At the time of empanelment, the valuer shall give an undertaking to this effect. The duration of empanelment shall be for a period of five years. An annual performance review shall be carried out by a committee comprising of senior officers of the bank.
In extreme cases where the valuer has been found to be indulging in unfair practices, guilty of professional misconduct, violating the code of ethics and professional practice, he shall be removed from the panel. Valuers once removed from the panel of any bank or housing finance institution could be re-empanelled again after a specified period, based on the recommendations of the bank Conflict Resolution Committee.
However, the minimum fees to be paid to an empanelled valuer for the valuation of a property will be as under :. Category of Valuer - A - Rs. All valuers empanelled by banks and housing finance institutions shall act with independence, integrity and objectivity. They shall undertake all valuation works with an independent mind and shall not come under any influence of anybody. This document casts the following obligations on the appointing agencies viz. Any other document will have to be procured by the valuer and sufficient time for the same will be provided.
In case of outstation properties or in case of large property valuations, more time shall be given, depending on the circumstances, on a case to case basis.
In case no such communication is received, it shall be presumed that the valuation report has been accepted. In case the difference in the valuation arrived at by both the valuers is not more than 15 percent, the average value is considered.
All valuers shall constantly update their knowledge base by actively participating in various continuing education programmes including seminars, conferences, workshops, training programmes, capacity building programmes, etc. This document shall come into effect from 01 April onwards. All banks and housing finance institutions shall take all necessary steps including board approvals and capacity building measures and prepare themselves to implement this document from the above date.
Valuation is a multi-disciplinary subject which draws from various core disciplines and the combined knowledge leads to the assessment of the value of the property. Some of the key considerations and basic domains of knowledge which need to be reflected in the professional work of a valuer are :.
Every professional valuer shall bear in mind all the above aspects while collecting data and conducting an analysis in order to arrive at the value of the property. The objective of this standard is to provide a common definition of market value and explain the general criteria relating to this definition and to its application in the valuation of property when the purpose and intended use of the valuation calls for estimation of market value.
Market value is a representation of value in exchange, or the amount a property would fetch if offered for sale in the open. In order to estimate market value, a valuer must first determine the highest and best use or the most probable use of the property. That use of the property may be for continuation of the existing use of the property or for some alternative use. These are determined from market evidence. Market value is estimated through application of valuation methods and procedures that reflect the nature of property and the circumstances under which a given property would most likely be traded in the market.
All market value measurement methods, techniques and procedures shall, if applicable and if appropriately and correctly applied, lead to a common expression of market value when based on market derived criteria. Sales comparisons or other market comparisons should evolve from market observations.
The income capitilisation approach should be based on market determined cash flows and market derived rates of return. Construction costs and depreciation should be determined by reference to an analysis of market based estimates of costs and accumulated depreciation. With proper prudence, application of mind and judgment, a valuer has to choose a relevant method applicable to issues emerging and market circumstances which together influence the market value.
The manner in which property would ordinarily trade in the market distinguishes the applicability of the various methods or procedures of estimating market value. It is the prerogative of the valuer to choose the appropriate method. The valuer needs to consider each method and see as to which is most appropriate to the given circumstance.
This standard is applicable for the estimation of the value of real estate which is supposed to be for sale in the open market and not for estimation of value of assets as a part of a going concern or for some other purpose. Market value is the estimated amount for which a property should exchange, on the date of valuation, between a willing buyer and a willing seller, in an arms-length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.
Therefore, the word asset is replaced here by the word property. It is the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer.
This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as a typical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale. It is the price at which the market expects a transaction that meets all other elements of the market value definition should be completed on the date of valuation.
This buyer is neither over eager nor determined to buy at any price. This buyer is also one who purchases in accordance with the realities of the current market and with current market expectations, rather than in relation to an imaginary or hypothetical market that cannot be demonstrated or anticipated to exist. The market value transaction is expected to be between unrelated parties both acting prudently and independently.
The parties were also made aware of the pulse of the market on the date of valuation. Both are expected to protect their individual interests. Market value is understood as the value of an asset estimated without regard to costs of sale or purchase and without offset for any associated taxes.
The market value of a subject property is a function of its highest and best use. This use is the reasonably probable and legal use which is physically possible, appropriately supported, financially feasible and that results in the highest value. The analysis of highest and best use for the subject property.
It is implied that the determination of the highest and best use takes into account the contribution of a specific use to the community and community development goals, as well as the benefits of that use to individual property owners. An additional implication is that the use determined from analysis represents an opinion, not a fact. The concept of highest and best use represents the premise upon which the market value is based.
