Category: Property Valuation (Real estate; Landed property)
It is a widely held view in certain school of thought that valuation is a subjective subject. The implication of this view is that valuation of real estate assets is based largely on personal opinions but, which anchored on:
- the purpose for which the valuation is required,
- all the material facts and circumstances prevailing within and around the subject property as the time of its valuation, and
- the reasonable assumptions made that help in the estimation of a defensible valuation opinion.
The subjective nature of valuation opinion must have arisen due to the fact that Valuers will have to take an independent look at properties to be valued based on their respective peculiarities, conditions and with the necessary assumptions in arriving at their valuation opinions. Therefore, to make a successful career in property valuation, the Valuer must not only be seen to be objective in his outlook of things, but also be reasonable, and in addition, all his assumptions defensible. This is the essential aspect of valuation that is often over-looked. In the course of assessing the worth of any property (for whatever purpose), therefore, each situation must be independently viewed and analysed before arriving at an opinion of value. This duty calls for a sound, analytical mind – an essential ingredients lacking in most of the students’ of valuation. This contributes to their inability to cope with the challenges that are associated with the subject.
It should be noted that there are principles to be observed, assumptions to be made and procedures to be followed in arriving at a realistic and acceptable opinion of value. These principles and procedures, under various circumstances, are very well enunciated in the book titled: ‘PROPERTY VALUATION TECHNIQUES: A Practical Approach’ authored by Kuye Olusegun. Furthermore, students should be aware that there are techniques to be adopted while writing a valuation paper. Philip Marshall offered the following advice in his timeless article titled, “Techniques for Applied Valuation Examinations” published in the Estate Gazette of March 1977, Volume 241, page 751 (excerpts):
- Preliminaries
(i) Read the rubric and comply exactly with the instructions. If you are asked to state your town or state – a frequent request in the rubric of valuation examinations – be sure you do so.
(ii) Read each of the questions carefully and choose the order in which you will answer them.
(iii) Attempt all questions required.
(iv) Plan the answer carefully in outline before plunging into detail.
(v) Use footnotes rather than rely on stitching additional pieces of information into a finished answer.
(vi) Ensure that your answer fits logically within the framework created by any assumptions you have made.
(vii) Allocate your time in relation to the marks allotted to each question.
- Layout of the Valuation
(i) Conventional layouts as per the textbook must be used.
(ii) Workings should be shown separately from the finished valuation itself.
(iii) State at the beginning of the valuation all the yields to be used. These should relate to the property as if it was let at full rental value, and brief reasons for the choice of the chosen yield should be given. Reasons for any subsequent departures from the chosen yield(s) should also be stated.
(iv) All aspects of the valuation must be given careful consideration. It is expected that important facet of a Valuation, such as the assessment of outgoings or the analysis and synthesis of property transaction, should be carried out accurately.
- Valuation and Legislation
Nearly all examination questions require some legal interpretation as well as the application of valuation principles. Thus, a calculation is best preceded by a legal preamble, cross-referenced to relevant case law. For example, any question on compulsory purchase compensation should clearly set out:
(i) The date of valuation
(ii) The relevant rule(s) for compensation (For example, under Section 6 of the Land Use Act, Law of the Federal Republic of Nigeria)
(iii) A brief summary of the relevant planning assumptions.
(iv) Other legislation which might affect the answer, e.g. Rent Control Edicts, Tenement Rating Edicts; Value Added Tax Decree, etc.
- Assumptions
Oftentimes, students have to make assumptions. In fact, some questions are designed primarily to bring out students’ abilities to reason. So do not be afraid to make reasonable assumptions where necessary. Two essential pieces of information often omitted from questions, and therefore requiring assumptions, are FRV and the plot value. For example:
(i) A shop was let in a prime location 10 years ago at N10,000 per annum without premium but no full rental value is quoted. Here it is suggested that you should apply Zone A rents from your locality to the particular unit and calculate the FRV using the zoning approach.
(ii) If no value is given for some development land:
- use the residual approach on the basis of rents known to you; or
- use land prices known to you; or
- use percentage of estimated selling price; or
- combine any of these approaches according to the circumstances.
I firmly believe that if this piece of advice is followed, the current rate of failure; or the dread of the subject will drastically drop.
