This document provides a peek into how the Real Estate assets can be valued. The parameters discussed here differ from the traditional valuation parameters.

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Valuation of Real Estate: How can you
value your RealT?
While laying down on the couch on this lazy Sunday evening, a thought stuck to us: Is there any defined
way to value our Realties? Of course there are few in the form of Govt. DLC rates & CMP (current
market prices) that gives some indication of the possible value of our real estate properties, but still we
miss out many important aspects if we go by these rates. Let’s go back to the basics and first try to slice
the term ‘value in real estate’ to finer levels.
What is ‘Value in Real Estate’?
To state in layman terms, value in real estate is created if any of the following dimensions gains weight.
Let’s have a look at these aspects in finer details.
Real Estate
Value
Utility
Demand
SupplyTransaction
Psyche

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Utility
Any asset/object is worthless if it doesn’t create utility for the owner. If real estate property, howsoever
costly it may be, is unable to create its worth and use for the owner, then its utility decreases. We hope
the following figure can help in explaining this further:
In above case, the utility of cookies decreased with the increase in number of cookies. Same is the case
with real estate utility. If the property can’t be utilized to its full value, its utility decreases.
Supply
Just compare the price of a commodity (like salt) which is abundantly available to a commodity (like
petroleum) which is scarce! Same holds true for Real Estate in the way that properties in an area where
there are several options is cheap as compared to the one where no properties are available.

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Demand
Similar to the above concept of Supply. If a property is in high demand, it is valued more & vice-versa.
Transaction
Suppose you have bought the bicycle - Litespeed Blade (£25,317)
Just imagine how difficult will it be for you to resell it or make its transactions! Same goes with Real
Estate; you invest in some property like this and get stuck to it for your lifetime: literally no value.
Psyche
The social pride and psychological pleasure is something that no one can monetize. It will be different
for each and every individual. Suppose for example, someone will definitely derive immeasurable value
by just having the pride of owning the above bicycle.
Let’s demonstrate the entire above concepts using a common example. Suppose you have a family of 2-
3 members & have bought the home shown below: (Just an imagination; don’t get carried away! ;-))

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Just check its value on different aspects:
Aspect Reason Value
Utility
Such a big house for just 3 members!! Under-utilization of
resources.
▼
Supply
Definitely, houses of this sort are not available down the street.
It is tough to find such houses. They are scarce.
▲
Demand
Demand for such properties depends on buyers, which is
generally very less. You will rarely find a buyer looking for such
properties.
▼
Transaction Tough to transact, definitely! ▼
Psyche
Un-measurable; if you can take care of the income tax folks!!
;-)
▲▲▲▲
Closing Thoughts: These are some of the basics that we thought are vital for any Real Estate Valuation.
There are few more technical methods which we will try and cover in our forthcoming posts.
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