36793949 handbook on policy standards and procedure for real estate valuation

Handbook on

Policy, Standards and Procedures

for Real Estate Valuation

by Banks and HFIs in India

Final Report November, 2009

Indian Banks’ Association ( IBA )

National Housing Bank ( NHB )

School of Planning and Architecture, New Delhi ( SPA )

Handbook on Policy, Standards and Procedures for Real Estate Valuation by Banks and HFIs in India, November, 2009.

An IBA – NHB – SPA Initiative

2

November, 2009

This document has been prepared by Prof.Dr.P.S.N.Rao, Professor and Head, Department of Housing, School of Planning and Architecture, New Delhi ( SPA ) on behalf of the Indian Banks Association ( IBA ) and National Housing Bank ( NHB ).



3

CONTENTS

________________________________________________________________________

Preface Acknowledgements PART – A - POLICY 1.1 Purpose of Valuation and Appointment of Valuers 1.2 Criteria for Empanelment of Valuers

a) Educational Qualifications and Previous Work Experience b) Minimum Age Requirement c) Membership of Professional Bodies d) Categories of Valuers e) Registration with Government f) References g) Other Conditions 1.3 Duration of Empanelment 1.4 Removal 1.5 Re-Empanelment 1.6 Professional Fees 1.7 Compliance of Standards and Procedures 1.8 Independence and Objectivity 1.9 Obligations of Banks and HFIs 1.10 Continuing Education 1.11 Date of Effect PART –B – STANDARDS 2.1 Principles, Concepts and Methods 2.2 Standard 1 Market Value Basis of Valuation a) Introduction b) Scope c) Definitions d) Statement of Standards e) Disclosure Requirements f) Departure Provisions 2.3 Standard 2 Bases other than Market Value a) Introduction b) Scope c) Definitions d) Statement of Standards e) Disclosure Requirements f) Departure Provisions 2.4 Standard 3 Valuation Reporting



4

a) Introduction b) Scope c) Definitions d) Statement of Standards e) Disclosure Requirements f) Departure Provisions 2.5 Code of Conduct 2.6 Application of Standards to Secured Bank Lending a) Introduction b) Scope c) Definitions d) Application e) Reporting Requirements f) Departure Provisions PART – C – PROCEDURES 3.1 Procedure for Call for Applications for Empanelment 3.2 Procedure for Selection of Valuers 3.3 Procedure for Annual Performance Review 3.4 Procedure for Conflict Resolution 3.5 Procedure for Internal Work Allotment Banks / HFIs 3.6 Procedure for Allotting Work to Empanelled Valuers Annexures : 1) Format of Valuation Report ( for properties more than Rs. 5 crores )

2) Format of Valuation Report ( for properties upto Rs. 5 crores ) 3) Format of Terms of Engagement for Empanelment of Valuers 4) Format of Undertaking to be Submitted by the Valuer for

Empanelment

Appendix : (i) List of Members of IBA Sub Committee on Mortgage and Valuation of

Property (ii) List of Members of IBA Steering Committee Members



5

Preface ------------------------------------------------------------------------------------------

Over the last one decade, the Indian economy has witnessed many changes in the backdrop of globalisation and liberalization, significant amongst them being investments from outside the country. For the conduct of any economic activity, real estate or immoveable property is a basic resource. It is a prerequisite for all activities. Obviously, real estate markets have become extremely active in the recent past. Housing finance markets have also become alive to the emerging scenario and mortgage lending, particularly in the housing sector, has been gaining ground. As a consequent outcome, the subject of immoveable property valuation has been at the centre stage of attention. Valuation of properties is required for a variety of purposes. In the particular case of banks in India, valuation of properties is required initially for ascertaining loan amounts and latter to assess the value of assets periodically. Further in the case of NPAs and under the provisions of the SARFAESI Act also, valuation is necessary. Further, the SEBI guidelines also make valuation necessary for the purpose of Real Estate Mutual Funds ( REMFs). As banks and housing finance institutions ( HFIs ) require the services of immoveable property valuers, they regularly empanel them on their panels in order to get valuations done. Further, with the Valuers’ Bill on the anvil, the importance of streamlining the valuation regime in the country cannot be undermined.

Whilst valuation of immoveable properties is very important to conduct the business of banks, the status of the profession of valuation still has many inadequacies as compared to global benchmarks. Therefore, in order to assess the situation of the valuation profession in India and develop a policy, standards and procedures for valuation, the Indian Banks’ Association has embarked on this initiative with an objective of developing a streamlined regime of valuation in the country, with respect to banks in the first phase, and with respect to related larger issues of valuation at a later date. The objective of this initiative is to take stock of various emerging issues facing

the banking sector by holding consultations with bankers, HFIs as well as the valuer community in various parts of the country. Based on the above, it has been agreed that there is an urgent need to develop a HANDBOOK ON POLICY, STANDARDS AND PROCEDURES FOR REAL ESTATE VALUATION BY BANKS AND HFIs IN INDIA so that working can be streamlined on a pan India basis across the large number of banks and housing finance institutions.

This document has been prepared after due discussion and deliberation by the IBA Sub Committee on Mortgage & Valuation and the Steering Group as well as with various sections of valuers who are key stakeholders. In all, seven meetings were held and all the emerging issues were discussed in detail. Suggestions were received from various stakeholders and now this final report has taken shape.

This document is now placed for approval and implementation by the Indian Banks’ Association. It is hoped that all the Banks and HFIs in India would adopt this document in their respective Boards at an early date and initiate the implementation steps in order to move towards a streamlined regime of real estate valuation in India.

November, 2009 ( S.Sridhar )

Chairman and MD-National Housing Bank, Chairman-Central Bank of India,

Chairman-IBA Sub-Committee on Mortgage and Valuation of Property



6

Acknowledgements ------------------------------------------------------------------------------------------

There are a large number of people who have played a role in contributing to the preparation of this document. We are extremely grateful to all the persons who have been involved in one way or the other for their valuable contributions.

First and foremost, we express our thanks to Shri S Sridhar, Chairman and Managing Director, National Housing Bank and Central Bank of India for playing a key role in initiating this work. Way back in early 2008, he had initiated a series of discussions on the subject which led to the organization of our thoughts and develop a structure to formalize various concepts. As Chairman of the Sub-Committee on Mortgage and Valuation of Property of the Indian Banks’ Association, Shri Sridhar played the role of a leader and motivator to inspire us and take up this monumental task. Ably supporting Shri Sridhar was Shri N Udaya Kumar, DGM, NHB who has been closely working with me on this project. We are very grateful to Shri Udaya for his positive attitude and keen support, particularly in the data collection for this project as well as other administrative matters.

Shri K.Unnikrishnan, Dy. Chief Executive of the Indian Banks’ Association played a crucial role in mobilizing all the senior banking officials from various banks as well as HFIs to participate in all the meetings starting from early 2008 onwards. We express our thanks to him as well as Shri V.Ramachandran, Senior Vice President, IBA. We are also grateful to Mr Pai and Ms Swati who took deep interest in this project and gave us their unstinted support.

All the members of the IBA Sub-Committee on Mortgage & Valuation of Property as well as the IBA Steering Group on Valuation have actively participated in all the

discussions and have cooperated and offered constructive suggestions at various stages of the work. We thank all of them.

We are particularly grateful to all the office bearers of the various valuer associations namely the Institution of Valuers, Institution of Surveyors, Institute of Government Approved Valuers of India, Indian Institution of Valuers and Practicing Valuers Association of India, Royal Institute of Chartered Surveyors and Centre for Valuation Studies, Research and Training for their active support and providing key inputs.

We are also thankful to all the banks and HFIs who have enthusiastically responded to our survey and provided us valuable inputs to take this initiative to its logical conclusion.

We wish to place on record and acknowledge that some portions of this document, particularly the standards, have been developed, based on the International Valuation Standards 2007 ( Eighth Edition ) of the International Valuation Standards Committee.

This handbook has been prepared in the interest of the banking industry, including the HFIs as well as in the interest of the valuation profession and the public at large and it is hoped that over a period of time, the valuation regime in the country would get streamlined.

