AN EVALUATION OF VALUATION STANDARDS AND PROPERTY VALUATION PRACTICE
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Valuation refers to the estimated amount (price) for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion (International Valuation Standards, 2017). Valuation accuracy is a measure of the difference between a value determination and group of value determinations in relation to a subsequently realised sale price (Boyd & Irons, 2002).
Valuers and the valuation process have recently been the focus of debate and controversy in many areas of the world including Nigeria. This study concentrates on one part of the debate, investigation of the causes of valuation variance and inaccuracy. Much of the country’s wealth lies in real estate property. Thus the Estate Surveyors and Valuers who are saddled with the responsibility of contributing their professional expertise to effective and efficiently utilizing this scarce and vital resources (Udoetuk, 2009).
Valuation is a core discipline of the Real Estate Surveying and Valuation profession in Nigeria and the world over and shapes the foundation on which the realestate profession is built. Valuation plays an important role in transactions in real assets for transfer of ownership, financing and credit, tax matters, investment advisory, accounting, management control/records and decision making in investment performance measurement (Appraisal Institute, 2001 and McAllister, 1995).
Valuation has been described as the “estimate or prediction of the most likely selling price” according to Baum and Crosby (1988). Implicit in the definition is the reason for valuation, which is that of acting as a proxy for market price or as a substitute for having to sell an asset. The need for valuation arises from the peculiar nature of real estate and real property markets which are heterogeneous and imperfect in nature and character. If the property market were to be perfect and real property homogenous in nature, there would be no need for valuation (Aluko, 1998). Unfortunately, the property market is anything but perfect. Valuations are required to serve as proxy for actual selling prices in the measurement of investment performance of real property assets.
Therefore, valuation for any purpose ought to be accurate to provide dependable bases for decision making hence, variance and inaccuracy is worrisome and disappointing. The deviation between valuation and market prices is the degree of valuation inaccuracy while the deviation between two or more valuations on the same subject property made at the same time for the same purpose is valuation variance (Ibiyemi, 2013). However, it is noted that no two valuers carrying out valuation on the same property, given the same information will ever arrive at the same opinion of value (Ayedun, Oloyede, Iroham and Oluwunmi, 2011).
The growing concern for the variance in valuation in Nigeria is something that needs to be given a serious attention, especially where the acceptable margin of error falls beyond acceptable limits. Ayedun, Oloyede, Iroham and Oluwunmi (2011) noted that the valuation process and the result from valuers had formed the subject of debate, argument and controversy in most parts of the world for the past two and a half decades.
Property market and real estate valuation practice in Nigeria evolved through various stages right from independence due to growth and development in the nation’s economy. Prior to what is obtainable now, status symbol and prestige were the center of attraction in owning properties and so real estate was not considered as investment opportunity. (Canadian Center of Science and Education).
Consequently,