This is yet another method of comparing sale instance properties with subject property to arrive at Fair Market Value based on market data. In this method, 50 to60 factors are identified and they are grouped in seven categories viz. Land, Building (Engineering and Architectural aspects), Location, Locality Services, Economic legal and social factors. Four or five-level of each factor are also identified.
The principle aim of this method is to ensure that the subjective element in comparision of the properties is estimated as far as possible and thereby ensure that the comparison is as objective and practical as possible. In view of this aims ascertaining the relative importance of all the relevant factors/aspects and their levels felt by the local population in respect of residential/or commercial properties in a locality concerned and also ascertaining the properties given by them to all the relevant factors of comparision and their levels and assigning appropriate weightage to all the relevant factors of comparision and their levels in accordance with such importance and priorities is the most important and crucial step in this method.
The efficiency and usefulness of this method in practice depend on assigning appropriate weightages to all the factors of comparision and their levels strictly according to the importance and priorities given to the factors of comparision andto their levels by the people of the concerned locality/area. In this method all relevant factors of comparision and their levels are duly considered withoutexcluding any of the factors. Therefore it is the most practicable method without involving any assumptions and adhocism.
Important steps in the method:
The important steps in this method are
1. Identifying relevant factors of comparision and their levels
2. Assigning appropriate weightages to relevant factors of comparision and their levels
3. Preparing weightage Criteria
4. Working out total weightage score for each of the properties rented/let out and/or sold, and that of the property to be valued.
5. Comparing the properties on the basis of total weightage score, areas and the dates of transaction and estimating fair market value.
Identifying Relevant Factors of Comparison
The 50 to 60 factors of comparison are grouped into four broad categories. Each of the factors has five or six level of ranking ranging from highest to lowest level. These preferences and levels are to be identified by the valuer by making local inquiry with the residents of the locality. The sample details of levels for some factors are given below.
In case of size factor (Plot area) levels may vary from 300 smt to 500 smt( Highest level ), 1000 smt,2000 smt, and 5000 smt (Lowest level) In case of location factor, levels could be decided on the basis of distance from the civic amenities,school,market or work place.250 m distance (Highest level), 500m,1 K.M.,2 K.M., and above 2 K.M.distance (Lowest level).
In case of utility service factor say water supply, the levels could be based on say 24 hours water supply (Highest level),2hours in morning and 2 hours in evening supply, 2 hours supply once in the whole day, no supply by tap water inside the residence but supply through community water tap (Lowest level).
The levels for the other factors could be decided similarly. The relevant factors of comparision and the levels at which those factors are available or provided should be identified on the lines of these discussions.
These is the most important steps in this method. In order to ensure that the weightages assigned to each and every factor or comparison and to each of its levels are appropriate and practical, a valuer is expected to inquire, during his inspection of site, about the relative importance given by the local population to all the relevant factors of comparison and their level, ascertain local preferences in respect of those factors and their levels and assign weightages to the relevant factors of comparison and their levels strictly in accordance with such relevant importance and preferences indicated by local people. The weightages so assigned may and normally will vary from locality to locality in one and the same urban/rural area according to local circumstances prevailing in a locality and according to availability of facilities, amenities, services etc. Assigning weightages, to the relevant factors of comparison and to their levels subjectively only on the basis of knowledge and experience of a valuer needs to be avoided in any case.
Weightage Criteria Table
Once the appropriate and reasonable weightages are assigned to the relevant factors of comparision and their levels, the next step is to prepare a weightage criteria table which normally varies from locality to locality. The relevant factors of comparison are arranged in the top horizontal row in a logical systematic order with respective weightages assigned to them shown below each of the factors. The levels of the factors to be considered are arranged in vertical columns, from the highest level with higher weightage in the top row and the lowest level with the lowest weightage in the bottom row. The weightages assigned to the levels of each of the factors are shown in the respective column of each of the factor.
Total weightage score of properties:
Having assigned appropriate weightages according to local relative importance and preference to each of the relevant and their levels, the next step to compute or workout the total weightage score of the properties to be valued, and total weightage score of the properties involved in the instance of and sales. The multiplications of the weightage assigned to the relevant factor of comparison and the weightage assigned to the level of that factor available to a particular property give weightage score of that factor in respect of that particular property. For example,weightage score for specification of a building and for the water supply are say 5and 6 respectively and the weightages assigned to the level of these factors in respect of a particular property are said 4 and 3 respectively, then the weightage scores of these two factors will be 20 ( 5 x 4 ) for the specifications and 18 ( 6 x 3 )for the water supply in respect of that particular property.
The summation of weightage scores of all the factors of comparison in respect of a property gives the total weightage score of that particular property. The total weightage scores of all the relevant factors of comparison and their levels can be worked out in respect of the property to be valued and the properties involved inthe instance of rentals and sales. It is advisable to prepare a table showing total weightage scores of the properties involved in the instance of rentals and sales and the property to be valued.