Valuation simply means the estimation or assessment of worth of a particular asset for a particular purpose and for a given period of time. It seen as the art and science of estimating or determining the monetary worth or value of an interest in a property for a specific purpose, at a particular date and time taking into consideration, factors that can affect the property (asset) value encompass in ownership, the market/economic condition and other factors that would affect the value of the property (assets) such as age, location, state of repairs, etc.
The Appraisal Institute of Canada (2008) defines appraisal (sic: valuation) as “a formal, impartial estimate or opinion of value, usually written, of an adequately described property, as of a specific date, and supported by the presentation and analysis of relevant data. It is prepared as a result of a retainer, for reliance by identified parties, and for which the appraiser accepts responsibility”. Encyclopedia of Small Business defines valuation as the process of putting a price on a piece of property. The value of businesses, personal property, intellectual property (such as patents, trademarks, and copyrights), and real estate are all commonly determined through the practice of valuation.
The estimate of the value of property is usually required when a property is to be sold, financed, condemned, taxed, insured, or partitioned. To produce an accurate selling price of any building, Valuers may compare the price of the subject property to the prices of similar nearby properties that were recently sold. For new construction and service properties such as churches and post offices, Valuers look at the reproduction or replacement cost of the improvements, less depreciation, plus the value of the land. For investment properties such as residential buildings and commercial buildings, an estimated value is based on the capitalization of the net accruable annual income from such property at an acceptable market rate or yield.
According to Mulyankan Consultants Ltd (n.d.), valuation of varied type of assets either tangible or intangible is required to be undertaken for different purposes. The valuation exercise could be requested for by individual owners, by companies or firms, by Government departments, organisations, institutions, and etcetera. Valuation is an excellent tool in the hands of managing authorities to determine, from time to time or at a given specific time, the value of a specific asset owned by them. Again, this value is determined in relation to particular or specific purpose and is done within the context of a particular time period. Therefore the valuation exercise is described as an exercise which is time frame related and purpose oriented.
Valuation, Costing cum Pricing
- Valuation is an opinion of an expert, who assesses the value of an asset. The Valuer’s assessment depends on the purpose for which the evaluation is sought, his honest judgment and the most important factor – his experiences. Valuation is quite different from pricing or costing, because, value is an assessed worth of an asset (expressed in prevailing monetary terms) in context of a specific purpose and particular time period. This purpose determines the variety of factors that influence an asset’s value and since number of these factors stem directly from a given state of economy prevailing at “that time” the valuation becomes purpose oriented and time frame related exercise.
- Pricing or costing is qualitatively different from valuation. First of all, costing to a great extent is an exact science where most of the parameters such as material costs, transport costs, processing, labour, administrating, marketing, promotion, etc., are fairly well defined and methods of calculating are generally well known and accepted. Whereas in valuation the determination of asset’s worth in relation to given need and at given period of time is an exercise which only a prudent, experienced and well exposed expert Valuer can undertake.