November, 2009 ( Prof.Dr.P.S.N.Rao )

Professor and Head, Department of Housing School of Planning and Architecture

Indraprastha Estate, New Delhi



7

PART – A

POLICY 1.1 Purpose of Valuation and Appointment of Valuers 1.2 Criteria for Empanelment of Valuers

a) Educational Qualifications and Previous Work Experience b) Minimum Age Requirement c) Membership of Professional Bodies d) Categories of Valuers e) Registration with Government f) References g) Other Conditions 1.3 Duration of Empanelment 1.4 Removal 1.5 Re-Empanelment 1.6 Professional Fees 1.7 Compliance of Standards and Procedures 1.8 Independence and Objectivity 1.9 Obligations of Banks and HFIs 1.10 Continuing Education 1.11 Date of Effect



8

1.1 Purpose of Valuation and Appointment of Valuers

The purpose of valuation to be undertaken by banks and housing finance institutions is to ascertain the value of the property for

• the purpose of ascertaining the amount to be given as a loan

• the purpose of periodically ascertaining the value of the property that has been mortgaged, whether it is increasing or decreasing over the mortgage period

• for the purpose of realizing the value of non performing assets ( NPAs ) and

• for the purpose of resumption of properties in cases of default.

In order to ascertain the value of properties for any of the above purposes, banks and housing finance institutions may appoint external independent valuers for undertaking valuations.

1.2 Criteria for Empanelment of Valuers

In order to ensure that the valuers empanelled with the banks and housing finance institutions are competent and capable of providing high quality of service, the following criteria need to be adhered to while empanelling valuers.

a) Educational Qualifications and Previous Work Experience

It is necessary that a valuer possesses proper educational qualifications which make him competent to carry out the task of valuation of immoveable property. In addition, relevant work experience is also important. Persons possessing the following educational qualifications and work experience shall be eligible for empanelment as valuers : S.No.

Educational Qualification

Work Experience

Remarks

1 Bachelor’s degree in Civil Engineering / Architecture / Town Planning or equivalent.

5 years work experience in the field of valuation after completion of the degree or equivalent

They must complete a 6 months prescribed course in Valuation within a period of 5 years from the date of their empanelment and the cut off date for the same shall be 1st April, 2015.

( for practicing valuers who are above 60 years of age, they must complete a 2 weeks prescribed course on Valuation within a period of 3 years of their empanelment ).



9

2 Bachelor’s degree in Civil Engineering / Architecture / Town Planning or equivalent with pass in Valuation Examination conducted by the Institution of Surveyors, India ( Valuation Branch )

2 years work experience in the field of valuation after completing the examination

-

3 Master’s degree in Valuation awarded by a recognized University in India

2 years work experience in the field of valuation after completing the examination

-

4 Bachelor’s degree in Civil Engineering / Architecture / Town Planning or equivalent with pass in Examinations conducted by the Royal Institute of Chartered Surveyors (RICS) OR American Society of Appraisers ( ASA ) OR Appraisal Institute ( AI ),USA

- Since the process of procurement of membership with these organizations includes training as an integral component, no further experience requirement is being prescribed.

Note : Diploma Holders in Civil Engineering / Architecture or equivalent with 8 years of experience are also eligible for empanelment and shall be permitted to undertake valuations with value upto Rs.50 lakhs only.

Evidence of previous experience needs to be provided to the bank / housing finance institution. In case of companies undertaking valuations, the qualifications and experience shall apply to the lead valuer in the company.

b) Minimum Age Requirement

Age is an important criteria while empanelling valuers. The minimum age for empanelment with banks and housing finance institutions shall be 25 years and there is no maximum age limit for a valuer to remain on the panel.

c) Membership of Professional Bodies

It is important that a valuer actively participates in professional activities in various professional bodies. It shall be necessary that every valuer empanelled by banks / HFIs in India be a member of any one of the undermentioned associations namely : - Institution of Valuers ( IOV ) - Institution of Surveyors ( Valuation Branch ) ( IOS ) - Institution of Government Approved Valuers ( IGAV ) - Practicing Valuers Association of India ( PVAI ) - Centre for Valuation Studies, Research and Training ( CVSRT ) - Royal Institute of Chartered Surveyors, India Chapter ( RICS ) - American Society of Appraisers, USA ( ASA ) - Appraisal Institute, USA ( AI )



10

d) Categories of Valuers

The objective of categorization of valuers is to ensure that whilst lesser value assignments are handled by relatively junior valuers, the senior valuers can handle higher valuations.

The empanelment of valuers therefore shall be in the following categories : S.No. Category of

Valuer Work Experience in Undertaking Valuations

Value of property for assignment of valuation work

1 A More than 10 years No limit

2 B More than 5 years and less than 10 years

Upto Rs.25 crores

3 C Upto 5 years Upto Rs. 1 crore*

*in case of metropolitan cities, the limit shall be Rs. 3 crores.

Note : In case of Diploma Holders, the work experience shall be 8 years and the value of property for assignment of valuation work shall be Rs. 50 lakhs.

Valuers need to furnish proof of experience. e) Registration with Government

Registration with the central / state governments is desirable but not compulsory. However, it may be noted that for undertaking valuations under the SARFAESI Act, valuation has to be obtained from Registered Valuer under the Wealth Tax Act ( Sections 34 AA to 34 AE ). The IBA has made a representation to the Ministry of Finance that valuation by Companies should be permitted. Therefore, pending the above, while assigning / outsourcing valuation work to valuers, it is necessary that banks take the provisions of the SARFAESI Act into account and comply accordingly.

f) References

Carrying out a reference check is extremely important in order to verify the competence of a valuer. Valuers need to submit at least 3 reference letters and banks need to verify the quality of services provided by the valuer in the previous instances before empanelling the valuers on their panel. The referees shall be either (i) bank managers where previously the valuer had done valuations or (ii) companies for whom the valuer had previously done valuations. The reference letter shall be on the letter head of



11

the bank / housing finance company / any other company where valuations have been done and shall be duly signed by a senior level manager / officer.

g) Other Conditions

In addition to the above, the other conditions to be fulfilled by the valuers for empanelment are as under : - the valuer is a citizen of India - the valuer has not been removed / dismissed from service (

previous employment ) earlier - the valuer has not been convicted of any offence and sentenced

to a term of imprisonment - the valuer has not been found guilty of misconduct in

professional capacity - the valuer is not an undischarged insolvent - the valuer has not been convicted of an offence connected with

any proceeding under the Income Tax Act 1961, Wealth Tax Act 1957 or Gift Tax Act 1958.

- the valuer possesses a PAN Card number / Service Tax number as applicable.

At the time of empanelment, the valuer shall give an undertaking to this effect.

1.3 Duration of Empanelment

The duration of empanelment shall be for a period of five years. However, the quality of service provided / performance of the valuers shall be reviewed annually by the banks / housing finance institutions. An annual performance review shall be carried out by a committee comprising of senior officers of the bank. The composition of the committee shall be decided by the concerned bank / HFI. In the performance is not satisfactory, the valuer can be depanelled at the discretion of the bank/HFI.

1.4 Removal

In extreme cases where the valuer has been found to be indulging in unfair practices, guilty of professional misconduct, violating the code of ethics and professional practice, he shall be removed from the panel. The procedure to be followed by the banks / housing finance institutions shall comprise of the following steps :

- issue of show cause notice



12

- hearing - appropriate action, including removal from the panel for a period of five years, if charges are found serious 1.5 Re-Empanelment

Valuers once removed from the panel of any bank or housing finance institution could be re-empanelled again after a specified period, based on the recommendations of the bank Conflict Resolution Committee. Names of valuers removed shall be reported to the Indian Banks’ Association which in turn shall place the names on its caution list.

1.6 Professional Fees

Depending on the nature of work involved and the value of the property, the valuer and the bank / HFI may negotiate the fees. However, the minimum fees to be paid to an empanelled valuer for the valuation of a property will be as under : Category of Valuer - A - Rs. 2,500.00 Category of Valuer - B and C - Rs. 1,500.00 Note : In case of Diploma Holders, the minimum fees shall be Rs.1,500.00

In case the valuer is required to undertake the valuation in a city other than that in which the valuer normally resides, the bank / housing finance institution shall reimburse the outstation travel TA/DA charges as agreed to between both the parties in the beginning itself before the valuer starts the assignment.

1.7 Compliance of Standards and Procedures

All valuers empanelled with any bank / housing finance institution in India as well as banks / housing finance institutions shall comply and abide by the standards and procedures laid down in this document.

1.8 Independence and Objectivity

All valuers empanelled by banks and housing finance institutions shall act with independence, integrity and objectivity. They shall undertake all valuation works with an independent mind and shall not come under any influence of anybody. The empanelled valuer shall also not be related to any of the personnel in the bank /



13

housing finance institution in the department/division dealing with valuation work directly.

1.9 Obligations of the Banks / HFIs

This document casts the following obligations on the appointing agencies viz. the Banks / housing finance institutions as follows : - All appointments / empanelments of valuers shall be done in

accordance with the provisions of this document and its amendments from time to time.

