The real estate market is a complex landscape that involves substantial amounts of money. Thus, learning how to calculate property value is crucial for both sellers and buyers. Whether residential or commercial, the ultimate goal is to buy or sell it at good rates to ensure maximum financial benefit.
This article will explain how to calculate the valuation of property, different calculation methods, and factors determining the final rates.
What is the Market Value of a Property in India?
The market value of property calculation is the price of selling the house under normal conditions. It does not include a property sale under unforeseen events prompting forced sales at lower rates, such as the demise of the family head, relocation, urgent circumstances, etc. To know how to check the valuation of a property, one must understand that an appraiser determines various factors to do the calculation, including the property's location, size, condition, comparable sales, current market conditions, etc.
Methods of Property Valuation in India
Appraisers use different market value of property calculation methods, including the following:
1. Belt Method
This is the most common method of evaluating a large property's market value in urban areas. It divides a plot into three belts and assigns unique prices to each. According to their distance from the main road, the closest property gets the highest rate, properties in the second belt receive two-thirds of that rate, and the farthest belt receives only half.
2. Land and Building Method
In this method, the appraiser determines the value of the building and the land separately. Then, they add the building’s valuation to the land’s value and calculate the entire property’s price. To understand how to calculate the value of property using this method, one must calculate the reconstruction cost and adjust the depreciation.
3. Comparative Property Valuation Method
The comparative property valuation method evaluates the property of similar properties in an area. However, the prices may differ in the same locality due to their size, direction, location, interiors, and legality. Also known as sales comparison, this method only helps calculate an approximate value.
4. Development Method
The method evaluates a house or plot's value by estimating the area's development scope and proposed development plans. Buyers or sellers can make informed decisions by determining the potential increase in the value.
5. Guidance Value Method
The state government sets a guidance value, the minimum value for property transfer in an area. It is the minimum price for a property registration. To ensure fairness in property transactions, one must be aware of this guidance value when selling or buying a property. Property registration at a lower price than the guidance value is illegal. Moreover, the government updates this value periodically to match the current market standards.
6. Fair Market Value
Fair market value is a common method used to evaluate the cost of a ready-to-move apartment. It involves examining the rates of similar properties in the locality based on their size, location, and amenities.
Per Square Foot Rate = Total Property Value / Super Built Up Area
The value increases by adding the cost of premium factors, furnishings, and additional amenities. These include metro connectivity, floor level, furniture, appliances, gym, pool, Vastu construction, etc.
Also Read: How to Calculate Land Area or Plot Area in Square Feet?
Important Factors of a Property for Valuation in India
Those who want to learn how to calculate property value must also understand that several factors come into play when doing the calculations. These include the following:
1. External Factor
These include the curb appeal, pavement, roof, and the property’s overall attraction quotient.
2. Internal Factor
These include the property’s furnishings, carpet area, number of bedrooms, and other fundamental features.
3. Location
Properties in posh areas are costlier than those in suburban localities. Similarly, commercial zones are priced higher than less popular or residential areas. Proximity to schools, restaurants, hospitals, etc., and connectivity with public transportation, major highways, tourist places, office complexes, and neighbouring cities also contribute to a higher price.
4. Age and Condition of the Property
The age, condition, size, and property features largely impact the property calculation market value. Newly constructed or recently renovated houses with the latest features are highly appraised. The size of bedrooms, living areas, bathrooms, and outdoor spaces also matter.
5. Market Demand and Supply
Supply and demand largely influence the real estate prices. The number of properties available for sale determines the demand, while the number of prospective buyers determines the supply. A higher demand and limited supply usually lead to a higher price.
6. Comparable Sales
Comparable sales refer to the sales of similar properties in the neighbourhood. Appraisers analyse the market to determine a property’s market value and provide important data about comparable sales in the locality.
7. Infrastructure Development
The area's existing and planned infrastructure development projects largely influence the property's cost. Properties with ample amenities often cost more than those with limited infrastructural facilities.
8. Legal Compliance and Documentation
Unresolved legal matters, ownership disputes, and insufficient documentation often delay the property transaction, resulting in a lower value. Moreover, buyers would want to avoid buying a disputed property to get trapped in a legal complication unnecessarily.
9. Economic Factors
Changes in the economy may largely impact the real estate market. Therefore, one must study the latest economic factors and trends to estimate a property’s market price.
Difference Between the Market Value and the Fair Value of a Home
This table summarizes the key differences between Market Value and Fair Value, outlining their definitions, determinants, focus, usage, volatility, time horizons, and decision-making roles.
| Aspect | Market Value | Fair Value |
| Definition | The price at which an asset would trade in a competitive market. | The estimated value of an asset based on its current condition and its potential future worth. |
| Determination | Influenced by supply and demand dynamics, investor sentiment, and market conditions. | Evaluated based on factors such as the asset's current condition, potential future cash flows, and risk considerations. |
| Focus | Reflects the prevailing sentiment and transactions within the market. | Focuses on the intrinsic value of the asset, often taking into account its long-term earning potential. |
| Use | Used for financial reporting, taxation, and assessing investment performance. | Used in financial reporting, mergers and acquisitions, and regulatory compliance. |
| Volatility | Subject to fluctuations due to market conditions and investor behavior. | Tends to be more stable as it is based on a calculated estimate rather than market sentiment. |
| Time Horizon | Reflects current market conditions and investor expectations in the short term. | Consider the long-term outlook and sustainability of an asset's value. |
| Role in Decision Making | Provides a snapshot of current market sentiment but may not necessarily reflect the true value of the asset. | Offers a more comprehensive assessment of an asset's worth, aiding in informed decision-making. |
Advantages of Understanding the Market Value of a Property in India
Understanding how to calculate the valuation of property offers several advantages, including the following:
- Accurate knowledge of the property’s price prevents the risk of scams or fraudulent activities.
- The buyers and sellers can make better decisions with clarification of the market worth.
- With a land valuation report, buyers can evaluate the pros and cons of a property based on its location, market value, stamped images, structural feasibility, benefits, amenities, etc.
- Accurate valuation helps obtain a relevant insurance plan against potential losses or damages.
- Sellers can decide the price at which they can sell their property and evaluate their gain or loss.
- When buying a property for development, assessing its value helps evaluate its viability and profit potential.
- When applying for a property loan, calculating the value helps determine the loan amount and financial obligation.
Conclusion
Understanding the market value of property calculation is vital to making informed property buying or selling decisions. After understanding their property’s value, a potential buyer can apply for a property loan and make the right choice. A Loan Against Property (LAP) from Hero FinCorp can help a property owner get a loan of up to 75% of their property’s value. During financial emergencies, owners can get a loan against their property at a low interest rate and use the fund for any legal purpose.
Frequently Asked Questions
1. How can I estimate the value of a property?
You can use any of the market value of property calculation methods mentioned in this article to estimate the value of a property.
2. How do you calculate the market value of property?
As described in this article, you can calculate the property's market value using the belt method, land and building method, fair market value method, comparative property valuation method, development method, or guidance value method.
3. How do you calculate the present value of a property?
The present value of a property depends on its guidance value, location, size, development projects, etc.
4. How do I calculate my land value?
You may calculate the land value based on its size, location, proximity to main roads and other amenities.
5. What is the formula for the future value of a property?
The formula to calculate the future value of a property is (Future Growth) x (Current Fair Market Value). Here Future Growth = (1 + Annual Rate)^Years.