Major considerations in estimating the highest and best use of the site include zoning classification and locational attributes, quality and quantity of surrounding landuse, current availability of infrastructure and supply and demand factors affecting the real estate market. In estimating the highest and best use, one needs to analysis the possible use, permissible use, feasible use and finally, the highest and best use.
The following four conditions need to be met in estimating highest and best use; a the use must be legal b the use must be probable and not speculative or conjectural c there must be a profitable demand for such use and d it must return to the land the highest net return for the longest period of time.
In arriving at the estimate of the highest and best use, the subject site has to be analysed a as if it is vacant and available for development and b as presently improved.
In performing and reporting a market value estimate, the valuer shall :. The valuation process requires that a valuer conducts adequate and relevant research for market comparables including searches in the office of the sub-registrar as well as other authentic sources to perform a competent analysis and to draw well informed and supportable judgements.
On account of changing conditions and characteristics of markets, valuers must consider whether available data reflect and meet the criteria for market value or not. Where market data is limited or essentially non existent, the valuer must make proper disclosure of the situation and must state whether the estimate is in any way limited by the inadequacy of data. A period of disequilibrium may continue over a period of years and can constitute the current and expected future market condition.
In other circumstances, rapid economic change may give rise to erratic market data. If some sales are out of line with the market, the valuer will generally give them less weight. It may still be possible for the valuer to judge from available data where the realistic level of the market is. Individual transaction prices may not be evidence of market value but analysis of such market data should be taken into consideration in the valuation process.
In these circumstances, valuers must carefully analyse and reflect the actions and attitudes of the market and take care that they fully disclose the results of their investigations and findings in their reports. Some transactions but not all, may involve elements of financial duress or conditions that reduce or eliminate the practical willingness of certain owners to sell.
Valuers must take into account all pertinent factors in such. Sales, however, may take place without proper marketing or a reasonable marketing period.
The valuer must judge such transactions to determine the degree to which they meet the requirements of the market value definition and the weight that such data should be given. Fair value is generally used for reporting both Market and Non Market Values in financial statements. Where the Market Value of an asset can be established, this value will equate to Fair Value. Besides, the hypothetical exchange value concluded by two typically motivated market participants, valuations of property may also use measurement principles that consider alternative economic utility or function s of an asset, value attributable to unusual or a typical motivation on the part of the parties to a transaction, or values specified by statutory or contractual law.
Valuation reports must be clear and unambiguous and not misleading. Valuations conducted for the purpose of estimating and reporting market value shall meet the requirements as stated in this document. Reports shall contain a specific reference to the definition of market value as set forth in this standard, together with specific reference as to how the property has been viewed in terms of its utility or its highest and best use and a statement of all substantive assumptions.
In making market value estimates, the valuer shall clearly identify the effective date of valuation, the purpose and intended use of the valuation and such other criteria as are relevant and appropriate to ensure adequate and reasonable.
Although the concept, use and application of alternative expressions of value may be appropriate in certain circumstances, the valuer shall ensure that if such alternative values are estimated and reported, they should not be construed as representing market value.
Any departure from this standard for whatever reason shall be clearly stated in writing in the valuation report along with the reasons and justification for the same. The special circumstances which have warranted a departure from established norms needs to be adequately explained. Most of professional valuations involve market value basis of valuation. However, there can be many circumstances that call for bases other than market value.
It is essential that both the valuer and the users of valuations clearly understand the distinction between market value and bases other than market value. This standard presents and explains bases of valuation of properties other than the market value basis. Basis of Value — A statement of the fundamental measurement principles of a valuation on a specified date. Investment Value — The value of a property to a particular investor, or a class of investors, for identified investment or operational objectives.
This subjective concept relates specific. Special Value — An amount above the Market Value that reflects particular attributes of an asset that are only of value to a special purchaser. Synergistic Value — An additional element of value created by the combination of two or more interests where the value of the combined interest is worth more than the sum of the original interests.
To perform valuations that comply with these standards and report a non market value estimate, the valuer shall —. Examples of bases of value other than market value are a fair value b investment value c special value and d synergistic value. The additional assumptions required in applying these basis are often more specific than those required for establishing market value as they may relate to the circumstances of a particular party.
For this reason, a valuation reported on one of these bases should ensure that it cannot be construed as market value. A basis of valuation describes the fundamental measurement principles of a valuation. These principles may vary depending on the purpose of the valuation.
A bases of valuation is not a statement of the method used, nor a description of the state of an asset or assets when exchanged. Market value is the most commonly required bases and is defined and discussed in Standard I.
This standard defines and discusses other valuation bases which fall into three principal categories viz. First category - which reflects the benefits that an entity enjoys from ownership of an asset.
The value is specific to that entity. Although under some circumstances, it may be the same as the amount that could be realized from the sale of the asset, this value essentially reflects the benefits received by holding the asset and therefore, does not necessarily involve a hypothetical exchange.
