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
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.
(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.
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.