- All instructions to the valuer are to be given by the bank /

housing finance institution in writing. - Supportive documents, wherever possible, shall be provided to

the valuer before the valuation work begins. Any other document will have to be procured by the valuer and sufficient time for the same will be provided.

- A minimum of 3 days and a maximum of 10 days time shall normally be given to the valuer to carry out the valuation. In case of outstation properties or in case of large property valuations, more time shall be given, depending on the circumstances, on a case to case basis. - No security deposits or any other indemnity money should be

taken from the valuers as security for the professional services that they provide.

- Professional fees / payments to the valuers need to be paid by

the banks / housing finance institutions within 45 days of the submission of the valuation report and its acceptance by the banks / housing finance institutions.

- In case the valuation report submitted by the valuer is not in

order, the banks / housing finance institutions shall bring the same to the notice of the valuer within 15 days of submission for rectification and resubmission. In case no such communication is received, it shall be presumed that the valuation report has been accepted.

- All procedures as outlined in this document have to be followed

by the banks and the housing finance institutions.



14

- In case of valuations under SARFAESI Act, provisions under the Act have to be followed.

- Where ever the value of the property is more than Rs.10 crore,

two valuers of Category A or B shall be appointed in order to get the valuation done. In case the difference in the valuation arrived at by both the valuers is not more than 15 percent, the average value is considered. In case the difference is more than 15 percent, then, a third valuer, who shall be also be a senior valuer in the A or B category, shall be appointed and the bank / HFI shall take an appropriate considered decision on the value.

1.10 Continuing Education

All valuers shall constantly update their knowledge base by actively participating in various continuing education programmes including seminars, conferences, workshops, training programmes, capacity building programmes, etc. Banks and housing finance institutions / IBA shall endeavour to facilitate the conduct of such programmes from time to time and document such efforts for wider dissemination.

1.11 Date of Effect

This document shall come into effect from 01 April 2010 onwards. All banks and housing finance institutions shall take all necessary steps including board approvals and capacity building measures and prepare themselves to implement this document from the above date.



15

PART –B

STANDARDS 2.1 Principles, Concepts and Methods 2.2 Standard 1 - Market Value Basis of Valuation a) Introduction b) Scope c) Definitions d) Statement of Standards e) Disclosure Requirements f) Departure Provisions 2.3 Standard 2 - Bases other than Market Value a) Introduction b) Scope c) Definitions d) Statement of Standards e) Disclosure Requirements f) Departure Provisions 2.4 Standard 3 - Valuation Reporting a) Introduction b) Scope c) Definitions d) Statement of Standards e) Disclosure Requirements f) Departure Provisions 2.5 Code of Conduct 2.6 Application of Standards for Secured Bank Lending a) Introduction b) Scope c) Definitions d) Application e) Reporting Requirements f) Departure Provisions



16

2.1 Principles, Concepts and Methods

Valuation is a science and an art and is based on various basic principles, concepts and methods which every professional valuer is familiar with by virtue of his / her training and experience over the years. Valuation is a multi-disciplinary subject which draws from various core disciplines and the combined knowledge leads to the assessment of the value of the property. Some of the key considerations and basic domains of knowledge which need to be reflected in the professional work of a valuer are : - physical aspects of the property - town planning parameters related to the property - legal aspects of the property - economic aspects of the property - socio-cultural aspects of the property - functional and utilitarian aspects of the property - marketability of the property - transferability of the property - market scarcity of the type of property that is being valued - aesthetic quality of the property - engineering and technology aspects of the property - environmental aspects of the property - characteristics of the surroundings of the property Every professional valuer shall bear in mind all the above aspects while collecting data and conducting an analysis in order to arrive at the value of the property.

2.2 Standard 1 - Market Value Basis of Valuation a) Introduction

The objective of this standard is to provide a common definition of market value and explain the general criteria relating to this definition and to its application in the valuation of property when the purpose and intended use of the valuation calls for estimation of market value. Market value is a representation of value in exchange, or the amount a property would fetch if offered for sale in the open



17

market on the date of valuation under circumstances that meet the requirements of the market value definition. In order to estimate market value, a valuer must first determine the highest and best use or the most probable use of the property. That use of the property may be for continuation of the existing use of the property or for some alternative use. These are determined from market evidence. Market value is estimated through application of valuation methods and procedures that reflect the nature of property and the circumstances under which a given property would most likely be traded in the market. The most commonly used methods to estimate market value are the Sales Comparision Approach, the Income Capitalisation Approach ( including the Discounted Cash Flow method ) and the Cost Approach. All market value measurement methods, techniques and procedures shall, if applicable and if appropriately and correctly applied, lead to a common expression of market value when based on market derived criteria. Sales comparisons or other market comparisons should evolve from market observations. The income capitilisation approach should be based on market determined cash flows and market derived rates of return. Construction costs and depreciation should be determined by reference to an analysis of market based estimates of costs and accumulated depreciation. With proper prudence, application of mind and judgment, a valuer has to choose a relevant method applicable to issues emerging and market circumstances which together influence the market value. The manner in which property would ordinarily trade in the market distinguishes the applicability of the various methods or procedures of estimating market value. It is the prerogative of the valuer to choose the appropriate method. The valuer needs to consider each method and see as to which is most appropriate to the given circumstance.

b) Scope

This standard is applicable for the estimation of the value of real estate which is supposed to be for sale in the open market and not for estimation of value of assets as a part of a going concern or for some other purpose.

c) Definitions



18

‘Market value’ is defined as follows :

Market value is the estimated amount for which a property should exchange, on the date of valuation, between a willing buyer and a willing seller, in an arms-length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion. The term “property” is attributed to the asset under reference and includes movable as also immovable assets. Therefore, the word asset is replaced here by the word property. The “estimated amount” refers to a price expressed in terms of money in local currency payable for the property in an arm’s length market transaction. It is the best price reasonably obtainable by the seller and the most advantageous price reasonably obtainable by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as a typical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale. “…a property should exchange …” refers to the fact that the value of a property is an estimated amount rather than a predetermined amount or actual sale price. It is the price at which the market expects a transaction that meets all other elements of the market value definition should be completed on the date of valuation. “…on the date of valuation…” makes the valuation estimate time specific as of a given day and date. The market conditions may change and therefore the value estimate may appear to be incorrect at another day and date and shall/may not hold good for the earlier or later day and date. “…between a willing buyer …” refers to one who is motivated but not compelled to purchase the property. This buyer is neither over eager nor determined to buy at any price. This buyer is also one who purchases in accordance with the realities of the current market and with current market expectations, rather than in relation to an imaginary or hypothetical market that cannot be demonstrated or anticipated to exist.



19

“…a willing seller..” is neither an over eager nor a forced seller, prepared to sell at any price, nor one prepared to hold out for a price not considered reasonable in the current market. The factual circumstances of the actual property owner are not a part of this consideration because the ‘willing seller’ is a hypothetical owner. “ in an arm’s length transaction” refers to a transaction wherein parties who do not have any special relationship with each other which may influence the value. The market value transaction is expected to be between unrelated parties both acting prudently and independently. “ after proper marketing” means that the property intended to be sold would be exposed to market in appropriate manner to effect disposed at best price reasonably obtainable and the “intended sale” is brought to the notice of adequate number of potential buyers prior to the valuation date. “ wherein the parties had each acted knowledgeably and prudently” means that both the willing buyer and the willing seller are reasonably informed about the nature and characteristics of the property, its present use and potential uses. The parties were also made aware of the pulse of the market on the date of valuation. Both are expected to protect their individual interests. “without compulsion” means that both parties to the transaction are willingly motivated by their own appetite to sell on the one hand and to buy on the other hand without any shadow of compulsion to influence them anywhere. Market value is understood as the value of an asset estimated without regard to costs of sale or purchase and without offset for any associated taxes. ‘Highest and best use’ is the reasonably probable and legal use which is physically and technologically possible, appropriately supported by financial feasibility and that which results in the highest value. The market value of a subject property is a function of its highest and best use. This use is the reasonably probable and legal use which is physically possible, appropriately supported, financially feasible and that results in the highest value. The analysis of highest and best use for the subject property



