CHAPTER TWO
LITERATURE
REVIEW
2.1 Introduction
2.2 Investment
Method of Valuation
2.2.1 The
Premise of the Investment Method of Valuation
2.2.2 The
Applicability of the Investment Method of Valuation
2.2.3 The
Conditions for the Use of the Investment Method
2.2.4 Data
Input requirements for the Investment Method
2.2.5
Investment Valuation Model
2.2.6
Underlying Basic Concept of Investment Method
2.2.7
Associated Problems with the Use of the Investment Method
2.2.7.1
Determination of Gross Income
2.2.7.2
Determination of Outgoings
2.2.7.2.1
Quantification of Outgoings
2.2.7.3
Determination of Capitalization Rate/Yield
2.3
Benchmarking Valuation rating
2.4 Empirical Valuation
rating Studies in the United Kingdom.
2.5 Empirical
Valuation rating Studies in the USA
2.6 Empirical
Valuation rating Studies in Australia
2.7 Empirical Valuation rating Studies in Nigeria.
2.8 Observed Gaps/Limitations in the Previous rating/Variation Studies.
2.9 Behavioural Research into Valuation rating
2.10 Client
Influence in Valuation rating
2.11 Types of
Influence Adopted by Clients
2.12 Chapter
Summary
CHAPTER THREE
CONCEPTUAL FRAMEWORK
3.1
Introduction
3.2 Expectations on Maximum Acceptable Margin of Error
3.3 Expectations on
rating and Variance
3.4 Behavioural
and Other Causes of Valuation rating and
Variance.
3.5 Models of
Client Influence on Valuation rating.
3.6 Summary and Modeling of Research Concept
3.7 A-Priori
Expectations.
3.8 Chapter
Summary
CHAPTER FOUR
METHODOLOGY
4.1 Introduction
4.2 Choice of Methodological Approach
4.3 Study Populations and Data
Requirements
4.4 Sample
Frames
4.5
Method of Sampling
4.6 Sample Size
4.7 Data Collection Instruments
4.8
Questionnaire Design
4.9 Techniques of Measuring A-Priori
Expectations
4.10
Methods of Data
Analysis.
4.11 Chapter
Summary
CHAPTER FIVE
PRESENTATION, INTERPRETATION AND DISCUSSION OF DATA
5.1
Introduction
5.2 Preliminary
Survey Details
5.3
Profile of Respondents
5.3.1
Profile of Estate Surveyors and Valuers
5.3.1.1
Response Rate According to Location
5.3.1.2
Estate Surveying and Valuation Firms’ Areas of Specialization
5.3.2
Profile of Bank Officials
5.3.3
Profile of Property Companies
5.4
Testing of the A-Priori Expectations
5.4.1 A-Priori
Expectation 1: Valuers, courts and clients have higher needs for
valuation rating in that order
5.4.2 A-Priori
Expectation 2: Margins of Error for
all Stakeholders would not exceed ±10 % of Market Price
5.4.3 A-Priori
Expectation 3: The higher the
Stakeholders need for rating, the lower
the maximum acceptable margin of error
5.4.4
A-Priori Expectation 4: Valuations
are good proxies for open market sale prices
5.4.5
A-Priori Expectation 5: Valuations
of one firm are good proxies for valuations of other firms
5.5
Examination of Causes of Inconsistency/In rating in
Investment Method of Valuation
5.5.1
Methods of
Determining Capitalization (Yield) Rates by Estate Surveyors and Valuers in
Lagos Metropolis.
5.5.2
Methods of Determining Gross Rental Incomes for rating valuations by Estate
Surveyors and Valuers in Lagos Metropolis.
5.5.3
Methods of Determining Outgoings Deduction from the Gross Rents for Investment
Valuation Purposes.
