VALUATION ACCURACY

VALUATION ACCURACY

Valuation accuracy 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.

“The principal issue in valuations accuracy is standardising the information set to ensure that all Valuers are equally informed. Valuations are a function of information. The better the information set the better the valuations.

If a group of Valuers each have a different view of the market then the distribution of valuations would have a wider variance than those which are based on similar information. The spread of valuations will depend upon the completeness of the information set. In fact it is the difference in interpretation of the information which leads to possible transactions.” (Brown, 1992).

Ajibola (2006) observed that unlike other markets such as equity and gilt markets, where the market price of security can easily be determined based on the prices of similar assets traded in the secondary market, the property market, by nature, is characterized by heterogeneous commodities coupled with the fact that there is no centralized market for real property and this makes it difficult to determine the market price of real property since there are no given prices hence the quest for valuations. In other words, the property market is characterized by high level imperfection and this has given rise for variations.

Factors Affecting Valuation Inaccuracy

The following are the various factors responsible for valuations inaccuracy in Nigeria:
1. Lack of market data/evidence
2. The use of outdated data valuation
3. Client’s relationship/pressure
4. Poor skill and experience of valuer
5. Imperfect of property market (valuation environment):
6. Lack of use valuation standard as reference (valuation process):
7. Valuation approach and technique practiced (valuation process)
8. Lack of valuation regulation and control framework

1. Lack Of Market Data/Evidence: The most of factors affecting valuation accuracy is lack of market data/evidence. Data evidence is essential information needed by the valuer. The value of property is defending on the data analysis from the data evidence. Usually, the analysis of evidence will produce the market value of property. This factor is including in valuations environment group. Next, followed factor is information of property characteristics (property’s characteristic group). This element of information also ascertains the market value. The aspect consider to the value is age of building, design, material uses, state of repair, type of being valued and else.

2. The Use Of Outdated Data Valuation: The use of outdated data valuation (Valuation environment) where the data are not compatible with the current market and effect to the valuation of property.

3. Client’s Relationship/Pressure: The Client’s relationship / pressure (Valuation process) is the interaction between valuer and client in providing the valuation report. The client’s pressure such as dissatisfaction with the valuation and threaten the valuer not paying the fees of valuation. Other than that, the client who familiarity with the property market usually will argue the valuation working because they know the best value of the property.

4. Poor Skill And Experience Of Valuer: The fourth factors affecting valuation accuracy is poor skill and experience of valuer (individual characteristic). The valuer who is a fresh graduate had no skill or poor skill than senior valuer. So, their knowledge about the property market and the familiarity to the property transaction is less. They had to analyse the evidence carefully to avoid inaccuracy. Besides that, the fresh valuer would need to do more than one method to minimise the error in valuation.

5. Imperfect Of Property Market (Valuation Environment): Fifth is imperfect of property market (Valuation environment). Property market usually not static, sometimes it not active, dull or not stable. This effect to the property valuation as the price would be high or lower.

6. Lack Of Use Valuation Standard As Reference (Valuation Process): Last but not least, lack of use valuation standard as reference (Valuation process). In Nigeria Valuation Standard; is being use as the guideline of valuation report. The valuation firm sometimes use it for once or twice only. If there is a new update of the standard, They did not notice that sometimes there is small matter overlooked in valuation process need to be consider to avoid inaccuracy

7. Valuation Approach And Technique Practiced (Valuation process): Seventh is Valuation approach and technique practiced are not suitable (Valuation process). The method used in valuation must be suitable to get the accurate value. For example, residential property should be value using comparison method and to get most accurate use more than one method. The combination of traditional and conventional method is the better choice.

8. Lack Of Valuation Regulation And Control Framework: Lastly, lack of valuation regulation and control framework by local regulatory body (Valuation environment). The regulatory bodies must play their roles in this profession to ensure all the valuer in Nigeria follow their regulation and ethic code conduct of work honestly and transparent. The valuers need to provide good valuations report for the client without any misconception of valuations work.