20

involves the analysis of the site as it currently exists, vacant and available for development. It is implied that the determination of the highest and best use takes into account the contribution of a specific use to the community and community development goals, as well as the benefits of that use to individual property owners. An additional implication is that the use determined from analysis represents an opinion, not a fact. The concept of highest and best use represents the premise upon which the market value is based. In this analysis, the relationship of the site and the improvements to the area’s real estate markets and surrounding improvements are to be considered, as well as the physical and locational characteristics of the property. Major considerations in estimating the highest and best use of the site include zoning classification and locational attributes, quality and quantity of surrounding landuse, current availability of infrastructure and supply and demand factors affecting the real estate market. In estimating the highest and best use, one needs to analysis the possible use, permissible use, feasible use and finally, the highest and best use. The following four conditions need to be met in estimating highest and best use; a) the use must be legal b) the use must be probable and not speculative or conjectural c) there must be a profitable demand for such use and d) it must return to the land the highest net return for the longest period of time. In arriving at the estimate of the highest and best use, the subject site has to be analysed a) as if it is vacant and available for development and b) as presently improved.

d) Statement of Standards

In performing and reporting a market value estimate, the valuer shall : - completely and understandably set forth the valuation in a

manner that will be clear in all respects and not misleading

- ensure that the estimate of market value is based on market derived data



21

- ensure that the estimate of market value is undertaken using appropriate methods and techniques which are widely acceptable

- provide sufficient information to permit those who read and rely on the report to fully understand its data, reasoning, analyses and conclusions and comply with the requirements of these standards for reporting

- define the value being estimated and state the purpose and intended use of the valuation, the effective date of valuation and the date of the report

- clearly identify and describe the property and property rights or interests being valued

- describe the scope and extent of the work undertaken and the extent to which the property was inspected

- physically inspect the property oneself or have the property inspected by a qualified valuer in the appointed valuer’s firm

- state assumptions and limiting conditions upon which the valuation is based

- fully and completely explain the valuation bases and approaches applied and the reasons for their applications and conclusions and

- include a signed compliance certificate attesting to the valuer’s objectivity, professional contribution, non-bias, non contingency of professional fees or other compensation as well as applicability of standards and disclosures.

Explanations :

- Market valuations are generally based on information regarding comparable properties. The valuation process requires that a valuer conducts adequate and relevant research for market comparables including searches in the office of the sub-registrar as well as other authentic sources to perform a competent analysis and to draw well informed and supportable judgements. On account of changing conditions and characteristics of markets, valuers must consider whether available data reflect and meet the criteria for market value or not.



22

- The data collected should not be accepted in an ‘as is where is’ form without question but should also consider all pertinent market evidence, trends, recent transactions which are comparable as well as any other information which may be useful in arriving at the right value of the property. Where market data is limited or essentially non existent, the valuer must make proper disclosure of the situation and must state whether the estimate is in any way limited by the inadequacy of data.

- All valuations require exercise of a valuer’s judgement but reports should disclose whether the valuer bases the market value estimate on market evidence or whether the estimate is more heavily based upon the valuers judgement because of the nature of the property and lack of comparable market data.

- Periods of rapid changes in market condition are typified by rapidly changing prices, a condition commonly referred to as disequilibrium. A period of disequilibrium may continue over a period of years and can constitute the current and expected future market condition. In other circumstances, rapid economic change may give rise to erratic market data. If some sales are out of line with the market, the valuer will generally give them less weight. It may still be possible for the valuer to judge from available data where the realistic level of the market is. Individual transaction prices may not be evidence of market value but analysis of such market data should be taken into consideration in the valuation process.

- During periods of market transition characterized by relatively rapidly rising or falling prices, there is a risk of over or under valuation, if undue weightage is given to historic information or if unwarranted assumptions are made regarding future markets. In these circumstances, valuers must carefully analyse and reflect the actions and attitudes of the market and take care that they fully disclose the results of their investigations and findings in their reports.

- In falling markets, there may or may not be a large number of willing sellers. Some transactions but not all, may involve elements of financial duress or conditions that reduce or eliminate the practical willingness of certain owners to sell. Valuers must take into account all pertinent factors in such



23

market conditions and attach such weight to individual transactions they believe proper to reflect the market.

- Liquidators and receivers are normally under a duty to obtain the best price in asset disposals. Sales, however, may take place without proper marketing or a reasonable marketing period. The valuer must judge such transactions to determine the degree to which they meet the requirements of the market value definition and the weight that such data should be given.

- Market Value and Fair Value – The expression market value

and the term Fair Value as it commonly appears in the accounting standards are generally compatible. Fair Value is an accounting concept defined in International Financial Reporting System (IFRS) and other accounting standards and is defined as “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties , in an arms-length transaction”. Fair value is generally used for reporting both Market and Non Market Values in financial statements. Where the Market Value of an asset can be established, this value will equate to Fair Value. Besides, the hypothetical exchange value concluded by two typically motivated market participants, valuations of property may also use measurement principles that consider alternative economic utility or function(s) of an asset, value attributable to unusual or a typical motivation on the part of the parties to a transaction, or values specified by statutory or contractual law.

e) Disclosure Requirements

Valuation reports must be clear and unambiguous and not misleading. Valuations conducted for the purpose of estimating and reporting market value shall meet the requirements as stated in this document. Reports shall contain a specific reference to the definition of market value as set forth in this standard, together with specific reference as to how the property has been viewed in terms of its utility or its highest and best use and a statement of all substantive assumptions. In making market value estimates, the valuer shall clearly identify the effective date of valuation, the purpose and intended use of the valuation and such other criteria as are relevant and appropriate to ensure adequate and reasonable



24

interpretation of the valuer’s findings, opinions and conclusions. Although the concept, use and application of alternative expressions of value may be appropriate in certain circumstances, the valuer shall ensure that if such alternative values are estimated and reported, they should not be construed as representing market value.

f) Departure Provisions

Any departure from this standard for whatever reason shall be clearly stated in writing in the valuation report along with the reasons and justification for the same. The special circumstances which have warranted a departure from established norms needs to be adequately explained.

2.3 Standard 2 - Bases other than Market Value a) Introduction

Most of professional valuations involve market value basis of valuation. However, there can be many circumstances that call for bases other than market value. It is essential that both the valuer and the users of valuations clearly understand the distinction between market value and bases other than market value.

b) Scope

This standard presents and explains bases of valuation of properties other than the market value basis.

c) Definitions Basis of Value – A statement of the fundamental measurement principles of a valuation on a specified date. Fair Value – The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. Investment Value – The value of a property to a particular investor, or a class of investors, for identified investment or operational objectives. This subjective concept relates specific



25

property to a specific investor, group of investors, or entity with identifiable investment objectives and / or criteria. Special Value – An amount above the Market Value that reflects particular attributes of an asset that are only of value to a special purchaser. Synergistic Value – An additional element of value created by the combination of two or more interests where the value of the combined interest is worth more than the sum of the original interests.

d) Statement of Standards

To perform valuations that comply with these standards and report a non market value estimate, the valuer shall – - completely and understandably set forth the valuation in a

manner that will not be misleading

- ensure that the estimate of value is based on data and circumstances appropriate to the valuation

- comply with the requirements of Standard 3 in reporting the valuation

- define the value being estimated and state the purpose and intended use of the valuation, the effective date of valuation and the date of the report

- distinguish that the value so reported is not a market value estimate if the estimate is made on a basis other than market value

- clearly identify and describe the property and property rights or interests being valued

- describe the scope and extent of the work undertaken and the extend to which the property was inspected

- state any assumptions and limiting conditions upon which the valuation is based

- fully and completely explain the valuation basis/approaches applied and the reasons for their applications and conclusions and



26

- include a signed compliance certificate attesting to the

valuer’s objectivity, professional contributions, non bias, non contingency of professional fees or other compensation as well as standards applicability and other disclosures.

