Land Evaluation Methods: A Comprehensive Guide to Determining Land Worth

In order to determine the actual worth of land, a number of land evaluation techniques have been established around the world. A few approaches to determining the value of land and setting its price have gained significant traction on a global scale based on their efficacy. They are also used pretty frequently in India. Some significant ones are covered in this article. 

Comparative valuation method for land valuation 

This method is frequently used to determine the value of apartments in a time when apartment-based projects have become an essential component of urban living. This technique, also known as the sales comparison approach, aids in determining the worth of your property by comparing the prices of nearby properties that are similar to yours.

Let’s imagine that two apartments in your housing community recently sold for Rs. 1 crore each. The same sum would serve as the asking price for your home if you were to sell it soon.

This approach of property valuation works because you live in a bustling market with access to comparable data. When you finally list your flat for sale, though, you might discover that potential buyers are only ready to offer you Rs 90 lakh for it. There may be a number of causes for this.

Location: Even inside a housing society, location is crucial in determining a property’s worth. For instance, apartments at the main entry point will sell for less money because occupants might experience constant disturbance. Similarly, a flat facing a park is more attractive for a buyer and, therefore, will cost more than a property surrounded by other flats.

Shape: While no one prefers a house with an odd shape, the likelihood that such homes will fetch the full asking price is further reduced with Vastu making a significant comeback in India. According to principles, apartments with oddly shaped rooms restrict their owners’ chances of succeeding both personally and professionally. 

Size: if your home is even smaller than that of your neighbor, it will never be worth as much money. 

Level: The level of your flat will determine the value of your property, depending on the city where you live. Due to recurrent flooding during the monsoon season, apartments in housing societies on the upper floors in Mumbai are more expensive than those on the lower floors. On the other hand, the National Capital Region (NCR), sets a high price on apartments on the first floor.

Frontage: Compared to other properties, a corner flat or plot would command a higher price due to the simpler entry and exit locations.

Legal issues: Let’s say your sibling owns your property in a joint ownership arrangement and is unwilling to sell his half. Such a situation could cause value depreciation in addition to delaying the sale.

Land valuation development method

The value of the plots and the flats that are constructed on such plots are mostly determined using this method. This widely acknowledged method, also known as the residual land value method, aids in determining a land parcel’s potential. 

The plot’s value formerly was insignificant, but impeding infrastructural development might multiply that value many times over.

For instance, a bigha (27,000 sq ft) of land in Jewar was once sold for around Rs 4-5 lakhs. Land prices have reached Rs 20-25 lakh per bigha after Jewar was chosen as the site for the second airport to serve the NCR. As a result, the prices and rental values of apartments in housing societies in surrounding Greater Noida areas have also gone up.

Land valuation using the land and building method

This approach to land valuation assesses the value of the land individually before adding the value of the building to the result to determine the total cost. This approach could be used to arrive at both a land valuation and a property valuation.

Reconstruction costs are calculated first, and then depreciation adjustments are made to arrive at the building’s value. Due to the building’s age, construction method, present state, quality depreciation, etc., a depreciation of Rs 5 lakhs from its value could be applied if the structure could be rebuilt for Rs 25 lakhs, for example. By using this method, the building in this instance only costs Rs 20 lakh. To calculate the capitalized value of any comparable property, multiply the net annual revenue by its rental potential (let us assume this is Rs 55 lakh). The land’s worth is determined by the difference between the two numbers, i.e., Rs 35 lakhs.

Belting method of valuing land

The belting approach is the most useful and popular way to value a large piece of land in a city. The entire piece of land is divided into three belts for this purpose, with the portion nearest to the main road receiving the most value. Usually, the front belt can extend up to 10 feet, while the second belt can go as far as 50 feet. The third belt would be the component that comes next. Whereas the second belt may receive 75% of the value of the first belt, the third belt could receive 50% of that value. Areas up to 150 feet would be valued at Rs 7.50 lakhs if belt 1 is worth Rs 10 lakhs. Depending on how large it is, areas beyond this would be valued Rs 5 lakhs.

Property valuation using the guidance value method

A precise guidance value, also known as a circle rate, ready reckoner rate, etc., has been assigned to land by authorities, making the job easier for some of us. States take this action in order to collect stamp duty and registration fees on property transfers. For instance, Gurugram’s district government has announced an increase in the circle rate that is likely to increase the cost of purchasing land parcels. The government-specified rates, however, can be greater or lower than the property’s current market value. Find out the going market rate if you intend to sell your plot or flat.

Land’s market value

There is a difference between the market price of land and its market value. The amount the landowner is willing to ask for when selling it on the open market is the market price of the property. The amount that this land is worth, particularly in the eyes of potential buyers, in relation to its price reflects the market value of the property.

A property owner usually assigns a value to it based on a variety of considerations. Yet, when a potential buyer begins to examine this same land, he might not think it is as valuable as the owner believes. This demonstrates that both buyers and sellers engage in negotiation. This illustrates how different buyers and sellers place different values on land.

The difference between a land’s market value and its market price

It is possible to calculate the market price of a land using a few crucial details, without even personally visiting the site. The market price of land or property is determined by supply and demand, the property’s condition, and previous deals on similar properties.

Simply perform some data analysis to determine the price at which comparable land parcels in the same location are currently being sold. In this case, if a similar land plot sale yielded the owners, let’s say, Rs 2,000 per sq ft, an agent would anticipate getting the same price for his client.

However, since the market price of land is attached without taking the value component into account, the agent would need to physically visit the site in order to completely comprehend the value of this land piece.

For instance, the plot is worth more than comparable land parcels in the neighbourhood if it is close to the main road. If the plot, for example, is close to a cemetery, its value would be significantly lower than that of other nearby plots of equal size.

An owner should set a market price for his land parcel or other property only after considering all of these variables. The buyer should be willing to pay this amount, and the seller should be open to accepting it.

The final rate of sale would be the market price of the land, which would have an effect on the market value of nearby properties. So, both of these things continue to have a significant impact on each other.

Important things to keep in mind when valuing land

Property Location: The most important factor in determining a piece of land’s value is its location. A locality’s value, or lack thereof, is based on the level of development there. Because of this, a large tract of property in a developing neighborhood would sell for much less than a small plot in a prosperous neighborhood. One excellent illustration of this is the rise in land prices in Noida near the Jewar Airport.

Construction quality: The quality of the building built on the site comes in second when considering its value. Even if there is no age difference between two buildings in the same neighborhood, a structure constructed with premium materials will cost significantly more than a building constructed with average quality materials. Keep in mind that you must use technical professionals because you might not have the knowledge to evaluate the construction quality on your own.

Age of the property: An additional aspect that affects a property’s value is age. An older building would be considerably less expensive than a new one in the same spot.

Builder brand: In the case of a building, the developer’s brand will also affect pricing. For example, a project from a well-known developer will cost more than one from a developer who is somewhat less well-known.

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