When the deed is executed for 1.2 crores last month, is it right to certify its value for 5.0 crores?
Question :
It is a commercial vacant site situated on a busy road. The sale deed was executed only last month and the sale consideration mentioned in the deed was Rs. 1.2 crores. It was a transaction between close relatives and it was undervalued. Now, I have been approached by the buyer for a valuation report. I am very sure that the present market value is 5.0 crores. I have applied a 4-way test also and the answer is ‘Yes’ for all four questions. When the deed has been executed for 1.2 crores only last month, is it right for me to certify for 5.0 crores? I am confused.
Opinion :
Value varies with purpose.
1. If the purpose of a valuation is to certify the cost, then you may certify the “Cost” as Rs. 1.2 crores plus the expenses incurred towards registration and also brokerage charges.
2. If the purpose of a valuation is to certify the market value for your own use, then you may certify the market value as 5.0 crores provided it can be sold in the open market under normal circumstances.
Arguments are :
i) The property was sold among the close relatives and hence it was a closed market value. It is not at “an arms-length” transaction.
ii) When present market value is desired to have arrived, only open market value is to be ascertained and that too, it must be in at “an arms-length” transaction. Know to defend your valuation.
3. If the valuation is for bank purposes as collateral security :
Certain banks have given clear guidelines through their circulars, that if the property was purchased and registered recently, then the sale value mentioned in the sale deed alone is to be considered within 12 months of the sale deed date. But this circular is said to be a private circular to the branch managers and reported that they were not issued to the valuers.
In this case, it is up to the bank managers to take a decision whether to consider the book value as per the deed according to the circular issued to them or market value as per the valuers’ report.
It is my suggestion that the valuer can certify two values :
1. The sale deed was executed only last month and the cost is Rs. 1.2 crores.
2. The present market value of the property is in my opinion is Rs 5.0 crores.
Record the cost and market value in the report and it is upto the branch manager to take due decision according to his requirement. The valuer cannot be faulted at any future date.
One thing a valuer should remember always while certifying the market value as collateral security …. his value must be based on evidence and reasoning and he should know how to defend in case of any inquiry by anyone at any future date.
(B. Kanaga Sabapathy)
Request
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