The variance in valuations is similar to the inaccuracy. The items of variance valuation are also similar to the factors of inaccuracy. Then, the aspect of experience, education, market information, valuations standard, time period, source of market data/evidence and quality of information. So, the relationship between inaccuracy and variance in valuation can be deemed as the same.

POSSIBLE REMEDIES

The challenge for eliminating the factors responsible for valuation inaccuracy falls across the academia, the practitioners, and valuation institution. The academia has a challenging task to improve the valuation methodology and doing the further research to establish and to identified inaccuracy occurs, its actual degree and acceptable margin, causes and possible remedies.

The institutional or university had to working in close with the RISM for increase the knowledge and experience among the lecturers and valuers in public and private practices in producing a good graduate who can survive in business world. Besides that, each state in Nigeria should establish property data bank to make such data relevant to the current market. Such of property data bank would assist researcher in producing property market indices for performance measurement and accuracy test especially in the application of the investment method of valuation.

Recommendations

From the research some recommendation is the further research needed about the actual acceptable margin error in valuations for others properties such as commercial and industrial. These to ensure the most significance margin error for these properties are same with the residential or not. Besides that, the research of valuations accuracy properties in Malaysia should be done by researcher to known the guideline of accurate valuations.

Lastly, research of market data/evidence plays important roles in valuations must be done by researcher to identify how much the market data or information in producing valuations report.

Hope the others researcher can continue the research as the profession of valuations move forward and become more challenging besides need for wider research on the subject matter.

By looking at the overall factors affecting valuations inaccuracy, the growing concern over valuations inaccuracy still weak. The potential of the issue bring forward is considerable and far to success. The awareness among of the valuer about the inaccuracy still low and they did not notice almost often this happen to them. By differing the valuations of the same property of different valuer, realize that the variance and inaccuracy occurs in that report.

The root of this problem is comes from various challenging faced by the valuer in 21st century. The valuer need to face the client manner and other matter related to valuations. The valuers need to be more flexible, creative, innovative and knowledgeable to handle the problem. Only the good valuer can be survive in this profession as the pressure of working always had. The possible of remedies suggested hope can be the best way to overcome the problem before getting worse.

All recommendation action suggested from the researcher which is doing the further research on the commercial and industrial properties and defines the acceptable margin error for both properties. Then the overviews of valuations accuracy in Malaysia and the actual degree of level accuracy suitable can be use in valuations.

Finally, as the result the responsible bodies must collaborate together to overcome the problem with had a cross fertilization of ideas in handling the issue. The profession is moving forward as the sector of real estate increasing day to day and the economy growing faster in this country. If too much inaccuracy happens, it would effect to the property market sector and make the economy of country downturn.

REFERENCES
Adegoke, O. J. (2008). Valuations variance in unfamiliar locations and the significance of caution in valuer behaviour. The estate surveyor and valuer, Jounal of the Nigerian Estate Surveyors and Valuers, 31(1), 7-13

Aluko, B. T. (1998). Property valuation: Are estate surveyors and valuers interpreters or creators of values?. The Estate Surveyor and Valuer, Journal of Nigerian Institution of Estate Surveyors and Valuers. 21(2), 9-17.

Aluko, B. T. (2000). A study of appropriateness of mortgage valuation for institution lending in Nigeria.

(Unpublished doctoral dissertation). The Department of Estate Management, Obafemi Awolowo University, Ile-Ife, Nigeria.

Baum, A., & Crosby, N. (1988). Property Investment Appraisal Routledge (pp. 708-726). London: Routledge.
Brown, G. (1985). Property investment and performance measurement: A reply. Journal of Valuation, 4, 33-44.

Ogunba O.A. and Ajayi, C.A. (1998) An Assessment of the Accuracy of Valuations in the Residential Property Market of Lagos The Estate Surveyor and Valuer; Vol.21, No.2: Pg.19-23

Ogunba, O.A. (2004) Implementation Hurdles in the Search for Rationality in Investment Valuations in Nigeria Journal of Property Research and Construction (1) 14-28.