5.6
Client Influence on the Valuation Processes
5.6.1
Sources of Client Influence
5.6.2 Mode of Influence often adopted by Clients
5.7 Discussion
of Results
5.7.1
Ascertaining the Perception of Stakeholders Maximum
Acceptable Margin of Error in Valuation Estimates
5.7.2
Examination of Valuation Estimates as Proxy for Open Market Sale Prices of Real
Properties
5.7.2
Examination of whether Valuation Estimates of one firm are
Proxies for Valuation Estimates of other firms
5.7.4
Identification and Examination of Clients’ modes of Influence on Valuation
Estimates
5.8 Chapter Summary
CHAPTER SIX
SUMMARY, RECOMMENDATIONS AND CONCLUDING
REMARKS
6.1
Introduction
6.2 Summary
6.3 Summary of Findings
6.4 Recommendations
6.5 Opportunities for Further Research
6.6 Concluding Remarks
References
APPENDICES
APPENDIX 1: LETTER OF
INTRODUCTION and QUESTIONNAIRE: (Estate Surveyors & Valuers)
APPENDIX II:
(PROPERTY DEVELOPMENT COMPANIES’ QUESTIONNAIRE)
APPENDIX III:
(COMMERCIAL BANKS’ QUESTIONNAIRE)
APPENDIX IV: Sale
Prices and Valuation Estimates of the 12 Uninspected Sampled Properties
CHAPTER
ONE
INTRODUCTION
1.1 Background to the Study
It was in 1987,
in the wake of some well publicized research works by actuaries Hager and Lord that
Drivers Jonas first sponsored Investment Property Databank (IPD) to carry out
detailed research into valuation accuracy in the United Kingdom. The Royal
Institution of Chartered Surveyors (RICS), as the valuers’ professional body,
later took over the role of sponsor. In doing so, they were adopting one of the
principal recommendations of Sir Bryan Carlsberg’s Working Party on valuation
practices.
In 1985,
Udo-Akagha, one of the leading estate surveyors and valuers in Nigeria, while
writing a foreword to “Guidance Notes on Property Valuation” noted that;
“there ought to be no reason why two or more
valuers valuing the same interest in a property for the same purpose and at the
same time should not arrive at the same or similar results if they make use of
the same data and follow the same
valuation approach”.
In the same
vein, in 1998, an editorial on page 2 on “property valuation and the
credibility problems” in The Estate Surveyor and Valuer, the professional
Journal of the Nigerian Institution of Estate Surveyors and Valuers stated inter
alia that
“the valuation process has been the focus of
recent debate and controversy both within and outside the profession as cases
of two or more valuers giving different capital values with wide margins of
variation for the same property abound”.
Comments of
this nature have led many to ask whether estate surveyors and valuers are
interpreters or creators of value. From the above statements, it is evident
that the twin problems of inaccuracy and inconsistency (variance) in the
valuation practice exist in Nigeria. Even in developed countries such as
Britain, Australia, Canada and USA, the valuers’ estimates, methods and
processes have been increasingly criticized for over the past thirty years as
clients seek advice in increasingly sophisticated investment markets (Baum and
Macgregor, 1992).
In the same
vein, there has also been a focus on the seeming inability of valuation
estimates to accurately represent/interpret market prices or serve as a
security for bank loans. Bretten and Wyatt (2002) observed that valuers do not
operate with perfect market knowledge while valuers in many instances follow
clients’ instructions, analyze available information, make judgments and
respond to different pressures from stakeholders when preparing a valuation in
a market atmosphere of heterogeneity. However, the study of valuation accuracy
should be a continuing one as is the case in the United Kingdom (UK) where the
RICS of late teamed up with the Investment Property Databank (IPD) to produce
investigations into valuation accuracy in Britain on a two (2) yearly
basis.
The effort in
this work will accordingly be the study of valuation accuracy and consistency
and the factors influencing their occurrences, to cover a more up to date time
period with a view to validating/invalidating, expanding and updating the
results in the pioneering efforts of Ogunba (1997), Ogunba and Ajayi (1998) and
Aluko (2000). Accordingly, the present effort will be to deal with valuation of
properties in the Lagos metropolis which is regarded as the most active
investment property market city in Nigeria.
1.2 Statement of the Research Problem
Property
valuation performs an essential role in property transactions. It provides
advice on prospective purchases and sales in addition to supplying material
information to underpin property lending decisions. Moreover, since the 1960s
and 1970s, property valuations have been used to proxy the exchange price of
property investments for performance measurement purposes. This more recent use
of valuation indices is a major difference between the property performance
measurements and the performance measurement of other investment media markets
wherein measurement are undertaken by reference to market transactions.
The differences
have led some analysts to argue against property as a portfolio asset, which in
turn has led to the under-representation of property in many portfolios.
Moreover, the lack of confidence in the use of valuation-based indices might be
evidence that the portfolio industry does not readily accept valuations as
accurate indicators of prices (and hence returns) in the absence of accuracy
studies proving that they are proxies for each other.
