Market Value Types
By Raju Hariyani –
The Practicing Valuer
_____________________________________________________
“The profession of valuation has a very significant impact on the modern
economic world and particularly has become more significant in the context
of liberalization and privatization.”
N Vittal,
Central Vigilance Commissioner
The banks and FIS engage the valuers to ascertain the value of the
properties for their reference before going to the Buyer’s market for
selling the units. At this stage the valuers are required to find out the fair
market value of the property. Valuation Report is conclusive judgment of
the analysis and interpretation of data directing towards deriving a
supportable option of value.
For most valuations, have a property description with approach of valuation
and value estimate derived. This can be further elaborated for finance
purpose by Fair Market Value, Forced Sale Value & Distress Sale Value as
described.
Market Value has no statutory definition of general nature. However, from
the pronouncement of judgments by various courts, the meaning can be
The value of the movable/ immovable property in general and
inferred.
land in particular varies according to the purpose for which it is valued and
date of valuation. The disparity in value as on the same date for different
purpose is due to the statutory provisions made in different Acts.
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MARKET VALUE
Market Value by definition is estimated amount for which an asset should
exchange on the date of valuation, between a willing buyer and a willing
seller, in an arm's length transaction after proper marketing, where in the
parties had each acted knowledgeably, prudently, and without compulsion.
FAIR MARKET VALUE
Market Value is ideally defined above. There is not much difference between
the words 'Market Value' and "Fair Market Value". However in India word
'Fair Market Value' is more common and more popular amongst valuers, for
the simple reason that it clearly signifies fairness of value of the property.
This term automatically implies rejection of distress sale or forced sale
transaction as well as transaction between relatives at confessional price.
This term also rules out transaction by speculators or purchasers having
special purpose to pay fancy price or special price for the property.
FORCED SALE VALUE
It is an estimate of the price the property (including running or closed down
unit) would realize in open market on "As is where is basis" in shortest
possible time.
The forced sale is conducted by negotiations amongst limited group of
buyers or by public auction but it is conducted with the sense of utmost
urgency and with assumption of unwilling seller.
In fact seller is compelled and forced to sale the property to liquidate it in
terms of money to clear his debt or compelling circumstances. Auction sale
of Non Performing Assets by Banks is one such example.
Sale of property by borrower of bank loan by finding our prospective buyer
by private negotiations offer better price than that is likely to be realized
under auction sale by the bank. Sale of property by urgent private
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negotiations under warlike conditions and sale of the property in the riots
prone areas are also instances of forced sale value of the properties.
DISTRESS VALUE
Value of the property offered for immediate sale by the owner who is in
distress is called distress sale value of the property. There is absolute
urgency to liquidate asset in terms of money.
Owner may be in financial difficulty due to heavy loss in business or may
have social or health problems like need of money. Owner may be in financial
difficulty due to heavy loss in business or may have social or health problems
like need of money for daughters, marriage or for family problem or for
hospitalization cost for major illness or surgery.
Distress Sale Value may also reflects value in distress condition of the
property. Sale of property due to communal riots is also distress sale. This
value is always lower than fair market value of the property with identical
specification. Suppose property A is under Bank possession and B is free
from legal as well as financial burden.
When it is open sold in market a willing buyer will prefer to go for buying
property B due to gain benefits from, namely registration and stamp duty
expense, capitalization for tax purpose etc.
GUIDELINE VALUE
“Guideline value” is fixed by revenue officials based on data gathered
broadly with reference to classification of land, grouping of lands, etc.
Based on the statistics of the registration of documents in the previous
years and the average or the highest sale consideration in the documents will
be taken as a factor for fixing the Guideline Value.
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The fixation of market value on the basis of guideline value is dangerous. For
example, if the extent of land is less, the sale consideration mentioned in
the document cannot be taken for comparison and there is no justification in
taking the sale consideration for the document pertaining to the larger
extent of land. Likewise, the land abutting the highways and main roads will
fetch more value whereas the land situated at the fanged of the very same
survey number will not fetch the same higher price.
FOOT NOTE
Guideline value provided by the State government would only serve as prima
facie material available before the registering authority to alert him
regarding the value of the property conveyed in the instruments. It is up to
valuer who values the property and gives opinion regarding the property he
valued considering the various factors and sub factors of the property.
Thus Market Value is based on the purpose, circumstances and condition of
sale as described in brief above and vide table attached herewith. The above
said three sale value can therefore be kept in view while financial appraisal
by financial institute/ bank.
GRATITUDES
Special gratitude to our team – D. M. Kundaliya (Sr. Valuer – Civil),
Bhagirath Rathod (Jr. Valuer – Real Estate), Vipul Rajpara (Jr. Valuer –
P&M) & Jayant Kumar
(Jr. Valuer – Real Estate) for this effort.
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Table
Fair Market Value
Forced Sale Value
Distress Sale Value
Existing
value
of
the
property in open market
without any liability on the
property and is not affected
nor influenced by any
factor.
When the property
under mortgage get
liquidated then it is
forcibly sold for the
repayment of loan to
Bank
or
Financial
Instituton
This value depends on seller
to sale the property under
financial crisis to fulfill his
personal requirements and
time span allotted for such
property is too low.
This value depends on willing
buyer and willing seller
This value depends on
unwilling seller and
buyers take advantage
of this factor under
Forced Sale
This value depends on
unwilling seller and buyer
take advantage of this
factor under Distress Sale
Prevailing Market Value of
the property in respective
locality
Less than prevailing
Fair market value of
the property.
Less than both Fair Market
Value & Forced Sale Value
Sellers sell the property
without any compulsion, in
open market, with free will.
With compulsion as per
requirement of Bank /
Financial Institute for
loan
repayment
or
under other forced
condition
With compulsion as per
requirement of seller under
distress
condition,
with
utmost urgency of sale
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Shri Raju Hariyani - The Practicing Valuer is active as
Practicing Valuer. He is also engineering / Management
Consultants, Chartered Engineers, Approved Valuers,
Insurance surveyors / Loss assessors have provided
professional services to different projects.
He has also awarded services as Committee Member PRACTISING VALUERS ASSOCIATION (INDIA) for
The Guidance Note on Valuation of Plant and Machinery – 2006 and
The Indian Valuation Standards – 2006.
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