Explanations : Examples of bases of value other than market value are a) fair value b) investment value c) special value and d) synergistic value. The additional assumptions required in applying these basis are often more specific than those required for establishing market value as they may relate to the circumstances of a particular party. For this reason, a valuation reported on one of these bases should ensure that it cannot be construed as market value. A basis of valuation describes the fundamental measurement principles of a valuation. These principles may vary depending on the purpose of the valuation. A bases of valuation is not a statement of the method used, nor a description of the state of an asset or assets when exchanged. Market value is the most commonly required bases and is defined and discussed in Standard I. This standard defines and discusses other valuation bases which fall into three principal categories viz. First category - which reflects the benefits that an entity enjoys from ownership of an asset. The value is specific to that entity. Although under some circumstances, it may be the same as the amount that could be realized from the sale of the asset, this value essentially reflects the benefits received by holding the asset and therefore, does not necessarily involve a hypothetical exchange. Investment value falls in this category. Differences between the value of an asset to a particular entity and the market value provide the motivation for buyers or sellers to enter the market place. Second category – which reflects the price that would be reasonably agreed between two specific parties for the exchange of an asset. Although, the parties may be unconnected and negotiating at arms length, the asset is not necessarily exposed in the wider market and the price agreed may be one that reflects the specific advantages or disadvantages of ownership to the parties involved rather than the market at large. This



27

category includes Fair Value, Special Value and Synergistic Value. Third Category – this is the value determined in accordance with a definition set out in a statute or a contract. Fair Value is normally equated to Market Value. For other purposes, Fair Value can be distinguished from Market Value. Fair Value requires the assessment of the price that is fair between two specific parties taking into account the respective advantages or disadvantages that each will gain from the transaction. Fair Value is a broader concept than Market Value. Although in many cases, the price that is fair between two parties will equate to that obtainable in the general market, there will be cases where the assessment of Fair Value will involve taking into account matters that have to be disregarded in the assessment of Market Value. A common application for Fair Value is for assessing the price that is fair for the shareholding in a business, where particular synergies between two specific parties may mean that the price that is fair between them is different from the price that might be obtainable in the wider market. In contrast, Market Vlaue requires any element of Special Value, of which Synergistic Value is an example to be disregarded. Special Value can arise where an asset has attributes that make it more attractive to a particular buyer or to a limited category of buyers than to the general body of buyers in the market. These attributes can include the physical, geographic, economic or legal charecteristics of an asset. Market Value requires the disregard of any element of Special Value because at any given date, it is only assumed that there is a willing buyer, not a particular willing buyer. Synergistic Value can be a type of Special Value that specifically arises from the combination of two or more assets to create a new asset that has a higher value than the sum of the individual assets. When Special Value is reported, it should always be clearly distinguished from Market Value. A bases of valuation should not be confused with assumptions that may also be required to clarify the application of the basis to a specific situation. Some terms that are often used to describe a valuation are not distinct bases of value as they



28

describe the state of the asset or the circumstances under which it is assumed to be exchanged, rather than the underlying measurement objective. The value may be measured on one of the bases defined above at 2.3 (c) or on the basis of Market Value defined in Standard 1. Examples of such terms that are in common use include : - Going Concern Value - Liquidation Value(orderly liquidation and forced liquidation ) - Salvage Value

Each of these are further explained hereunder : Going Concern Value – This describes the situation where an entire business is transferred as an operation entity. Alternative valuation scenarios to a going concern could include a transfer of all the assets as a whole but following the closure of the business or a transfer of specific assets currently used in the business as individual items. Liquidation Value – This describes the situation where a group of assets employed together in a business are offered for sale separately, usually following a closure of the business. Although often associated with forced sale, these terms have distinct meanings. There is no reason why assets cannot be liquidated by an orderly sale following proper marketing. Orderly Liquidation Value ( Realisable Value ) – it is the estimated gross amount expressed in terms of money, that could be typically realized from a liquidation sale, given a reasonable period of time to find a purchaser(s) with the seller being compelled to sell on an as is where is basis as of a specific date. Forced Liquidation Value ( Distressed Value ) – is the estimated gross amount expressed in terms of money that could be typically realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as is where is basis as of a specific date. Salvage Value – This describes the value of an asset that has reached the end of its economic life for the purpose it was made. The asset may still have value for an alternative use or for recycling.




29

Valuation reports must be clear, unambiguous and not misleading. Valuations conducted for the purpose of estimating and reporting value opinion frames on bases other than market value shall meet the requirements of the above provisions in this document.

For valuations carried out on bases other than market value, it is required that the purpose and intended use of the valuations be clearly reported and that full disclosure be made on the basis for the valuation estimate, its applicability and its limitations. Each valuation report prepared on a basis other than market value shall contain a statement of contingent and limiting conditions or similar disclosure. Notwithstanding this provision, the valuer shall not use the statement of contigent and limiting conditions to justify unreasonable departure from these standards. In performing a valuation on a basis other than market value, the valuer shall not make assumptions that are unreasonable in the light of facts ascertainable at the effective date of valuation. All assumptions shall be disclosed in all reports. When valuations are made by an Internal Valuer, there shall be a specific disclosure in the valuation report or certificate of the existence and nature of such relationships.


Any departure from this standard for whatever reason shall be clearly stated in writing in the valuation report alongwith the reasons and justification for the same. The special circumstances which have warranted a departure from established norms needs to be adequately explained.

2.4 Standard 3 - Valuation Reporting a) Introduction

The significance of a valuation report, the final stage of the valuation process, lies in communicating the value estimate / opinion conclusion and confirming the basis of the valuation, the purpose of the valuation and any assumptions or limiting conditions underlying the valuation.



30

The analytical processes and empirical data used to arrive at the value conclusion should be included in the valuation report to guide the reader through the procedures and evidence that the valuer used to develop the valuation. In case any judicial pronouncements are to be used for arriving at any conclusions, the same should be properly referred to and a detailed explanation should be given. Similarly, in case of any conclusions are to be derived from books, documents, reports or government circulars, proper reference is to be made to them and a detailed explanation should be given. The objectives of the standard are (i) to discuss reporting requirements consistent with professional best practice and (ii) to identify essential elements to be included in valuation reports.

b) Scope

The reporting requirements addressed in this standard apply to all types of valuation reports. Compliance with these reporting requirements is incumbent upon both internal as well as external valuers.

c) Definitions

Valuation Report – This is a document, also referred to as a written report, that records the instructions for the assignment, the basis and purpose of the valuation and the results of the analysis that led to the opinion of value. The results of a valuation communicated to a client in writing, ( which includes electronic communication) is called a written valuation report. Written reports are detailed narrative documents containing all pertinent materials examined and analyses performed to arrive at a value conclusion or abbreviated pertinent narrative documents, including periodic updates of value, forms used by governmental and other agencies or letters to clients. The valuation report should explain the analytical processes undertaken in carrying out the valuation and present meaningful information used in the analysis.



31

Valuation reports need to be in a written format. The type, content and length of a report vary according to the intended user, legal requirements, property type and the nature and complexity of the assignment. The terms valuation certificate and valuation report are used interchangeably. Valuation certificate is usually a short letter, though it may also take the form of a detailed report. It includes the valuation date, purpose of the assignment, date of certificate, assumptions upon which the valuation is based and the name, address and qualification of the valuer. Certification of value as used is a statement in which the valuer affirms that the facts presented are correct, the analyses are limited only by the reported assumptions, the valuer’s fee is not contingent upon any aspect of the report and the valuer has performed the valuation incompliance with ethical and professional standards. Specifications for the Valuation Assignment – A valuer must ensure that the analyses, information and conclusions presented in the report fit the specifications for the assignment. The specifications for the value assignment include the following elements : - an identification of the real, personal ( furniture, fixtures, etc.), business or other property subject to the valuation and other classes of property included in the valuation besides the primary property category - an identification of the property rights to be valued - the intended use of the valuation and any related limitation and the identification of any subcontractors or agents and their contribution - a definition of the basis or type of value sought - the date as of which the value estimate applies and the date of the intended report - an identification of the scope and extent of the valuation and of the report and - an identification of any contingent and limiting conditions upon which the valuation is based.



32

Compliance Statement – An affirmative statement attesting to the fact that the valuer has followed the professional requirements and standards in this document. Special, Unusual or Extraordinary Assumptions – Special, unusual or extraordinary assumptions may be any additional assumptions relating to matters covered in the due diligence process, or may relate to other issues such as the identity of the purchaser, the physical state of the property , the presence of environmental pollutants or the ability to redevelop the property.

d) Statement of Standards Every valuation report shall :

- clearly and accurately set forth the conclusions of the valuation in a manner that is unambiguous and not misleading - identify the client, the intended use of the valuation and the relevant dates - record the date as of which the value estimate applies - record the date of the report - record the date of inspection - record the name and qualifications of the person who has done the inspection - specify the basis of the valuation, including type and definition of value - identify and describe the property rights or interests to be valued - describe the physical and legal characteristics of the property and classes of property included in the valuation other than the primary category - describe the scope and extent of the work used to develop the valuation - specify all assumptions and limiting conditions upon which the value conclusion is contingent



33

- identify special, unusual or extraordinary assumptions and address the probability that such conditions will occur - include a discussion on the following :

a) current and future real estate market trends to the extent

foreseeable b) historic, current and future demand for the category of

property in the locality c) potential and likely demand for alternative uses d) current marketability of the property and the likelihood of

its sustainability e) any impact of foreseeable events ( as can be ascertained

on the date of valuation ) f) extent of market based evidence to support the valuation

- include a description of the information and date examined, the market analysis performed, the valuation approaches and procedures followed and the reasoning that supports the analyses, opinions and conclusions in the report - contain a clause specifically prohibiting the publication of the report in whole or in part or any reference thereto or to the valuation figures contained therein, or to the names and professional affiliation of the valuers, without the written approval of the valuer - include the name, professional qualifications and signature of the valuer - include a compliance statement that the valuation has been performed in accordance with these standards - the compliance statement shall confirm that

• the statements of fact presented in the report are correct to the best of the valuer’s knowledge

• the analyses and conclusions are limited only by the reported assumptions and conditions

• the valuer has no interest in the subject property



34

• the valuation was performed in accordance with an ethical code and standards

• the valuer has satisfied professional education requirements

• the valuer has experience in the location and category of the property being valued

• the valuer or his representative who is also a valuer has made an inspection of the property.