Ajayi (2003) noted that increased
valuation accuracy and consistency are the demand of the more sophisticated and
enlightened clients in the emerging property market of today and the property
market has seen remarkable change within the past forty years. Europe and the
US have witnessed the emergence of institutional investors, the management of
investments on portfolio basis and the recent advent of new property finance
methods including securitization and unitization. Clients are now getting much
more sophisticated and analytical in their decision making approaches and
therefore increasingly require more accurate and consistent valuation estimates
from their consultant valuers.
While Accountants, Stockbrokers and other
financial consultants have progressively refined their financial analytical
techniques to meet and satisfy their changing clients’ expectations, it is rather
unfortunate that the property professionals - represented in Nigeria by the
Estate Surveyors and Valuers - have been rather slow and lukewarm in their
attitudes and approach to the required accuracy changes in valuation practice
thereby resulting into complaints from clients about valuation estimates (Ojo,
2004).
The issue of accuracy is also imperative
because the profession as it is today is facing stiff competition in all facets
of its traditional areas of practice, taking into consideration the fact that
the estate agency aspect of the profession has become an “all comers” affair
and moreover, that Engineers, Lawyers, Facility Managers and even some stark
illiterates (“quacks” of the profession) do engage in property management
functions. At the same time, Quantity Surveyors are agitating to take-over the
insurance valuation aspect of the profession, whilst Engineers are also seeking
to be plant and machinery valuers. In the face of such stiff competition, the
estate surveyors can ill afford to be found negligent in the accuracy of their
work.
The implication is that the valuation
surveyor is faced with both increasing client requirements for accuracy as well
as stiffer competition from related professionals. These twin issues of stiff
competition and consistency cry out, as it were, for the valuer to respond with
pace setting levels of accuracy, and sophistication in his valuation advice.
The problem of inaccuracy in valuation manifested itself recently in the case
of the valuation of the assets of Nigeria Telecommunication Limited (NITEL) for
privatization/disposal purposes when members of staff of the company as well as
the interested stakeholders and members of the public in Nigeria openly voiced
out their complaints against the excessively low valuation figures/estimates
the estate surveyors ascribed to the assets of the company. It was on the
strength of such complaints that the then Federal Government under President
Olusegun Obasanjo canceled the whole privatization exercise and ordered a re-valuation.
Other instances of valuation estimate
inaccuracy according to Ojo (2004) came from financial institutions who
continuously complained about the accuracy and reliability of mortgage
valuation figures supplied them, which they considered as under-representing
the values of such foreclosed collateral securities. He went further to note
other instances of alleged inaccuracy which were being investigated by the
Professional Practice Committee of the Nigerian Institution of Estate Surveyors
and Valuers.
In addition, Ogunba (1997) and Ogunba and
Ajayi (1998) alluded to the fact that the average layman nowadays casts doubt
on valuation estimates emanating from estate surveyors and valuers. No matter how
unjustifiable the criticisms might be, that estate surveyors and valuers are
often influenced to hike their valuation estimates because of the need to
increase or generate their fees, such criticisms or allegations are a pointer
to the fact that inaccurate valuation estimates call to question the valuation
skill, integrity and competence of Estate Surveyors and Valuers especially in
their core area of practice. From the legal perspective, there is danger that
valuers in Nigeria are increasingly found liable for negligence in cases where
their valuation figures or estimates mislead unsuspecting and uninformed
clients, notwithstanding the exclusion clauses often entrenched in Nigerian
valuation reports (Okoror, 1995).
Besides, there is the looming possibility that
the property investing public, faced with continuously unreliable estimates,
may decide to dump the services of estate surveyors and valuers in favour of
services from other consultants such as the Accountants, Financial Analysts,
Engineers or Quantity Surveyors who, they think may be able to provide more
realistic and reliable estimates. It is
therefore important for estate surveyors and valuers to wake up from slumber
and take the issue of valuation accuracy and consistency more seriously.
Other envisaged
consequences of continuous and unchecked inaccuracy and inconsistency are
adequately summarized by Aluko (2004) as:
·
Constraints on property performance analysis due to
uncertainty surrounding valuations. This may be damaging to the operation of
both the property market and property indices;
·
Adverse influence on the relevance of the valuer because if
a valuation can only have a limited likelihood of accuracy, the client may
question why a valuation is necessary at all;
·
Adverse influence on the credibility of the valuer as
inaccuracy in valuation means that professional advice would be meaningless as
the whole basis of property advice rests on the assumption that valuations are
a good proxy for prices; and,
·
There could be damage to confidence imposed on the property
market.
