Land & Building

Valuation
Market Approach
Mrs. Amruta Lomate
Architect & Registered Valuer – L & B
[email protected]

5/13/2021
 Contents
1. What is Market Approach

2. Types of market

3. Factors which affect prise of an asset

4. Land characteristics

5. Methods of data collection

6. Valuation methods used under market approach

7. Limitations of market approach

8. MCQ
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 Chapter – 1

What is Market Approach

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 Basic Aspects in Market Approach
• Principle of Substitution & Comparison
• Concept of Highest & Best use of Land
• Open Market & Closed Market Situations
• Concept of Market is Supreme.
• Market is Ruthless.
• Demand & Supply is primary factor controlling
prices in market.
• Cyclic Boom & Slum Period.
• Social, Economical, Legal & Technical qualities of
land & building.
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 Comparison

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 What is to be valued?
• Rights / Title / Interest / Possession
Free hold interest
Leased hold interest
Life interest
Easement right
Tenancy rights
Restrictive Covenant
Other rights- Mortgage, Govt., Kul,

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 Chapter – 2

Types of Market

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 Types of Market
• Like the commodity market there are 3 types
of market conditions in Real Estate Market
namely;
• (i) Buyers’ Market.
• (ii) Sellers’ Market.
• (iii) Stable Market.

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 Types of Markets
• Buyers Market- Buyer is “KING”
More Number of Units available in excess of demand.
Prices comes down due to availability of units.
• Sellers Market- Seller is “KING”
Supply of unit is less than Demand
Prices go up due to competition
• Stable Market
Demand = Supply
(Due to Purchaser Stop Purchasing, Artificial Stoppage of
Demand, Change in Government Policies, Lack of paying
capacities of people, Expectation of people about likely fall in the
market in near future)
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• While understanding this open market
concept, we must also understand another
concept "MARKET IS SUPREME" for all
marketable properties. Only for non-
marketable properties like Temples, Museum,
Schools, Govt. buildings this axiom is not
applicable. Market takes into account all
market forces namely economical, technical,
legal, social, and political or any other such
factor. There may be an element of black
money operating in the property market.

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 Demand Supply Curve

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 Bell Curve

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• Buyers curve A-B-C shows number of buyers at different price
levels. 'A' price is offered by minimum number of buyers in the
market. Transaction does not take place if the said price is an
unviable price. At 'B' price, there are maximum numbers of buyers
who are willing to buy. Transaction may take place or may not take
place. At 'C' price again there are minimum numbers of buyers
because said price is considered very high by buyers.
• Sellers curve D-E-F indicates a number of sellers at different price
levels. At 'D' price there are hardly any sellers able to sale their
product because buyers will consider said price too high. At 'E' price
there are maximum numbers of sellers.
Transaction mayor may not take place at this price. Again at 'F' price
there are minimum sellers because said price is considered too low
by sellers.
• Thus most of the transactions take place in the market in the price
range of 'F' to 'C'. Price 'G' can be said to be ideal price as it is
average price of highest price that would be offered by a willing
buyer and lowest price that would be acceptable to any willing
seller. It is said that in perfect competition market, transaction takes
place at ideal price 'G'.

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 Chapter – 3

Factors which affect prise

of an asset

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 Factors affecting Value of Property
• Economic factors
• Physical factors
• Social factors
• Legal factors

