---
title: "Define valuation and purposes of valuation"
subject: "Construction Management"
chapter: 13
key: "semester_8/construction_management:valuation-purposes"
source: https://www.bctengineer.com/q/semester_8/construction_management/valuation-purposes
site: BCT Engineering
---

# Define valuation and purposes of valuation

Construction Management · Chapter 13: Valuation

- Asked in: 2078 Chaitra, 2 marks; 2070 Magh, 2+3 marks (asked 2 times)
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/valuation-purposes
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-13

## Question

Define valuation. Why is valuation done (what are the purposes of valuation)?

## Short answer

Valuation is estimating fair price. Purposes: buying/selling, mortgage, taxation, rent fixation, insurance, compensation for acquisition, partition/inheritance, company accounts, betterment/development, court cases, and investment decisions.

## Answer

**Valuation** is the estimation of the fair price or worth of a property at a given date, based on the facts about the property, the market and its income.

#### Purposes of valuation
1. **Buying and selling:** to fix a fair price for the buyer and the seller.
2. **Mortgage and bank loans:** banks need the value of the security; loan is given as a percentage (e.g. 50–70%) of the value.
3. **Taxation:** for property tax, land revenue (malpot), wealth and capital gains tax, and registration fees.
4. **Rent fixation:** to fix a fair rent for the property.
5. **Insurance:** to know the value to be insured and to settle claims after a loss.
6. **Compensation for land acquisition:** to fix the compensation when the government acquires land for a road, project or public work under the Land Acquisition Act.
7. **Partition and inheritance:** to divide a property fairly among co-owners or heirs.
8. **Company accounts:** to show the assets in the balance sheet, merger, sale or liquidation.
9. **Betterment, development and urban planning:** to estimate the increase in value caused by public works.
10. **Court and legal cases:** disputes about sale, rent or compensation.
11. **Investment decisions** and valuation of assets for auction.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Why do banks need valuation?
   A. To fix interest rate on deposits
   B. To know the value of the security; loan is a percentage of the value
   C. To avoid insurance
   D. To measure area
   Answer: B. Banks lend a fraction (e.g. 50-70%) of the valued security. (Key point: Mortgage)

2. What is valuation used for in land acquisition?
   A. To design the road
   B. To measure rainfall
   C. To decide bond
   D. To fix compensation when government acquires land
   Answer: D. Compensation under the Land Acquisition Act is based on valuation. (Key point: Land acquisition)

3. What is valuation used for in insurance?
   A. To select the colour
   B. To know the value to be insured and settle claims after loss
   C. To calculate bricks
   D. To increase rent
   Answer: B. Insured value and claim settlement need a valuation. (Key point: Insurance)