There seems to
be relatively sparse research work in Nigeria on valuation accuracy,
reliability and credibility as against such studies in the UK, US, Canada and
Australia especially in the past three decades. Also, in the face of the
globalization of efforts in this very important and core area of the profession;
Nigeria and the rest of Africa cannot afford to feel unconcerned and lukewarm
if they want to be relevant in the emerging scheme of things.
In the face of such increasing needs for
accuracy, reliability and credibility in valuations, we cannot therefore afford
to fold our arms in the face of these problems, observations and criticisms and
expose ourselves and the profession to ridicule. It is against the foregoing
background that the following questions agitate the mind of the researcher in a
bid to ensure that valuation estimates become more accurate and standardized in
Nigeria. The study focuses in the main on valuations and sale prices of
properties as well as valuations between firms by examining the degree to which
they are proxies for each other and if not, the reasons why they fail to be
proxies. In view of the foregoing, the questions to be addressed include:
·
What is the maximum acceptable margin of error (acceptable
to all stakeholders) of valuations relative to realized prices?
·
Are Nigerian valuations a good proxy for valuations of other
firms?
·
Are rating valuations
a good proxy for property market transaction prices?
·
What are the causes of inaccuracy in property rating valuations in Nigeria, if it at all
inaccuracy exists?
·
What are the condition(s) necessary to ensure correct
estimates of market price?
·
Are client influences significant contributors to inaccurate
valuations in Nigeria?
1.3 Aim and Objectives of the Study
The main aim of
this study is to examine the degree of accuracy and consistency in valuers’
estimation of realized property market prices in Lagos metropolis with a view
to improving on the quality of valuation practice.
The specific
objectives of the study are to:
1. Ascertain the perceptions of
stakeholders as to the maximum acceptable margin of error in valuation
estimates relative to sale prices within the study area
2. Determine if open market valuations are
good proxies for real property investment markets in the study area
3. Examine if open market valuation estimates
of one firm are good proxies for contemporaneous valuations of other firms in
the study area, and
4. Identify and examine clients’ mode of
influence on valuation estimates.
The essence of
the study is to address the above issues and problems by focusing mainly on the
questions of reliability/consistency benchmarks and the nature and causes of
reliability and consistency of the professionally prepared rating valuations in the Lagos metropolitan
property market.
1.4 Significance of Study
The RICS teamed
up with the Investment Property Databank (IPD) to carry out investigations into
valuation accuracy in Britain on a bi-yearly basis. Since the Nigerian
Institution of Estate Surveyors and Valuers (NIESV) and the Estate Surveyors
and Valuers Registration Board of Nigeria (ESVARBON) are yet to follow suit,
there is the need for estate surveyors in academics to continuously investigate
valuation accuracy and consistency and share with their colleagues in practice
results and implications of their findings and induce them to fund future
research efforts on this issue.
The huge sums
of money invested in real estate on an annual basis are enormous. The current happenings
in the US with regards to bubble burst from the mortgage sector of the
country’s economy are already affecting the fortunes of other countries. To
avoid such risks in Nigeria, this study serves as an eye opener for estate surveyors
and valuers in practice, other professionals and stakeholders in the real
estate business as to the extent of risk they are about to take.
Valuer’s
clients are handicapped in decision making by the absence of adequate and
reliable information in the property market, unlike the capital market where
values of securities can be imputed quickly and easily from the prices at which
identical assets trade in regular active markets. Information about market values in the
property market is much more difficult to ascertain due to the heterogeneity of
properties, the infrequency with which they trade, and the difficulty in
observing or tracking transaction prices due to secrecy. Additionally, the decentralized nature of
most property markets give rise to a dispersion of privately agreed transaction
prices about notional market values. The implication of this is that capital
market operators and portfolio managers require valuations as a proxy for
price. The Nigerian Institution of Estate Surveyors and Valuers therefore needs
to encourage research to determine the veracity of inaccuracy claims and if
proven, to take corrective action. The present research is in this direction,
in an attempt at assisting the profession to justify its property price
predicting relevance.