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 Economic Factors:
• Demand and supply of properties.
• State and Central Govt.
• Policies for land development.
• Economic and Taxation policies of Government.
• Income and wage level of residents, trends for saving and paying capacities of people in the
locality.
• Money market situation.
• Cyclical boom and recession periods in real estate market.
• Expected rental yields and returns on investment in real estate.
• Inflation or deflation in nation’s economy.
• Availability of money on credit from Banks and other institutions and rate offered for such
advances.
• Burden of property tax and other maintenance outgoings.
• Better alternative use against current inferior use.
• Employment opportunities and development potential in area.
• Availability of alternative or substitute asset in the market.
• Local population, per capita income of residents.
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 Physical (Technical) Factors:
• Land characteristics: Size, shape, plot area, vista, frontage, orientation, soil type, topography
etc.
• Infrastructure facility: Good network of roads, water supply, drainage system, power supply and
telecommunication links.
• Prominence and placement: Main road, by-lane, remote area location.
• Building characteristics: R.C.C. framed or load bearing structure.  Expected future life and age
of structure.
• Deterioration and present condition.
• Specification of building, (Civil, electrification and plumbing items).
• Aesthetics and workmanship quality.
• Obsolescence due to change in technology or change in life style.
• Maintenance and repair liability.
• Functional aspect: Optimum use of space, good planning and design with no wastage, high
utility value, modern habitation style.
• Amenities: Swimming pool, garden, lift, security system, car parking facility, Health club,
Children’s play area.
• Environmental aspect: Noise and smoke pollution level, sea or lake frontage, nuisance due to
railway track, industries or airport, climatic condition.
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• Natural calamity: Earthquake prone areas, flooding and cyclone hazards, Tsunami prone areas.
 Social Factors:
• Locality: Poor class, middle class, posh areas (Life style and living standards of residents of the
locality).
• Neighborhood: Well developed, less developed, slum like, cremation ground, dumping ground,
nuisance due to community hall, cinema, school on adjoining plot.
• Civic amenities: Proximity of shops, Mall, market, school, cinema, community hall, hospital,
railway station, bus stand, garden.
• Population: Density in area and population growth, congestion.
• Means of communication: Railway, road way or water ways.
• Prestige aspect: Prestigious building, prominent location, renowned personality like film star or
industrialist or politician or a celebrity as next door neighbor.
• Political factor: Linguistic or Religious communal unrest.
• Racial habitation: Parsi colony, Mohmedan locality, Hindu colony, Catholic colony.
Brahmanwada and Maharwada.

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 Legal Factors:
• Social legislation like The Rent Control Act 1948.
• Land Reform Legislation like: The Urban Land Ceiling Act 1976.
• Ecological Restriction Like: Coastal Regulations.
• Transfer of Property Act with lease provisions.
• Covenants under lease or conveyance deed.
• Land Acquisition Act.
• Laws Governing Building Construction like Development Control Rules/ Building Bylaws/ Town
planning and Zoning Regulations.
• Laws Governing Land: Town Planning Act/Municipal Corporation Act/ U.L.C. Act/Rent Act.
• Wealth Tax Act/Income Tax Act.
• Law on earthquake resistant building.
• Reservations under different Acts.

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 Elements of value
• Utility – What is the highest and best use of the property? What is
the land zoned for that would maximize and produce the greatest
net return over a given period of time?

• Scarcity - How scarce is the property, and how many similar

properties are currently on the market for sale?

• Transferability - Does the property have a marketable title that can

be transferred?

• Demand - Who is the Buyer and why do they want it? How many
people would want that property because of the other 3 factors?

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 Land laws
• Weights and measures act, 1976
• MLRC 1966
• Land acquisition Act, 1894 & new act of 2013
• Transfer of property act, 1882
• MRTP, 1966
• Bombay tenancy act, 1948 : KUL Kayda
• Bombay prevention of fragmentation & consolidation of holding act, 1947
• Environmental (protection) act 1986
• CRZ 2011
• Evacuee property act 1950
• Income tax act 1961
• Wealth tax act 1957

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 Chapter – 4

Land characteristics

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 Characteristics of Land
Situation Orientation Building Bye Laws
Location Shape of Plot Status of Land
Infrastructure Amenity Soil Condition Climatic Conditions
Neighbourhood Tenure of Land Un buildability
Size Topography Cultivation Aspect
Frontage/Depth Prestige Aspect TDR
Road Width Vista Vastu / Feng Shui /
Accessibility View Aspect Community Aspect
Land Use / Zoning Visibility Aspect Latent Aspect
Covenants State & Central Laws Potentiality of Land
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 Plot Frontage

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 Accessibility

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 Topography

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 Zone
• Residential – Residence, hospital, offices, educational, retail
shop, convenience shop
• Commercial – Showroom, garages, milk processing, labs,
shops, restricted manufacturing ( furniture, mattress), whole
sale,
• Industrial – Industry & accessory ( bank, canteen, welfare )
• Green – Stable, Poultry, Golf club, Agri store, Agricultural
• Hills and Hill slope – Agricultural uses, nursery, park
• No Development – Scarcity of water, future developing
• Red – Military area,