- When valuation reports are transmitted electronically, a valuer shall take reasonable steps to protect the integrity of the data and text in the report and to ensure that no errors occur in transmission. Software should provide for security of transmission. - The origin, date and time of the sending as well as the destination, date and time of receipt should be identified. Software should allow confirmation that the quantity of data and text transmitted corresponds to that received and should render the report as ‘read only’ to all except the author. - The valuer should ensure that the digital signature is protected and fully under the valuer’s control by means of passwords, hardware devices or other means. A signature affixed to a report electronically is considered as authentic and carries the same level of responsibility as a written signature on a paper copy report. - The format of presentation of the valuation report shall be as shown in the annexure of this document. - For all valuation reports, sufficient documentation must be retained in the work file to support the results and conclusions of the valuation and must be held for a period of at least five years after completion. - The report should be written in English language and should convey a clear understanding of the opinions being expressed by the valuer and also be readable and intelligible to someone with no prior knowledge of the property. It should demonstrate clarity, transparency and consistency of approach and should



35

reflect an independent, unbiased and fair view of the circumstances.


If a valuer is involved in a valuation assignment in a capacity as an independent consultant, the valuer should disclose the same in writing. The valuer shall disclose the regulatory framework and any departure required, if any, from these standards, to comply with local legislation, regulation or custom.


Any departure from this standard for whatever reason shall be clearly stated in writing in the valuation report alongwith the reasons and justification for the same. The special circumstances which have warranted a departure from established norms needs to be adequately explained.

2.5 Code of Conduct

All valuers empanelled with banks and housing finance institutions shall strictly adhere to this code of conduct :

• to express an opinion only when it is founded on adequate knowledge and honest conviction

• to refrain from misrepresenting qualifications or work experience

• to treat all information procured during the course of the business as confidential

• to observe integrity and fair play in the practice of the profession

• to refrain from undertaking to review the work of another valuer of the same client except under written orders from the bank or housing finance institution and with knowledge of the concerned valuer

• to give unbiased valuation report conforming to standards and conforming to the objective opinion of the property and



36

not to attempt merely to accommodate the interests of the client

• to steer clear of situations where interests and duty clash

• to conduct oneself in such a manner which will not prejudice the professional status or reputation of the profession

• to follow this code as amended or revised from time to time 2.6 Application of Standards for Secured Bank Lending

a) Introduction The objective of this application is to provide a framework for valuation of properties that are placed as security for procurement of a loan. It is necessary for valuers to consistently apply the basic valuation concepts and standards and provide a clear and objective opinion on the value of the property concerned.

b) Scope

This application covers situations where valuation is required of properties which are or are proposed to be held as security for lending by way of mortgage.

c) Definitions Market value – The definition of market value is as defined in Standard I of this document. Mortgage – This term is generally understood to be a pledge of an interest in property as security or collateral for repayment of a loan with a provision for redemption on full repayment. In the event the borrower defaults, the lender has the right to recover the loan by disposing the property pledged through a due process of law.

d) Application In performing valuations of properties for lending purposes, valuers will normally adopt the ‘market value’ of such property in accordance with the standards given in this document.



37

However, it the cirucmstnces are such that a departure from ‘market value’ basis is justified, the same shall be clearly stated and explained alongwith the alternative basis used. The valuation opinion arrived at shall be reported as per the provisions of this document on Valuation Reporting. Loans from banks and financial institutions are secured by specific property. Valuers need to have a general understanding of the requirements of such institutions and possibly the structure of loan terms and agreements. Explanations

- The manner in which the property would ordinarily trade in the market will determine the applicability of the various approaches to assessing the Market Value. Based upon market information, each approach is to be used.

- All valuation methods should be based on market observations. Construction costs and depreciation, wherever applicable, should be determined by reference to an analysis of market based estimates of costs and depreciation.

- When a lender desires a valuation on a basis other than Market Value, the Standard 2 in this document needs to be applied.

- Investment Properties – Income producing properties are usually valued as individual properties. Lending institutions may at times like to have a property assessed as part of a portfolio of properties. In such instances, the distinction between the value of the individual property, assuming it is sold individually, and its value as part of the portfolio, should be clearly expressed. While the valuer may comment on the expected demand and marketability of the property over the life of the loan, it is normally outside the scope of the valuation exercise to advise on the ability of a tenant to meet future lease obligations.

- Owner Occupied Properties – Such properties valued for lending purposes will normally be valued on the assumption that the property is transferred unencumbered by the owner’s occupancy ie. the buyer is entitled to full legal control and possession. This does not preclude consideration of the existing owner as part of the market,



38

but it does require that any special advantage attributable to the owner’s occupancy, which may be reflected in a valuation of the business, be excluded from the valuation.

- Leases Between Related Parties – Where property offered as security is subject to a lease to a party connected to the borrower, the valuer should consider that the lease creates a more favourable income stream than would be obtainable on a letting to an unconnected third party in an arm’s length transaction and the lender should be alerted and it may be appropriate to disregard the existence of the lease in a valuation of the property as security.

- Special concessions – Developers of properties often give incentives such as assured rental income guarantee, fitting out costs, absorption of part of initial loan costs, etc. Such price inflations by special considerations or concessions are to be ignored in assessing the Market Value.

- Specialised properties – Such properties may have limited marketability and significant value only as part of a business. For loan security purposes, such properties will normally be valued on a vacant possession basis and a valuation based on highest and best alternative use is applicable. The valuer should alert the lending agency as to the risks involved, if any, in lending to specialized properties.

- Trade Related Properties – Some properties where the

property is approved and purpose designated for a particular use ( such as hotels or cinemas, for instance ) is usually valued based on profitability but excluding personal goodwill. In such cases, the lender should be made aware by the valuer the difference in value that may exist between an operating concern and a non operating concern where the business is closed. If the income from a property is critically dependant on a tenant or tenants from a single sector or industry or some other factor, which could cause income instability in future, the valuer should address the same suitably. In some cases, an assessment of the value of the property based on an alternative use, assuming vacant possession may be appropriate.

- Development Properties – Properties held for redevelopment

or sites intended for development of buildings should be valued taking into account existing and potential development possibilities. Assumptions as to planning and



39

other factors must be reasonable and validated by market behavior and clearly stated. The approach to the valuation of development properties will depend on the state of development of the property at the date of valuation and may take into account the degree to which the development is pre-sold. The valuation approach may need to be discussed with the lender prior to undertaking the valuation. The valuer must make a reasoned estimate of the development period from the date of valuation, evaluate the market behavior during the period of development, consider risks involved during development and highlight any other factors which may have an effect on the value of the property.

- Forced sales – Lending institutions may request valuations

on a forced sale or liquidation for disposal of the security. As the impact of a constraint on the price obtainable will depend upon the specific circumstances under which the sale takes place, it is not realistic for the valuer to speculate on a price that could be obtained without knowledge of the reasons for the constraint or the circumstances under which the property might be offered for sale. Assumptions made in such a situation should be clearly stated and valuer should draw the lender’s attention to the fact that the opinion is valid only at the valuation date and may not be relied upon in the event of a future default, when both market conditions and sale circumstances may be very different.

e) Reporting Requirements : In reporting market value for lending security purposes, the valuer shall make all disclosures as required under the standard on Valuation Reporting.

f) Departure Provisions : In following this application, any departures must be in accordance with provisions in the standard on Valuation Reporting.



40

PART – C

PROCEDURES 3.1 Procedure for Call for Applications for Empanelment 3.2 Procedure for Selection of Valuers 3.3 Procedure for Annual Performance Review 3.4 Procedure for Conflict Resolution 3.5 Procedure for Internal Work Allocation in Banks/HFIs 3.6 Procedure for Allotting Work to Empanelled Valuers



41

3.1 Procedure for Call for Applications for Empanelment

All banks and housing finance institutions shall have a year round system of receiving applications from intending valuers seeking empanelment. All such applications shall be received in the prescribed format and kept in a list. The application format shall be always available on the website and should be easily downloadable. As and when the requirement arises, the number of valuers required shall be empanelled and once empanelled, the valuer shall be on the panel for perpetuity unless and until removed or dismissed. All applications shall be accompanied by relevant documents to substantiate the educational qualifications and experience, etc. Two passport size photographs shall also have to be provided by the applicant. All applicants shall be received by the Branch Manager for processing.

