Valuation | Civil Engineering SSC JE (Technical) - Civil Engineering (CE) PDF Download

Define Valuation

What are the important factors influencing the value of building?

• Type of the building 
• Location of the building 
• Expected life of the building 
• Size and shape of the building 
• The Present condition of the building 
• Legal control of the building

What is the purpose of valuations?

• For assessment of wealth tax, property tax etc 
• For fixation of rent 
• For security of loans or mortgage 
• For insurance, betterment charges etc 
• For compulsory acquisition 
• For reinstatement.

Define Floor rate

• It is the ratio between the total built up area (Plinth area) of all floors and the area of the plot.
• Floor Area Ratio = Total Plinth area of all floors / Plot area

Define Plinth area rate

• It is the ratio between the total present cost of a particular type of building and its plinth area.
• Plinth area rate = Total present cost of a building/ plinth area.

Example 1: A property fetches a net income of Rs.900.00 deducting all outgoings.  Workout the capitalized value of the property if the rate of interest is 6% per annum.

Year’s purchase = 100/6 = 16.67
Capitalized value of the property = net income x Y.P
= 900 x 16.67
= Rs.15003.00

Example 2: Find the plinth area required for the residential accommodation for an assistant Engineer in the pay scale of Rs.400.00 to 1,000 per month.

Average pay = 400+1000 /2 = Rs.700/month
Average month rent @10% of salary = 700.00/10 = Rs.70.00
Average annual rent 70.00 x 12 = Rs. 840.00
Capital cost of the building @ 6% interest = 840 x 100 / 6 = Rs.14000.00
Plinth area required @ Rs.150.00 per sq. m of plinth area = 14000/150 = 93.33 sq. m
Normally the quarters for the assistant engineer should be constructed at the cost of Rs.14000.00 having plinth area of 93.33 sq.m.
But due to the increase in the cost of construction, this may be increased by 100% and the capital cost of construction may be fixed as Rs.28,000.00 and the approximate plinth areas of 93.33.

Example 3: A pumping set with a motor has been installed in a building at a cost Rs.2500.00.Assuming the life of the pump as 15 years, workout the amount of annual installment of sinking fund to be deposited to accumulate the whole amount of 4% compound interest.

The annual sinking fund I = Si/(1+i)n – 1
= 2500 x 0.04 /(1+0.04)15 -1 = Rs.125
The owner is to deposit Rs.125/-annually in 4% compound interest carrying investment for 15 years to accumulate Rs.2500/-.

Example 4: An old building has been purchased by a person at a cost of Rs.30,000/- excluding the cost of the land. Calculate the amount of annual sinking fund at 4% interest assuming the future life of the building as 20 years and scarp value of the building as 10% of the cost of purchase.

The total amount of sinking fund to be accumulated at the end of 20 years
S = 3000x (90/100) = Rs.27000.00
Annual installments of sinking fund I = Si/(1+i)n – 1
= 27000 x 0.04 /(1+0.04)20 -1 = Rs.907.20
Annual installments for sinking fund requires for 20 years = Rs.907.20

Example 5: Write the necessity of valuation.

Rent fixation: It is generally taken as 6% of the valuation of the property
For buying and selling
Acquisition of property by Govt.
To be mortgaged with bank or any other society to raise loan
For various taxes to be given and fixed, by the Municipal Committee
Insurance: For taking out on insurance policies.

Define the Value

• Value-Present day cost of a engineering structures (saleable value)

Define the Cost

• Original cost of construction. It is used to  find out the loss of value of property  due to various reasons.

Define the Gross income

• Total amount of the in come received from the property during the year, without deducting outgoings

Define the Net come

• An amount left at the end of the year after deducting all useable outgoings

Define the Obsolescence

• The value of property decreases if its style and design are outdated i.e rooms not properly set, thick walls, poor ventilation etc. The reason of this is fast changing techniques of construction, design, ideas leading to more comfort etc.

Define the Scrap Value

• Scrap Value: If a building is to be dismantelled after the period its utility is over, some amount can be fetched from the sale of old materials. The amount is known as scrap value of a building. If various from 7% to 10% of the cost of construction according to the availability of the material.

Define the Salvage value

• If a property after being discarded at the end of the utility period is sold without being into pieces, the amount thus realized by sale is known as its salvage value.

Define the Capitalized value

• It is defined as that amount of money whose annual interest at the highest prevailing rate will be equal to the net income received from the property. To calculate the capitalized value, it is necessary to know highest prevailing on such properties and income from the property.

