Anil Dhope
valuersworld@gmail.com
Valuation fee - A Bane to Valuers Fraternity
This article is in continuation to the article published in Indian Valuer May 2008 issue “Minimum fee of Valuation” by the same author. Please also refer to the article published in July 2008 issue “Valuation: Professional fees prescribed by Banks: Uniformity is required” - by my friend, ex vice president of IOV, recipient of many awards & a reputed senior valuer Mr. B Kanaga Sabapathy.
If you are a Govt registered valuer & your annual saving is less than five lakhs rupees it is better to leave the valuers profession and go & join a private builder in a metropolitan city. You will end up earning more than twice this amount easily.
Getting legitimate fees for valuations has become a major problem for professional valuers. All banks and financial institutions have formed their own fee structure and survival for valuers has become difficult in today’s scenario.
It is a serious issue and we are still not united to fight this cause inspite of serious efforts by a few people from our fraternity. We are left to accept dictums passed by the banks & financial institutions. Uneducated transporters - truck walla’s too have their association & for abolishing service tax they called an all India strike recently, which is quite appreciable. When they could do some thing for their cause why can’t we exert pressure and ask RBI/ Govt. to have uniform fee structure for valuations. Insurance Surveyors & Chartered accountants association have done it for the benefit of their members.
Recently there was a news item in Indian Express news dt 6th June 2008, “Desperately wanted 70,000 Civil Engineers to build India”
Civil engineers who form a major share of valuers of immovable properties are rare to find these days. If valuers do not get their due we will have a dearth of good professional valuers very soon. Private companies are giving a package of 10 to 25 lakhs per annum. Our fresh engineers are getting an average package of 3 to 6 lakhs per annum. Similarly in other branches of engineering also, engineers are being paid much more than what they would earn given today’s fees for valuations. Pay scales are increasing day by day in every other profession, so is inflation & cost of living. Valuers fee is the only one which is getting lower day by day.
Think about this:
- Loan arranging brokers get their fee of 5 to 10% in advance before they arrange the loan. They are not accountable for anything.
- Builder is also free of any encumbrance as soon as he sells his property & gets the money.
- Seller & purchaser are ready to pay 2-3% brokerage for their deals, but nobody is ready to pay legitimate fees to a valuer. I have observed that even bank officers favour their client & ask a valuer to charge a lower fee from the client.
- The professional valuer who has the most responsibility in the whole financial transaction is not compensated adequately & in case of any thing going wrong he is held responsible & even faces police enquiry in cases of non-repayment of loans.
- Valuer is a qualified experienced professional and shouldn’t he get his due? Govt registered Valuers licence is granted after 10 years of practice after graduation.
- Why should there be an upper limit in valuers fee ? The responsibility of a valuer increases as the value goes on increasing. A valuer is responsible, till the property is mortgaged with the bank which could be 15-20 years or even more.
Is it not wrong that the valuers fee is being curtailed day by day purely based on the whims and fancy of the powers that be? As a comparison, let us have a look at the fee structure of a country like Malaysia. Note that there is no upper limit to the fee paid to the valuer and the rate of fee paid is very reasonable.
Fee as prescribed in Malaysia :
|
Description
|
Description(Rupees)
|
Amount
|
Unit
|
Rate %
|
Fee
|
|
3/8 % on the first RM 100,000
|
For first
|
0.12
|
Crore
|
0.375
|
4500
|
|
3/10 % on the residue up to RM 2 million
|
On the residue up to
|
2.40
|
Crore
|
0.300
|
72900
|
|
1/4 % on the residue up to RM 7 million
|
On the residue up to
|
8.40
|
Crore
|
0.250
|
222900
|
|
3/16 % on the residue up to RM 15 million
|
On the residue up to
|
18.00
|
Crore
|
0.188
|
402900
|
|
3/20 % on the residue up to RM 50 million
|
On the residue up to
|
60.00
|
Crore
|
0.150
|
1032900
|
|
1/10% on the residue up to RM200 million
|
On the residue up to
|
240.00
|
Crore
|
0.100
|
2832900
|
|
1/15% on the residue up to RM500 million
|
On the residue up to
|
600.00
|
Crore
|
0.067
|
5232900
|
|
1/20% on the residue over RM500 million
|
Over 600 crore on every
|
1.00
|
Crore
|
0.050
|
5000
|
- 1 RM = 12 Rupees (approx)
- There is no upper limit in the fee.
What the valuer should charge as their fee under the Indian Valuation Standard for mortgage loan valuation:
Valuers fee is the fee of trust, accountability & his integrity & not the fee for his labour involved. Keeping this in mind I suggest that the rate of fee should be as follows:
Minimum valuation fee should be Rs. 5000/- without any upper limit, subject to revision every year as below :
Scale of fees :
For first 50,000/- @ 0.5%
Next 1,00,000/- @ 0.25%
Next 1,00,00,000/- @ 0.125%
Next 10,00,00,000/- @ 0.0625%
Remaining amount @ 0.05% without any upper limit.