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 Chapter – 5

Methods of data collection

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 MARKET SURVEY

• Market Survey& data collection:

• Sales recorded at the Registrar's office of the

concerned district.
• Information from local brokers/residents (Local
Enquiry).
• Advertisements in Newspapers.
• Land Acquisition cases with award details.
• Auction sale information from different authorities.
• Various websites on Internet, giving details about sale
offers of real estate (flat/Shop etc).
• Valuer’s own Data Bank.
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 Types of Agreements & Data
Collection
• Agreement
• Contract
• Sale Deed
• Development Agreement
• Exchange
• Conveyance Deed
• Lease Agreement
• Leave & License
• Mortgage
• Release Deed

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 four sources to check area of plot of
land.

• Area of the plot shown in Government Records

called 7/12 Utara or area (Khate/ Patta/ Chitta)
shown in Extract from the Property Register Card
of City Survey.
• Area stated in conveyance deed (title deed).
• Area shown in sanctioned plan (If building is
erected on plot).
• Area as per actual survey carried out on site by
the valuer.

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 Sources to Check built-up area
• four sources to check correct built-up floor
area or carpet area of the ownership
premises. (Flats/ shops/ offices/ factory galas).
• Area shown in purchase document.
• Area shown in society's record/condominium
record.
• Area shown in sanctioned plan of the building.
• Area as per actual survey on site by valuer.
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 THE STANDARDS OF WEIGHTS
AND MEASURES ACT, 1976

• 1 Guntha = 33’ x 33’ 1 Acre 40 G = 43560 sqft

• Bengal – 45 sqft = 1 Chhattak
16 Chhattak = 1 Cottah = 720 sqft
20 Cottah = 1 Bhiga = 14,400 sqft
Bihar 1 Bhiga = 27,225 sqft
. Gujrath, Lonawala, Nasik-1 war = 1 yard = 3 feet
Tamilnadu – 1 cent = 435.60 sqft = 1% Acre
1 Ground = 2400 sqft
Hariyana – Maral = 272.25 sqft
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Kanal = 20 Maral = 5445 sqft
 Chapter – 6

Valuation methods used

under market approach

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 Methods Value of Property
1. SALE COMPARISON METHOD

2. Development method

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 Sales Comparison Method
(Direct market comparison method)

1. Adhoc Comparison Technique (Hedonic Pricing

Model)

2. Adjustment grid Model

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 Sales Comparison Method
(Direct market comparison method)

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 1. Adhoc Comparison Technique
P = f(STLA)
P = Price of property in market
F = stands for function of
S = Size or covered area of the premises
T = Time factor at which asset is traded in the
market
L = Location of the Property
A = Age or physical condition of the property.
If you go to market with a view to know prevalent
prices of the properties, the market never
disappoints you.
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 Example
• A residential flat, 75 Sq. m. area in 15 years
old building is sold at Rs.20,000/Sq. m. in May
2005. Building is on main road and it has
garden and parking facilities in the plot.
Advice of fair purchase price in April 2006 for
50 Sq. m. flats in nearby by-lane, in building
which is 30 years old and having inferior
specification than sale instance flat.

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 Example
Data –
Factor Property under Sale instance
valuation property

Consideration To find ? 15,00,000

Size 50 75
Time April 2006 May 2005
Location By lane Main road Garden
and parking

Age 30 15

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 Solution
Consider age, location and time factor. Rate of sale instance
for the flat for March 2006 could be

+ 10% for 1 year difference i.e. time factor.

- 10% for 15 years age and specification difference.
- 10% for by-lane location
- 10% (Overall % decrease)

All the above percentages are adhoc and subjective.

• Rate of Rs.18,000/Sq. m. (0.90 x 20,000) is estimated.

• Fair value of flat = 50 Sq. m. @ Rs.18,000/Sq. m. =
Rs.9,00,000/-

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 Waitage for land comparison

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 2. Adjustment Grid Model
• In this method also 4 to 6 comparable and genuine sales
are first collected by a valuer in a locality.
• For the purpose of comparison with subject property, 4 or
more major attributes are taken into consideration by a
valuer.
• There after for each attribute ranks are given.
– (i) Rank (5) for Best Quality attribute,
– (ii) Rank (3) for Medium Quality attribute,
– (iii) Rank (1) for Poor Quality attribute,
• If the flat involved in a sale instance has best specification
Rank (5) is given to it where as flat having medium quality
and poor specification are given Rank (3) and (1)
respectively.