3.2 Procedure for Selection of Valuers

Based on the requirement of valuer services, applications shall be scrutinized in terms of their ‘criteria for empanelment’ as described in this document and a list shall be drawn up. From this list, the required number shall be empanelled while the remaining applicants shall remain on the wait list. At a latter date, when the need for empanelling more valuers arises, valuers from this panel shall be empanelled.

3.3 Procedure for Annual Performance Review



42

Whilst the duration of empanelment is for perpetuity, every year, the performance of the valuers shall by reviewed by the bank / housing finance institution.

In order to carry out the performance review, every bank and housing finance institution shall constitute a committee called Annual Valuation Review Committee, comprising of senior officers along with at least one independent knowledgeable person of repute. This committee shall review the performance of the valuers and recommend continuity or removal, as the case may be.

3.4 Procedure for Conflict Resolution

There are bound to be a variety of conflicts when hundreds of valuers are empanelled by various banks and housing finance institutions across the country. In every bank / HFI, there shall be a Bank Valuation Conflict Resolution Committee for addressing all conflicts and arriving at an amicable solution. The composition of this committee shall be decided by the respective banks / HFIs. In case of any misconduct by any valuer, the bank or housing finance institution shall have the prerogative to recommend removal of the valuer from the panel. The steps involved in the process will be as given hereunder :

- Issue of Show Cause Notice – the valuer shall be given due

opportunity to show cause as to why action should not be initiated against him or her.

- Hearing - the valuer shall be given an opportunity to be

heard so that his / her point of view is made known.

- Deliberation by the Committee - the matter shall be deliberated by the concerned Conflict Resolution Committee

In case the Committee opines that the charges against the valuer are serious, the valuer may be removed from the panel and depending on the seriousness of the case, he may be empanelled once again after a gap of 5 years. The committee may also consider imposition of suitable fines depending on the severity of the case against the valuer. Names of all such valuers shall be placed in a caution list of the IBA.



43

3.5 Procedure for Internal Work Allocation in Banks/HFIs : All banks / HFIs shall take necessary steps to develop internal work allocation procedures so that the appointment of valuers, maintenance of registers, computerization of operations, committees, etc. can be carried out smoothly. They shall also nominate on senior officer as the Nodal Officer for all valuation related matters for coordination internally as well as with the IBA. 3.6 Procedure for Allotting Work to Empanelled Valuers :

Every bank / housing finance institution shall maintain a Register of Valuation Work Outsourcing. Work shall be offered to valuers based on their performance and if for any reason, a valuer does not take up the work, the same should be recorded and then the work allotted to another valuer.



44

ANNEANNEANNEANNEXURE XURE XURE XURE –––– 1111

Format of Valuation ReportFormat of Valuation ReportFormat of Valuation ReportFormat of Valuation Report ( for all properties of value more than Rs. 5 crores )

S.No. Chapter Content

I Introduction 1. Name of Valuer 2. Date of Valuation 3. Purpose of Valuation 4. Name of Property Owner/s 5. Name of Bank/HFI as applicable 6. Name of Developer of the Property

( in case of developer built properties )

II Physical Characteristics of the Property

1. Location of the property in the city 2. Municipal Ward No. 3. Postal address of the property 4. Area of the plot/land ( supported by a plan ) 5. Layout plan of the layout in which the property is

located 6. Details of Roads abutting the property 7. Demarcation of the property under valuation on a

neighbourhood layout map 8. Description of Adjoining properties 9. Survey no. if any 10. Details of the building/buildings and other

improvements in terms of area, height, no. of floors,

plinth area floor wise, year of construction, year of making alterations/additional constructions with details, full details of specifications to be appended alongwith building plans and elevations

11. Plinth area , Carpet area and Saleable area to be mentioned separately and clarified

12. Any other aspect

III Town Planning Parameters

1. Master plan provisions related to the property in terms of landuse,

2. Planning area/zone, 3. Development controls, 4. Zoning regulations, 5. FAR/FSI permitted and consumed, 6. Ground coverage, 7. Transferability of development rights if any, Building

bye-law provisions as applicable to the property viz. setbacks, height restrictions, etc.

8. Comment on surrounding landuses and adjoining properties in terms of usage.

9. Any other aspect

IV Legal Aspects Description of legal aspects to include:



45

of the Property 1. Ownership documents, 2. Names of Owner/s 3. Title verification, 4. Details of leases if any, 5. Tenureship in terms of freehold or leasehold,

Restrictive covenants if any, 6. Agreements of easements if any, 7. Notification for acquisition if any, 8. Notification for road widening if any,

9. Heritage restrictions if any., 10. All legal documents, receipts related to electricity,

water tax, property tax and any other building taxes to be verified and copies as applicable to be enclosed with the report,

11. Comment on transferability of the property ownership,

12. Building plan sanction, illegal constructions if any done without plan sanction/violations.

13. Any other aspect

V Economic Aspects of the Property

1. Details of ground rent payable, 2. Details of monthly rents being received if any, 3. Taxes and other outgoings, 4. Property insurance, 5. Monthly maintenance charges, 6. Security charges, etc. 7. Any other aspect

VI Socio-cultural Aspects of the Property

Descriptive account of the location of the property in terms of the social structure of the area, population, social stratification, regional origin, age groups, economic levels, location of slums / squatter settlements nearby, etc..

VII Functional and Utilitarian Aspects of the Property

Description of the functionality and utility of the property in terms of :

1. Space allocation, 2. Storage spaces, 3. Utility of spaces provided within the building, 4. Car parking facilities, 5. Balconies, 6. Any other aspect

VIII Infrastructure Availability

a)Description of aqua infrastructure availability in terms of 1. Water supply, 2. Sewerage/sanitation,

3. Storm water drainage, b)Description of other physical infrastructure facilities viz.

1. Solid waste management, 2. Electricity, 3. Roads & Public transportation connectivity, 4. Availability of other public utilities nearby,

c)Social infrastructure in terms of 1. Schools, 2. Medical facilities, 3. Recreation facilities in terms of parks and open

spaces.

IX Marketability of the Property

Analysis of the market for the property in terms of

1. Locational attributes 2. Scarcity, 3. Demand and supply of the kind of subject property.



46

X Engineering and Technology Aspects of the Property

Description of engineering and technology aspects to include

1. Type of construction, 2. Materials and technology used,

3. Specifications, 4. Maintenance issues, 5. Age of the building 6. Total life of the building, 7. Extent of deterioration, 8. Structural safety 9. Protection against natural disasters viz. earthquakes, 10. Visible damage in the building if any, 11. Common facilities viz. lift, water pump, lights,

security systems, etc., 12. System of airconditioning, 13. Provision for fire fighting,

Copies of plans and elevations of the building to be included.

XI Environmental Factors

1. Use of environment friendly building materials, Green building techniques if any,

2. Provision for rain water harvesting, 3. Use of solar heating and lighting systems, etc.,

Presence of environmental pollution in the vicinity of the property in terms of industries, heavy traffic, etc.

XII Architectural and aesthetic quality of the property

Descriptive account on whether the building is modern, old fashioned, etc., plain looking or with decorative elements, heritage value if applicable, presence of landscape elements, etc.

XIII Valuation Here, the procedure adopted for arriving at the valuation has to be highlighted. The valuer should consider all the three generic approaches of property valuation and state explicitly the reasons for adoption of / rejection of a particular approach and the basis on which the final valuation judgement is arrived at. A detailed analysis and descriptive account of the approaches, assumptions made, basis adopted, supporting data ( in terms of comparable sales ), reconciliation of various factors, departures, final valuation arrived at has to be presented here.

XIV Declaration I hereby declare that :

a) The information provided is true and correct to the best of my knowledge and belief.

b) The analysis and conclusions are limited by the reported assumptions and conditions.

c) I have read the Handbook on Policy, Standards and Procedures for Real Estate Valuation, 2009, fully understood the provisions of the same and followed the provisions of the same to the best of my ability and this report is in conformity to the Standards of Reporting enshrined in the above Handbook.

d) I have no direct or indirect interest in the property valued.