Investment value falls in this category. Differences between the value of an asset to a particular entity and the market value provide the motivation for buyers or sellers to enter the market place.
Second category — which reflects the price that would be reasonably agreed between two specific parties for the exchange of an asset. Although, the parties may be unconnected and negotiating at arms length, the asset is not necessarily exposed in the wider market and the price agreed may be one that reflects the specific advantages or disadvantages of ownership to the parties involved rather than the market at large.
Third Category — this is the value determined in accordance with a definition set out in a statute or a contract. Fair Value is normally equated to Market Value. For other purposes, Fair Value can be distinguished from Market Value. Fair Value requires the assessment of the price that is fair between two specific parties taking into account the respective advantages or disadvantages that each will gain from the transaction.
Fair Value is a broader concept than Market Value. Although in many cases, the price that is fair between two parties will equate to that obtainable in the general market, there will be cases where the assessment of Fair Value will involve taking into account matters that have to be disregarded in the assessment of Market Value. A common application for Fair Value is for assessing the price that is fair for the shareholding in a business, where particular synergies between two specific parties may mean that the price that is fair between them is different from the price that might be obtainable in the wider market.
In contrast, Market Vlaue requires any element of Special Value, of which Synergistic Value is an example to be disregarded. Special Value can arise where an asset has attributes that make it more attractive to a particular buyer or to a limited category of buyers than to the general body of buyers in the market. These attributes can include the physical, geographic, economic or legal charecteristics of an asset.
Market Value requires the disregard of any element of Special Value because at any given date, it is only assumed that there is a willing buyer, not a particular willing buyer. Synergistic Value can be a type of Special Value that specifically arises from the combination of two or more assets to create a new asset that has a higher value than the sum of the individual assets.
When Special Value is reported, it should always be clearly distinguished from Market Value. A bases of valuation should not be confused with assumptions that may also be required to clarify the application of the basis to a specific situation. Some terms that are often used to describe a valuation are not distinct bases of value as they. The value may be measured on one of the bases defined above at 2.
Examples of such terms that are in common use include :. Going Concern Value — This describes the situation where an entire business is transferred as an operation entity. Alternative valuation scenarios to a going concern could include a transfer of all the assets as a whole but following the closure of the business or a transfer of specific assets currently used in the business as individual items.
Liquidation Value — This describes the situation where a group of assets employed together in a business are offered for sale separately, usually following a closure of the business. Although often associated with forced sale, these terms have distinct meanings.
There is no reason why assets cannot be liquidated by an orderly sale following proper marketing. Orderly Liquidation Value Realisable Value — it is the estimated gross amount expressed in terms of money, that could be typically realized from a liquidation sale, given a reasonable period of time to find a purchaser s with the seller being compelled to sell on an as is where is basis as of a specific date. Forced Liquidation Value Distressed Value — is the estimated gross amount expressed in terms of money that could be typically realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as is where is basis as of a specific date.
Salvage Value — This describes the value of an asset that has reached the end of its economic life for the purpose it was made. The asset may still have value for an alternative use or for recycling. Valuation reports must be clear, unambiguous and not misleading. Valuations conducted for the purpose of estimating and reporting value opinion frames on bases other than market value shall meet the requirements of the above provisions in this document.
For valuations carried out on bases other than market value, it is required that the purpose and intended use of the valuations be clearly reported and that full disclosure be made on the basis for the valuation estimate, its applicability and its limitations. Each valuation report prepared on a basis other than market value shall contain a statement of contingent and limiting conditions or similar disclosure.
Notwithstanding this provision, the valuer shall not use the statement of contigent and limiting conditions to justify unreasonable departure from these standards. In performing a valuation on a basis other than market value, the valuer shall not make assumptions that are unreasonable in the light of facts ascertainable at the effective date of valuation.
All assumptions shall be disclosed in all reports. When valuations are made by an Internal Valuer, there shall be a specific disclosure in the valuation report or certificate of the existence and nature of such relationships. Any departure from this standard for whatever reason shall be clearly stated in writing in the valuation report alongwith the reasons and justification for the same. The analytical processes and empirical data used to arrive at the value conclusion should be included in the valuation report to guide the reader through the procedures and evidence that the valuer used to develop the valuation.
In case any judicial pronouncements are to be used for arriving at any conclusions, the same should be properly referred to and a detailed explanation should be given. Similarly, in case of any conclusions are to be derived from books, documents, reports or government circulars, proper reference is to be made to them and a detailed explanation should be given. The objectives of the standard are i to discuss reporting requirements consistent with professional best practice and ii to identify essential elements to be included in valuation reports.
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