The Land and Building Method of Valuation is a widely used approach to determine the fair market value of a property by separately assessing the value of land and the value of the building standing on it. This method works well because land appreciates over time and buildings depreciate from age, wear and tear, and usage.
Property valuers, consultants, and platforms like Valuation Mart rely on this approach when they need a detailed, component-wise valuation for sales, taxation, loan approvals, or investment analysis.
Step-by-Step Process of the Land and Building Method
1. Determine the Land Value
The first step is calculating the valuation of land based on:
- Current market rate of land in the locality
- Location advantages (connectivity, demand, zoning rules)
- Plot size, shape, and permissible land use
- Development potential and FSI/FAR norms
This forms the base value since land typically appreciates over time.
2. Assess the Building Value
The next step is evaluating the land and building method of valuation using:
- Cost of construction (based on present rates)
- Type of construction material
- Quality of workmanship
- Building design and structural features
Valuers typically use the quantity survey method or the plinth area rate method to calculate construction cost.
3. Apply Depreciation to the Building
Buildings depreciate from age and physical deterioration.
Valuers calculate depreciation based on:
- Age of the structure
- Expected life of the building
- Condition and maintenance level
- Functional and economic obsolescence
Common depreciation methods include:
- Straight-line method
- Constant percentage method
- Market-based adjustment
4. Add the Values to Arrive at Total Property Value
Final valuation formula:
Total Property Value = Land Value + (Building Value – Depreciation)
This gives a realistic price estimation that reflects both market conditions and physical conditions of the property.
When Is the Land and Building Method Useful?
This method is preferred for:
- Residential or commercial standalone properties
- Valuation for mortgage or loan approvals
- Insurance valuation
- Compulsory acquisition cases
- Assessment of older buildings where separate valuation is needed.
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