FAIR MARKET VALUE

1. PROFESSIONAL PRACTICE
ASSSIGNMENT

2. Q1. DEFINITIONS:
A.) FAIR MARKET VALUE
 Fair market value (FMV) is an estimate of the market value of a property, based
on what a knowledgeable, willing, and unpressured buyer would probably pay to
a knowledgeable, willing, and unpressured seller in the market.
 An estimate of fair market value may be founded either on precedent or
extrapolation.
 Fair market value differs from the intrinsic value that an individual may place on
the same asset based on their own preferences and circumstances.
 Since market transactions are often not observable for assets such as privately
held businesses and most personal and real property, FMV must be estimated.
 An estimate of fair market value is usually subjective due to the circumstances of
place, time, the existence of comparable precedents, and the evaluation principles
of each involved person.
B.) VALUE AND PRICE?
 Price is the amount of money paid by the buyer to the seller in exchange for any
product and service. The amount charged by the seller for a product is known as
its price, which includes cost and the profit margin. For example- If you buy a
product for Rs 250, then it is the price of that product.
 Value is the usefulness of any product to a customer. It can never be determined n
terms of money and varies from customer to customer. For example- If you are
going to a gym by spending 1000 bucks a month, the output seen is worth the
expense, then it is the value that you create for a gym, regarding the service being
offered there. Here the worth is its value.
 Price is what you pay for goods or services you acquire, and Value is what goods
or services pay you i.e. worth.
 Price is calculated in numerical terms, but Value can never be calculated in
numbers.
 Price is same for all the customers; while the Value varies from customer to
customer.
 Value Vs Price
This can be explained easily with the popular example given by Prof. Adam
Smith about water and diamond. Water is much important for us to survive still it
is of low price, while the diamond is just used for ornamentation and nobody dies
without it, is priced very high. The reason behind this is its value, as the value of
water is much for us, it is available at a low price, while the value of a diamond is
less for us. Therefore, it is priced very high.

3. C.) DEPRECIATION?
. Depreciation refers to two aspects of the same concept:
 The decrease in value of assets (fair value depreciation)
 The allocation of the cost of assets to periods in which the assets are used (depreciation with
the matching principle)
 Depreciation is a method of reallocating the cost of a tangible asset over its useful life span
of it being in motion. Businesses depreciate long-term assets for both tax and accounting
purposes.
Q2. FACTORS AFFECTING VALUATION?
Recent real estate statistics in India prove beyond doubt that property valuations have taken a
turn for the better, listed below are a few factors that can affect the appreciation or depreciation
of a real estate investment or the property valuation.
1.Location:
Everyone has heard the axiom “location, location, location”, and the reason it is such a prevalent
cliché is because there is truth behind it. Proximity to employment centers, medical facilities,
shops, and schools is a determining factor for many families and young couples when buying a
home. Proximity to a wide array of local amenities and good transport links increases the value
of your potential property
2.Geographical Stability
This is a condition specific to areas of geographical or geological instability. Areas that are prone
to the effects of natural phenomena, such as flooding, tsunamis, earthquakes, or volcanic activity,
are poor choices when buying property. You would be considering the aspect of your family’s
safety, in addition to your loan viability and your insurance costs.
3.Age and Condition
-The age of a property doesn’t automatically reduce its value. However, the condition of a
property makes a huge difference. An old but well-maintained property can achieve a valuation
that is the same as that of a new build of equivalent specifications; sometimes, even higher.
-Keeping your potential property well-maintained will keep its value high. When you take out
home loans, you should remember that the property must retain the level of valuation at the
beginning of your loan, or a higher level of valuation.
4.Size and Improvement
-The size of a home affects the initial value of the property. Good renovation also helps to
increase property value. However, making poor renovation choices will cause your potential
house to depreciate in value. For example, increasing the number of bedrooms and bathrooms is

4. a good move to increase the value of your home, whereas removing facilities or reducing the
number of bedrooms is not.
-You can take loans for doing home improvement. When you are approaching a provider of
loans for a home improvement or refinancing package, you should address how much the
modifications will increase the value of your potential or existing property. The benefit should be
equal to or more than your loan.
5.Population Movement
-In any country, population densities move to areas that are more attractive. This is a slow
process and can be difficult to predict or identify. However, you should understand how this
phenomenon may affect the value of your potential property.
-If the employment hub of a city moves from the center of the town to the outskirts, half of the
city will have to travel farther to work, reducing the value of a real estate property in terms of its
‘proximity to employment hub’ factor. The other half of the city in turn receives a boost to their
property values for being closer to the employment hub.
6.Legalities, taxes, urban zoning etc
-Taxation zoning, government development, and economic stability play a role in the longevity
of real estate. Changes to zoning within a town or a city can affect the value of a property.
-Increased taxation in the center of the city will decrease the value of residential property in the
area, making it cheaper for residents to live outside the center and commute. Likewise, rezoning
part of an area previously classed as residential to an industrial development may cause a
decrease in value of adjacent properties.
-Conversely, this could also increase levels of property value by introducing a new employment
hub.
Q3.WHAT IS FMV/RSV/DISTRESS SALE VALUE OF THE FLAT YOU STAY IN?

5.  VALUATION OF MY FLAT:
Value: Rs. 1,00,000
Age: 10 years
Life: 60 years (for RCC structure)
FMV = Value- (value X 90% X Age)/ Life
= 1,00,000- (1,00,000 X 90 X 10)/ 60(100)
FMV= Rs. 85,000
RSV = 80% of value = (0.8)1,00,000
RSV = 80,000
DISTRESS VALUE = 90% of value
= (0.9)1,00,000
DISTRESS VALUE= Rs. 90,000