The
outcomes of earlier studies carried out by Ogunba (1997),
Ogunba and Ajayi (1998), Aluko (2000) and Ogunba (2004) in the area of valuation
accuracy/variation have tended to be contradictory in the sense that while
Aluko’s work found that valuation estimates emanating from Nigerian valuers
were accurate others concluded otherwise. It is necessary to clarify the
position as to what can be considered as the acceptable margin of error and
identify plausible reasons for valuation inconsistency amongst valuers
operating in the same region and with similar educational background. This is
necessary to instill confidence in the ever increasing clients searching for
genuine information about the real estate market trends over time and in the
near future.
1.5 Scope of
Study
No matter how
ambitious a researcher could be, no single study can be all encompassing.
Hence, study limits have to be defined clearly. Investments in real estate are
an ongoing issue on daily basis all over the country. However, time constraint
does not allow for the coverage of the entire country. For this reason, the
scope of of this research is restricted to Lagos metropolis where the vast
majority of Nigerias’ valuation practice is generated. The Directory of the NIESV
(2002 edition) shows that out of 439 registered estate surveying and valuation firms
in Nigeria, 52% of the firms are based in Lagos metropolis alone. Lagos
Metropolis consists of five convenient business districts namely: Marina/Broad Street, Lagos Mainland
consisting of Yaba/Ebute Meta, Apapa/Ijora,
Ikoyi/Victoria Island and Ikeja
from which deductions are made for each of the districts and for the whole of
the Lagos metropolis. The five districts represent the major business sectors
of Lagos metropolis, where the bulk of valuation activities normally takes
place and where most practicing surveyors are concentrated. Lagos Island harbours majority of banks,
multi-national companies, insurance companies, and also where wholesale and
retail commercial activities are concentrated. Lagos Mainland on the other hand
represents the intermediary between the former Federal/State capital territory
and the new Lagos State capital. Ikeja is the present Lagos State capital with
its attendant employment opportunities as well as concentration of commercial
activities. Apapa/Ijora axis represents the commercial neighbourhood that has
developed overtime as result of the presence of Apapa seaport acting as the
drawing force of both people and commercial activities.
In the choice of property to be studied,
Ajayi (1990) noted that wide and detailed studies provide stronger basis for
rigorous comparative analysis and more generalizeable conclusions. However, the
study concentrated on residential property valuation only. This is necessary
because sampling all sectors of property valuation may be impossible for a
single researcher given the nature of the study and the time limit to complete
the study.
In the choice of valuers, three basic
classifications of estate surveyors and valuers has been identified namely
private-sector estate surveyors and valuers (i.e. those estate surveyors and
valuer working in private practice), public-sector estate surveyors and valuers
(i.e. estate surveyors and valuers working in government establishments such as
Ministries, Corporations etc) and the academicians. The study focused on
valuers in private practice because they are in the majority and are actually
the people mostly engaged for valuation assignments by various stakeholders.
There are
various methods of valuation such as Investment,
Cost/Contractor, Residual, Profit and Comparative methods. For this study,
emphasis is given to the Investment
Method of valuation because most investors look up to the returns they can make
on whatever they put into any venture within reasonable time limits. An
intensive study of the five methods of valuation, on the other hand would be
too wide and cumbersome.
The purposes
for demanding for a valuation exercise are varied. There are valuations for
rating and taxation, compulsory acquisition, insurance, balance sheet, merger,
mortgage, auction, etc. This study is limited to valuation for property sale
purposes only. This is to avoid wide study of all purposes of valuation which
could lead to conclusions which may be general and without specific
implications or applications in the real estate business.
Notwithstanding the above limitations, the
validity of the study would not be affected.
1.6 The Study
Area
Lagos State covers an area of about 3,577
square kilometers, representing 0.4% of Nigeria’s territorial landmass
according to Esubiyi (1994). The State shares boundary in the North with Ogun
State, West with the Republic of Benin, and stretches for over 180 kilometers
North of the Guinea Coast of the Atlantic Ocean. Politically, Lagos State
according to Ogunba (1997) had expanded as a result of rural-urban drift and
had become a metropolis enclosing settlements such as Mushin, Oshodi, Ikeja,
Agege, Shomolu, Bariga, Epe, Ikorodu and Badagry. The 2006 National census put
the population of the State at 9,013,534.
Lagos
Metropolis has been chosen as the study area because it is the most important
commercial city in Nigeria thus providing a sufficiently vibrant economic base
and valuation activity which the researcher hopes would provide a vigorous and
robust study base Lagos apart from being Nigeria’s former capital, is the
largest metropolitan city in Africa. The metropolis is located within the
coastal frontage of Lagos State and is bounded in the West, by the Republic of
Benin, in the East by Ondo State and Atlantic Ocean in the South and in the
North by Ogun State. The metropolis covers an approximate land area of 2,350
square kilometers spreading over four main islands of Lagos, Iddo, Ikoyi and
Victoria islands.