For Wealth tax & capital gain valuations the fee shall be calculated on fair market value basis on current date. For Cost of construction if the valuation is done on detailed estimate basis the fee shall be 1% of construction value. All the assets pertaining to separate sale deeds shall be treated as separate cases. For all other types of valuations the fee as said above will hold good.
For mass/bulk (more than 25 cases at a time in the same locality) valuations or securitization valuation, where the work is of repetitive nature with not much difference in value, the minimum fee per case should be Rs.3000/-.
Revision/Update Valuations
For all valuations carried out under the Indian Valuation Standard which are required to be revised or updated, the fee payable shall be at a minimum of 15% of the scale of fees or Rs.3000 per case or whichever is higher.
Revaluations
For revaluations carried out under the Indian Valuation Standard, the fee payable shall be a minimum of 30% of the scale of fees or Rs.4000 per case whichever is higher.
ADDITIONAL FEES
In addition to the above, fee may be charged for-
- The cost of printing, preparation of drawings, photographs (4”x6”@Rs 20/-), copies of documents, lithography, travelling and other expenses actually incurred;
- A fee of Rs. 1500 per hour or Rs. 10,000 per working day of 8 hours for negotiations, attendance at meetings with solicitors , consultants or authorities in the same city;
- A fee of Rs. 2000 per hour or Rs. 12,000 per working day of 8 hours for giving evidence before judicial bodies in the same city.
- Out side the city minimum fee of Rs. 15000/- per day for services described in points 2 & 3 above.
- Hotel & traveling expenses extra as per actual. Traveling by own car or taxi mileage per km @ 15% of cost of petrol per litre, similar to that prescribed by Insurance surveyors institutes. Similarly minimum out of pocket expenses & hotel expenses should also be as prescribed by Insurance surveyors institutes.
Note :
The fees stated in items (2) and (3) are chargeable for actual appearance at meetings or before judicial bodies. In the case of postponements, adjournments, etc. (where less than 24 hours notice is given), a minimum fee of Rs. 5000/- is chargeable if the meeting or judicial appearance is in the same town/city as the location of the practice and a minimum of Rs.10,000 is chargeable if the meeting or judicial appearance is outside the location of practice & the valuer has not commenced his journey. If the valuer has already started his journey & cannot be called back, then he must be compensated with full fee.
The minimum or lump sum fee as said earlier are at par with CPWD building cost index based on 1.10.2007 index 100, as the index increases/decreases in the principal place of the valuer, the minimum or lump sum fee shall increase/ decrease in that proportion. The index should be judged in multiple of 10 after round off. The valuers can give their suggestion or comments on this matter in the forum of valuersworld.com - the international hub of valuers.
An Analysis
A fresh graduate civil engineer gets a starting salary of 3 to 6 lakhs per annum. A 10 years experienced civil engineer gets an annual package of Rs.12 to 20 lakhs. If we consider an average salary of 15 lakhs for a salaried civil engineer, a practicing civil engineer should get 35 to 40% more, as he does not get the benefits of leave, sick leave or even holidays, and there is a risk of not having a continuous earning throughout the year. Therefore an earning of Rs.20 lakhs appears to be reasonable for a 10 years experienced valuer. Considering 25 working days in a month, it comes to an average monthly earning of Rs.1.67 lakhs & average daily earning of Rs.6667/-. Now consider establishment expenses of his office (monthly rent of Rs. 20,000/-), care taker staff (Rs. 6,000/- per month) his assistant (Rs. 15,000/- per month), electric charges (Rs. 3000/- per month), telephone charges ( Rs. 2000/- per month) & vehicle expenses ( Rs. 10,000/- per month) which again works out to Rs.56,000/- per month i.e. Rs. 2240/- per day. Total average earning required per day works out to Rs. 8907/- say Rs. 9000/- i.e. Rs. 2,25,000/- per month. An average valuer gets 500 to 750 valuation cases yearly i.e. 2 to 2.5 per day. He can do justice to a maximum of 2 to 3 cases per day giving full attention to verifications, inspection, preparation of reports etc. Beyond this he can not do justice with the limited staff, unless he has experienced trained & reliable staff which will again increase his establishment expenses. Therefore minimum fee of Rs. 5000/- is justified & reasonable.
Valuers fee according to me is inversely proportional to NPA. Less the fee, more the NPA, more the fee, less the NPA. If we pay the valuer the above fee structure, he will do the work with dedication and integrity and will not be lured by extraneous temptations. Thus our financial institutions will be safe and we can considerable reduce the NPA which is eating into the public reserves. NPA has affected the profitability, liquidity and competitive functioning of PSBs and finally the psychology of the bankers in respect of their disposition towards credit delivery and credit expansion. NPA as per RBI is more than Rs.18,256 crores for the year ended 2007. Role of a valuer is like judge, who can not afford to do favoritism even to his friends.
Lastly, no association can survive unless it’s members are happy & progressive. Hence our association should come forward in the interest of the valuer fraternity on their part & we as valuers should conform to professional ethics and interest of our profession as our duty. Else after some time there will be a vacuum in the profession and only those not able to do well elsewhere will get into this profession or it will be so degraded that the valuer will survive at the mercy of the financial institutions.
Anil Dhope
valuersworld@gmail.com