47

e) I / my authorized representative by the name of

…………………….who is also a ‘valuer’, has inspected the subject property on …………

f) I am a ‘valuer’ as per the provisions of the above referred Handbook in Category …… and fulfill the education, experience and other criteria laid out therein.

g) I abide by the Code of Conduct as provided by the

above referred Handbook.

Name and address of the Valuer …….......………………………………………………………….. ……………………………………………………………………… ……………………………………………………………………… Name of Valuer Association of which I am a bonafide member in good standing ……………………………………. Membership Number ………………………………………….. Signature of the Valuer ………………………………… Date ………………...Tel.No…………………………………... Mobile no………………………….……………………………… e-MAIL …………………………………..…………………

Enclosures :

-Layout plan of the area in which the property is located -Building plan

-Floor plan -Photographs of the property being valued -Any other relevant documents/extracts



48

ANNEXURE ANNEXURE ANNEXURE ANNEXURE –––– 2222

Format of Valuation ReportFormat of Valuation ReportFormat of Valuation ReportFormat of Valuation Report ( for all properties of value upto Rs. 5 crores )

1 Customer Details

Name

Apl.No.

Case Type

2 Property Details

Address

Nearby Landmark

3 Document Details

Layout Plan Yes/no Name of Approving Auth. Approval No.

Building Plan Yes/no Approval No.

Construction Permission Yes/no Approval No.

Legal Documents Yes/no List of Documents

4 Physical Details

Adjoining Properties

East West North South

Matching of Boundaries Yes / no Plot demarcated

Yes/no Approved Landuse

Type of Property

Plotted / Flat

No. of rooms Living / Dining Bed rooms Toilets Kitchen

Total no. of floors

Floor on which the property is located

Approx. age of the property

Residual age of the property

Type of structure – RCC framed / Stone / BB masonary

5 Tenure / Occupancy Details

Status of Tenure Owned / Rented No. of years of occupancy Relationship of tenant to owner

6 Stage of construction

Stage of construction Under construction / completed If under construction, extent of completion

7 Violations if any observed

Nature and extent of violations

8 Area Details of the Property

Site area Plinth area Carpet area

Saleable area

Remarks

9 Valuation

( mention the Valuation as per Government Approved Rates also )

10 Assumptions / Remarks

11 Declaration 1) The property was inspected by the undersigned on………………….. 2) The undersigned does not have any direct/indirect interest in the above property.



49

3) The information furnished herein is true and correct to the best of our knowledge.

12 Name,address & signature of Valuer

Signature of the Valuer

Date of valuation

13 List of Documents enclosed

14 List of Photos enclosed

ANNEXURE ANNEXURE ANNEXURE ANNEXURE –––– 3333

Terms of Engagement for Empanelment of ValuersTerms of Engagement for Empanelment of ValuersTerms of Engagement for Empanelment of ValuersTerms of Engagement for Empanelment of Valuers

Empanelled valuers shall be engaged by the banks / HFIs on the following terms :

- Commencement of Work – the valuer shall commence the valuation work

after a letter of appointment is issued to the valuer by the bank/HFI

- Time for undertaking the work – the time for completing the work shall

be as prescribed in the Handbook on Policy, Standards and Procedures

for Real Estate Valuation by Banks and HFIs in India, 2009 issued by

the Indian Banks’ Association and the National Housing Bank.

- Duties of the Valuer- the valuer shall perform his duties as described in

the above Handbook

- Assistance by Bank/HFI officials – the valuer shall be provided support

as described in the above Handbook

- Confidentiality and Non Disclosure – the valuer shall maintain

confidentiality of the work being undertaken and shall not disclose

information to any other person other than the person who has issued

the appointment letter to the valuer.

- The valuer shall ensure that the employees of his organization also follow

the policy of confidentiality and non disclosure.

- The Bank/HFI shall procure from the owner and provide to the Valuer,

copies of key documents such as the sale letter/sale deed/water

bill/electricity bill/particulars of the owner/rental agreement/lease

deed/plans of the building as applicable, alongwith the Appointment

Letter to the Valuer. All other documents have to be procured by the

Valuer.



50

- The valuer shall complete the assignment within the stipulated time

period as agreed to in the Appointment Letter.

- In case the Valuer takes up the assignment but does not deliver the

Valuation Report in a reasonable amount of time even after three

reminders, the bank shall take necessary steps to recommend the case

for adjudication by the Conflict Resolution Committee and in the

meanwhile, appoint another Valuer to undertake the assignment.

- In case the Valuer takes up the assignment but is not in a position to

deliver due to any genuine reason, hardship or contingency, the Valuer

shall inform the Bank/HFI of the same and some extension of time may

be given to the valuer to complete the assignment.

- The Valuer shall not sub-contract the work to any other Valuer but shall

carry out the work himself.

- Payment to the Valuer for providing valuation opinion shall be governed

as per provisions as laid down in the Handbook and as revised from time

to time.

- All communications between the Bank/HFI and the Valuer shall be in

writing / e-mail.

- Both the parties ie. The Bank/HFI as well as the Valuer shall fully abide

by the policy, standards and procedures laid down in the Handbook.

- In case of any disagreement/dispute which cannot be resolved amicably

between the Bank/HFI and the Valuer shall be referred to the Conflict

Resolution Committee of the Bank/HFI. Such a referral can be made

either by the Bank/HFI or the Valuer.



51

ANNEXURE – 4

Format of Undertaking to be Submitted by the Valuer for

Empanellment

UNDERTAKING

I, ...................................................................................son / daughter of ………………………………………………... do hereby solemnly affirm and state that - I am a citizen of India, - I have not been removed / dismissed from service/ employment

earlier, - I have not been convicted of any offence and sentenced to a

term of imprisonment, - I have not been found guilty of misconduct in professional

capacity, - I am not an undischarged insolvent, - I have not been convicted of an offence connected with any

proceeding under the Income Tax Act 1961, Wealth Tax Act 1957 or Gift Tax Act 1958 and

- My PAN Card number / Service Tax number as applicable is ………………….

Dated :…………………………….

Signature………………………………. Name……………………………………. Address………………………………….



52

……………………………………………. ……………………………………………. …………………………………………….

Appendix – 1

IBA Sub-Committee on Mortgage and Valuation of Property

Convenor

Shri S Sridhar

Chairman & Managing Director Central Bank of India

and National Housing Bank

Members

Shri D C Jain Chief General Manager – Head Audit IDBI Bank

Shri Nandan Srivastava General Manager Bank of Baroda

Shri D S Anandamurthy General Manager Canara Bank

Shri S N Mishra General Manager Indian Overseas Bank

Shri Rakesh Sethi Dy. General Manager Bank of India Shri Sudhir Jade Chief Manager Bank of India

Ms. Annuradha Rao Dy. General Manager State Bank of India

Shri M S Rao Chief Law Officer Union Bank of India

Shri Ashish Mehrotra Business Head & Vice-President Citibank N A

Shri Santosh G Nair Vice – President & Business Head HDFC Bank Ltd.

Shri Abhay Sakare Dy. General Manager ICICI Home Finance Company Limited



53

Indian Banks’ Association

Shri K Unnikrishnan Dy. Chief Executive

Shri V Ramchandran Sr. Vice-President

Appendix – 2

IBA Steering Group on ‘Project on Developing Valuation Standards

for Real Estate Financing in India’

Steering Group Members

Shri P K Ramaswamy Iyer Dy. General Manager Bank of Baroda

Shri Rajkumar S Chouhan Asst. General Manager Bank of India

Shri T Surendranathan Asst. General Manager Canara Bank

Shri P Narasimha Rao Asst. General Manager Indian Overseas Bank

Shri P S Joshi Asst. General Manager Union Bank of India

Shri Harish Kaushik Asst. General Manager State Bank of India

Shri M C Rustagi Asst. General Manager Punjab National Bank

Shri Abhay Sakare Dy. General Manager ICICI Home Finance Company Limited

Shri Rahul Kelkar Asst. Vice-President HDFC Bank Ltd.

Shri N Udaya Kumar Dy. General Manager National Housing Bank

Prof. Dr. P S N Rao Professor & Head (Department of Housing) School of Planning and Architecture, NDelhi

Shri Sanjay Joshi Dy. General Manager HDFC

Shri Naresh Girdhar Dy. General Manager Deutsche Postbank Home Finance Ltd.

Shri Rajeev Sathe Chief Operating Officer Dewan Housing Finance Corporation Ltd.

Ms. Bharti Mannan Asst. General Manager

LIC Housing Finance Ltd.

Indian Banks’ Association

Shri K Unnikrishnan Shri V Ramchandran



54

Dy. Chief Executive

Sr. Vice-President