpose and outcome. Fair value is an estimation used for evaluation and assessment purposes, while market value represents the actual agreed-upon price in a transaction.

Benefits of Knowing the Market Value of a Property in India

Property valuation offers several advantages, particularly for buyers. Here are some key benefits to consider:

1. Prevention of Malpractices:
   Having accurate knowledge of the property value reduces the risk of falling victim to fraudulent activities or scams. Calculating property value in India enables better decision-making and clarifies the property’s market worth.
2. Analysis of Pros and Cons:
   Land valuation reports in India allow buyers to evaluate the advantages and disadvantages of a particular piece of land. These reports provide crucial details such as the final market value, location, benefits, structural feasibility, and stamped images. Armed with this information, buyers can make informed decisions about whether to proceed with the purchase or explore other options.
3. Property Insurance:
   Accurate property valuation assists in obtaining the appropriate insurance coverage against potential damages or losses. It helps prevent over-insurance or underinsurance of the property. By understanding the property’s true value, buyers can ensure they have adequate insurance coverage and avoid unnecessary expenses on premiums.
4. Facilitating Property Sale:
   In the event a buyer decides to sell the property they have purchased, land valuation plays a crucial role. By knowing the market value and expected returns, buyers can make informed decisions and expedite the selling process.
5. Assessing Project Viability:
   Many buyers acquire property or land with the intention of undertaking development projects. However, assessing the viability of such projects before committing to them is essential. Land valuation helps in assessing the potential viability of development projects, allowing buyers to avoid investing in unprofitable or unfeasible land.

Frequently Asked Questions