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 Ranking to Different Attributes
• Location Factor : Rank (5) if civic amenities are close by.
Rank (3) if amenities are at moderate distance. Rank (1) if
amenities are far off at more than 1 km distance.
• Size: Rank (5) if flat area is 75 Sq. m. or less. Rank (3) if flat
area is 75 Sq.m. to 150 Sq. m. Rank (1) if flat area is 150 Sq.
m. or more.
• Age: Rank (5) Building less than 10 years age. Rank (3)
Building having age 10 to 30 years period. Rank (1) Building
having age 30 years or more.
• Specification: Rank (5) Deluxe specification. Rank (3)
Standard specification. Rank (1) Poor specification.
• Time: Rank (5) within 3 months prior to the date of
valuation. Rank (3) within 6 months prior to the date of
valuation. Rank (1) after 6 months prior to the date of
valuation.
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 Example
• A residential flats (subject property) is in 4 years old building. The
building is in middle class locality on road parallel to main road.
Building is 4 years old with good specification and good aesthetics.
Area of flat is 85 Sq. m. Marble flooring is provided. Value the flat as
on 31.3.2006 based on following three sale instances which are
readily available for comparison.
• Sale ‘A’: 120 Sq. m. flat sold on 31.8.2006 at Rs.8000/Sq. m. rate.
Building is 22 years old and abuts on main road. Good specification and
marble floor are provided. Building is with garden and swimming pool.
• Sale ‘B’: 80 Sq. m. flat sold on 31.1.2006 at Rs.5600/Sq. m. rate. It is in
by-lane but it is closer to market and school as compared to subject flat.
Building is 18 years old and specification is average with mosaic tiles
flooring.
• Sale ‘C’: 45 Sq. m. flat sold on 30.10.2005 at Rs.4000/Sq. m. rate. It is at
1 km distance from the market and station. It is in poor class locality.
Building is 30 years old with poor specification.
 Grid Table
SR. Details of Subject Sale "A" Sale "B" Sale "C"
Remarks
NO. Factors Flat Area in Sqm in Sqm in Sqm

85 120 80 45
1Sale Rate To Find 9000 5600 3900 Rs Per Sqm
2Time Factor Mar-05 -5 2 5 Months Gap

Weightage
Weightage 1%
3 Adjustment for -- -5% 2% 5%
per Month
Time

-450 112 195

4Adjusted Rate -- 8550 5712 4095 Rs Per Sqm
Rank 3
Ranks %
5Location Factor Weightag 5 3 1
Weightages
e
-15% -5% 25%
 Grid Table
SR. Details of Subject Sale "A" Sale "B" Sale "C"
Remarks
NO. Factors Flat Area in Sqm in Sqm in Sqm
Rank 3 Ranks %
6Size Factor 1 2 5
Weightage Weightages
-5% 0 5%
Rank 5 Weightage 1%
7Age Factor 1 3 1
Weightage per 2 years
9% 7% 13%
Specification Rank 3 Ranks %
8 5 3 1
Factor Weightage Weightages
-10% 15% 25%
Overall Variation Rank 3 % Weightage
9 -21% 17% 68%
Serial 5 to 8 Weightage over rate in Sr. 4

10Adjusted Values 6700 6754.5 6683.04 6879.6 Rate Per Sqm

Value of subject flat on 31.3.2006
85 Sq. m. @ Rs. 6700/Sq. m. = Rs.569,500/- Say Rs.570,000/-.
 Development Method

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• In simple words

Rate / consideration
Cost of
construction

Land Rate / cost

Developers profit =
Overheads /
miscellaneous

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• Land value by residual value method

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Data
Land area 500 sqm

Building area 250 sqm

Sale price 1,42,00,000/-

Age 40 years

Time of sale October 2010

1,42,00,000 - ( 250 * 8500*10% )

Land rate = ___________________________
500

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 Hypothetical Building Scheme
(Ownership Concept)
• This technique involves preparation of a hypothetical
building project scheme first. Then valuer is required to
work out sale value of flats/shops designed and planned
under hypothetical building scheme. After deducting for
profits, cost of construction, management expenses and
other outgoings in implementing project are worked out
,the same are deducted from sale price to arrive at final net
proceeds. Said amount is taken as value of the land
component and rate is derived there from.