Define sinking fund

• A fund which is gradually accumulated and set aside to reconstruct the property after the expiry of the period of utility is known as sinking fund. The sinking funds may be found out by taking a sinking fund policy with any insurance company or deposition some amount in the bank. Generally while calculating the sinking fund, life of the building is considered. 90 % of the cost of construction is used for calculations 10 % is left out as scrap value.
  sinking fund (I) = Si/ (1+i)n -1
  Where I = Annual instalment required
  n = Number of year required to creat sinking fund
  i = Rate of interest expressed in decimal i.e 5% as 0.05
  S = Sinking fund

Define Market value

• Market value: The market value of a property is the amount, which can be obtained at any particular time from the open market if the property is put for sale. The market value will differ from time to time according to demand and supply.

Define Book value

• Book value: Book value is the amount shown in the account book after allowing necessary depreciations. The book value of a property at a particularly year is the original cost minus the amount of depreciation up to the previous year.

Example 1: Write the various methods of valuation.

• Plinth area method 
• depreciation rate method 
• Rental method 
• Land and building method 
• Development method

Example 2: The estimated value of a building is Rs.5,00,000.The carpet area of the building is 70 sq.m If the plinth area is 20% more than this ,what is the plinth rate of the building?

Value of building = Rs.5, 00,000
Carpet area = 70 m²
Plinth area = 20 % more = 1.20 x 70 = 84 m²
Plinth area rate of the building = Value of the building/Plinth area
= 5,00,000/84 = Rs.5952.38m² 

Example 3: The present value of a property is 20000/- Calculate the standard rent. The rate of interest may be assumed as 6%.

Annual rent @ 6% = 20000x 6 /100 = Rs.1200/-
Standard rent per month = 1200/12 = Rs.1200/12 = Rs.100/-

Example 4: Write the various methods of depreciation

Straigth line method
Constant percentage basis
Quantity survey method
Sinking fund method.

Define the Year’s purchase

• Year’s purchase: It may be as the figure which when multiplied by the net income from a property gives capitalized value of the property. It can also be defined as “a certain amount of capital whose annuity of Rs.1/- at a certain rate of interest can be received”
  Year’s purchase = 100/rate of interest = 1/i

Define the Annuity

• Annuity: The return of capital investment in the shape of annual installments monthly, quarterly, half yearly &yearly.

Define Analysis of work

• The process of determining the rate of an item of work or supply of the material is known as the analysis of rate or rate analysis.

Example 1: What is the size of septic tank for 50 users?

4 cum

Example 2: What is the size of septic tank for 25 users?

2.5 cum

Define contract

• The contract is an under taking by a person or firm to do any work under certain terms and condition.

Define Contractor

• A person or a firm who undertakes any type of contract is termed as contractor.

Define Tender

• Tender is a written offer submitted by the contractors in pursuance of the notification given to execute certain work under certain terms and conditions.

Example 1: What are the Essentials of contract:

The contract language is law full .

The contract is made by parties competent to contract. The contract is made by free consent of the parties. The contract is made under valid consideration.

There shall be a definite proposal and its acceptance.

Example 2: What are the type of contract?

Item rate contract
Percentage rate contract
Lump-sum contract
Material supply contract

Example 3: What are type of termination of contract?

Agreement Breach Performance
Impossibility of performance
Operation of provision of law
Conditions relating to documents
Conditions relating to the execution of work
Conditions relating to labour and personal

Example 4: Six Methods of Valuation

Rental Method of Valuation 

Direct Comparisons of the capital value 

Valuation based on the profit 

Valuation based on the cost 

Development method of Valuation 

Depreciation method of Valuation

Sinking Fund Method

In this method, the depreciation of a property is assumed to be equal to the annual sinking fund plus the interest on the fund for that year, which is supposed to be invested on interest bearing investment. If A is the annual sinking fund and b, c, d, etc. represent interest on the sinking fund for subsequent years and C = total original cost, then

Rental Method of Valuation
In this method, the net income by way of rent is found out by deducting all outgoing from the gross rent. A suitable rate of interest as prevailing in the market is assumed and Year’s purchase is calculated. This net income multiplied by Year’s Purchase gives the capitalized value or valuation of the property. This method is applicable only when the rent is known or probable rent is determined by enquiries.

Methods for calculating depreciation
Straight line Method
Constant percentage method
Sinking Fund Method
Quantity Survey Method

Straight Line Method
In this method, it is assumed that the property losses its value by the same amount every year. A fixed amount of the original cost is deducted every year, so that at the end of the utility period, only the scrap value is left.
Annual Depreciation, D = (original cost of the asset – Scrap Value)/life in years
For example, a vehicle that  depreciates  over  5  years,  is  purchased  at  a  cost of US$17,000, and will have a salvage value of US$2000, will depreciate at US$3,000 per year:
($17,000? $2,000)/ 5 years = $3,000 annual straight-line depreciation expense. In other words, it is the depreciable cost of the asset divided by the number of years of its useful life.

Constant Percentage Method or Declining balance Method
In this method, it is assumed that the property will lose its value by a constant percentage of its value at the beginning of every year.
Annual Depreciation, D = 1-(scrap value/original value)1/life in year

Quantity Survey Method