On the economic
scene, Lagos metropolis has grown from a small farming and fishing settlement
to become an important centre of commerce, finance and maritime in Nigeria,
housing the headquarters of several banks, industries and commercial
enterprises. According to the NIESV Directory (2002), most Estate Surveyors and
Valuers aggregate around major business districts of the metropolis such as
Lagos Island, Ikeja, Apapa/Ijora, and Lagos Mainland where there is the
expectation of a very active property market.
1.7 Definition of Key Terms
In a study of
this nature, it is considered necessary and desirable to define key terms with
a view to clarifying both operational and constructive definitions to avoid
ambiguity. Constructive definition involves substituting the concept or
construct of the term we are defining with other concepts or constructs, the
operational definition requires that the concept or construct be assigned a
type of meaning which the researcher wants to carry throughout the study.
1.7.1 Market Value:
Market Value is the estimated amount for
which a property should exchange on the date of valuation between a willing
buyer and willing seller in an arm’s length transaction after proper marketing
wherein the parties had acted knowledgeably, prudently, and without compulsion
IVSC (2002). The accuracy of any valuation is, therefore, defined as how close
the valuation is to the exchange price in the market place.
1.7.2 Market
Price:
Market price refers to realized prices;
the recorded consideration paid for a property which has ostensibly been left
in the market for a reasonable period of time. The recorded consideration is
taken as the best price that a property asset could realistically command in
the free market. Transactions do not occur at the point where most players in
the market would assess its worth; the transaction occurs at a point which the
seller considers to be the highest bid. Market price should therefore capture
the highest price at which the property can be sold. Ordinarily, in a
perfectly competitive market where there is full information, market value
should equate with market price.
1.7.3 Valuation
Reliability/Accuracy:
Reliability
according to Allan (2000) is the degree to which a measurement instrument gives
the same results each time it is used, assuming that the underlying
object/situation being measured does not change. One can test reliability by
determining whether several observers of an object/situation will give similar
accounts of it. Reliability is used interchangeably with the term accuracy in
this study. Mathematically, reliability/accuracy is usually measured either in
terms of percentage standard deviations ranging from ±5% to ±15%, or through
statistical tests such as regression equation, where it is expected that the
intercept of the equation would be statistically indistinguishable from zero
and the constant indistinguishable from one. The study adopts Crosby et al
(2003) definition of reliability/accuracy as the closeness (proximity) of the
valuation to the realized exchange price.
According to
French (2007) uncertainty was defined as anything that is not known about the
outcome of a venture at the time the decision was made. Similarly, Mallision and
French (2000) observed that “normal uncertainty is a universal and unsurprising
fact of property valuation. The open acknowledgement of that fact, and
transparent management of its implications, will enhance the utility of
valuations”.
1.7.4 Valuation
Consistency and Variation:
Consistency is a term used interchangeably
with the term variation in this thesis. It describes the quality of being
mutually constant or not being contradictory. Relating this to the present
study, consistency in this study will be taken to refer to the closeness or
otherwise of the valuation predictions of two or more valuers who carry out
valuations of the same property or properties at the same period of time. The
terms reliability and consistency are mathematically measured either in terms
of percentage standard deviations or through statistical tests such as
regression equation, where it is expected that the intercept of the equation
would be statistically indistinguishable from zero and the constant
indistinguishable from one.
French (2007)
observed that the problem with variance research is that information pertaining
to it either has to be set up artificially with a number of valuers asked to
provide valuation on set of properties or the analysis relate to valuation s
carried out at different points of time in the market. The outcomes of such
studies varies substantially and in essence simply reports that different
valuers have different ideas and thus produce different valuation figures.
1.7.5 Valuation
This is the process
of estimating the market value, insurance value, investment value or some other
properly defined value of an identified interest or interests in a specific
parcel(s) of real estate as at a given date. It is the estimate of the most
likely selling price, the assessment of which is the most common objective of
the valuer. The most likely selling price is commonly termed “open market” or
“market price”. Baum and Crosby (1988) distinguish between two types of
valuation: price prediction to the market or to an individual. Valuation in
this thesis is taken to be the prediction of most likely sale prices in the
market rather than to the individual.
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