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 Income

___

Expenditure

___

Profit

___

Land value

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 Annexure - A
Area Statement
In Sqm.
1Area of the plot 1,594.00
2Deductions
eEncroachment 0
fOther - Recreation ground 0

- 1,594.00
3Net Gross area of plot 1-2c 1,594.00
4Deductions

aAmenity space 15% - NA

bOpen space 10% - NA

dInternal road - NA

eTotal Deductions -
5Net Balance plot = 3-4e 1,594.00
6Additions
aFSI Potential Open space -
7Net plot Area 1,594.00
8Permissible FSI 1.10
9Permissible balc 0% -
10Permissible area 1,753.40
11Total permissible area (9+10) 1,594.00
12Approximate carpet area 90% 1,434.60
13Area for commercial development 0% -
14Area for Residential development 100% 1,434.60
15Salable area of flats (35% Of carpet) 1,936.71
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 Annexure - B

Project Development Method to derive land rate

1Income side
Area in sqm Rate in sqm Amount Rs.
Sale of flats 1,936.71 26,910.00 5,21,16,866.10

Total Income 5,21,16,866.10

2Expenditure side
Construction cost 1,936.71 14,960.00 2,89,73,181.60
Over heads 5% of income generated 26,05,843.31
Builder's profit 15%of income generated 78,17,529.92
Total expenditure 3,93,96,554.82
Land cost (Income - expenditure ) (1 - 2 ) 1,27,20,311.28

Plot rate in sqm Land cost / Land area 7980.12

Plot rate in sqft 741.4

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 • Hypothetical plotting scheme

Developed Land = Undeveloped land – Road area – other area ( Open space / amenity )

Undeveloped land rate = 10,000 per sqft

Developed land rate may be 20,000 per sqft.

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 Belting of land
Valuation of undeveloped land (Belting Method) :

 Plot should be in undeveloped area or outside of town where

land is ripe for development and for NA use.

 Belting method is used for valuation of large size, large area of

lands.

 Plot area should be sufficiently large to divide it in three belts,

each belt having 25m -30 m depth.

 This method is useful when there are no comparable sale

instances of similar size of lands.

 Road should be only on one side of plot.

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 Belting of land
 Example:
 Length of belt I = 30 m
 Length of belt II = 45 m
 Length of belt III = 150 m
 Rate of instance = Rs 1000/sqm

Value calculation:
I = 30 X 1000 X 1 = Rs. 30,000/-
II = 45 X 1000 X 2/3 = Rs. 30,000/-
III = 150 X 1000 X 1/2 = Rs. 75,000/-
------------------------------------------------
Total value of land = Rs. 1,35,000/-

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 Valuation
1. Value of small ( 1/4th Acre) Vs
large plots ( 25 Acres)

Plot Area = 10,000 sqft = about 1/4th Acre

Rate = Rs. 5000 per sqft
Value = Rs. 5 Cr

Plot Area = 10,00,000 sqft = about 25 Acres

Rate = Rs. 5000 per sqft
Value = Rs. 500 Cr

Plot Area = 10,00,000 sqft = about 25 Acres

Rate = Rs. 5000 x 2 / 3 per sqft = Rs.3333 per sqft
Value = Rs. 333 Cr

Thumb Rule No. 1 – Small plots values 1.5 times the large plot
or large plot values 2/3rd of small plot.

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 Mathura Prasad V State of West Bengal AIR 1971 SC
465
• Large area of land in Urban locality was to be acquired.
• Accepted that
Depth of front belt – 100 feet depth
Second belt – 150 feet
Balance - 3rd belt

• Thumb Rule – 2
• Price of
Second belt = 75% of front belt
Third belt = 50% of front belt

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 3. LLL – Land Locked Land

• Land without independent access.

• Useful to neighbors
• Thumb Rule 3 – LLL to be Valued at 25% to 50%

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 4. Irregular shaped plot
• Thumb Rule – 4 – Irregular plot to be valued
75%

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 5. Encumbered Land
• Land with Building-
• Thumb Rule 5 - Land to be valued at 85%

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 Chapter – 8

Limitations of market
approach

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 Chapter – 8

MCQ

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 MCQ 1: In buyers Market, there is -----

• 1. Excess Demand.
• 2. Excess Supply
• 3. Equal demand and Supply
• 4. Unequal demand and supply

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 MCQ 2 – Market approach is
principle of -------.

• 1. Replacement
• 2. Substitution
• 3. Reproduction
• 4. Economics

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 MCQ 3 A monopoly market will
usually generate : ....................

• a) Higher prices and lower output

• b) Higher prices and higher output
• c) Lower prices and lower output
• d) Lower prices and higher output

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MCQ 4 Hypothetically plotting scheme
is mainly used to value ....................
• a) Large open land
• b) Flats
• c) Industries
• d) Residence

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Market value of an object depends
upon the future .... that can be derived
out of it.

• a) Benefits
• b) Demand
• c) Supply
• d) Loan

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 MCQ 6 Which of the following is
considered as a special property

• a) Residential land
• b) Industry
• c) Commercial office space
• d) Sports Arena

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 MCQ 7. Which of the following is
recreational use of land under zoning
regulation?

• a) Playgrounds
• b) Parks in residential society
• c) Flower gardens and fruit farms
• d) Hotels

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 MCQ 8 Which of the following is not
physical factor and affects the value of
the property?

• a) Material used for construction

• b) Gross domestic products
• c) Property location
• d) Neighborhood properties
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Economic obsolescence can be explained as
....................

• a) Physical determination
• b) Loss in value due to external factors
• c) A loss in value due to poor design
• d) Repairable damage

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Principal of Market Approach is ……

• a) HABU
• b) Scarcity
• c) Transferability
• d) Marketability

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 MCQ 11 Which of the following is
not marketable property?

• a) Restaurant
• b) Hospital building
• c) Cinema Theater
• d) Temple Property
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 MCQ 12. Which among the
following is not a factor affecting
market rent?
a) City

b) Location

c) Type of building

d) Turnover of the lessee

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 MCQ 13 A monopoly market will
usually generate ------------

• a) Higher prices and lower output

• b) Higher prices and higher output
• c) Lower prices and higher output
• d) Lower prices and lower output
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 MCQ 14 which of the following is not
relevant while estimating market value
of property with improvements?

• a) continuation of existing use

• b) cost of repair carried out few years back
• c) adaption to another use
• d) demolition and redevelopment

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MCQ 15. Which valuation
methodology should be used to
calculate the market value of vacant
building excluding land?

• a) Sales comparable
• b) Depreciated replacement cost
• c) Income capitalization
• d) Residue technique

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MCQ 16. The property falling in the locality
lacking in the infrastructure will ....................
with the value of the property

a) Increase
b) Decrease
c) Stabilize
d) Have no relation with
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MCQ 17. ________ Factor is not
considered for weightage adjustment
in sales comparison.

• a) Location
• b) Size
• c) Accessibility
• d) Amout payable by seller of comparable

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MCQ 18. Not true with respect to valuation
of Joint venture development of property.
• a) estimate market value of land offered for
development of land owner.
• b) estimate cost of construction of building
proposed on land.
• c) required to consider which political party is
ruling in the state.
• d) consider value of financial benefit and profit @
future date that is contingent upon performance
and fulfillment of terms of contract.
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MCQ 19. What is common thing in
distress sale forced sale ....................

• a) Adequate marketing time

• b) Market value
• c) Insufficient market time
• d) Private negotiations

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MCQ 20. Infrastructure works like
augmentation of road networks &
transport facilities will result in
increased ....................
• a) Environmental deterioration
• b) Overall developments
• c) Crime Rate
• d) Withdrawal of capital

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MCQ 21. Which are two value
ingredients of a marketable non-
investment property?

• a) Liquidity and marketability

• b) Liquidity and utility
• c) Utility and Marketability
• d) Non marketability and Liquidity
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 MCQ.22 The market demand curve
shows ____________.

a) effect on market supply of a change in the demand for a

good or service
b) marginal cost of producing and selling different quantities
of a good
c) quantity of a good that consumers would like to purchase
at different prices
d) effect of advertising expenditures on the market price of a
good

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 Puzzle

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 Thank You

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