The Challenges Of Rating Valuation In Nigeria

THE CHALLENGES OF RATING VALUATION IN NIGERIA

First Chapter/ Introduction

1.1 Study’s Background

The first time that Drivers Jonas supported Investment Property Databank (IPD) to conduct in-depth study regarding valuation accuracy in the UK was in 1987, following some well-publicized research efforts by actuaries Hager and Lord. Later, the sponsoring position was assumed by the professional organization for valuers, the Royal Institution of Chartered Surveyors (RICS). They were doing this by embracing one of Sir Bryan Carlsberg’s Working Party on Valuation Practices’ main recommendations.

One of Nigeria’s top estate surveyors and valuers, Udo-Akagha, stated the following in 1985 when writing the foreword to “Guidance Notes on Property Valuation”:

“There should be no reason why two or more valuers should come to different conclusions when evaluating the same interest in a property for the same purpose and at the same time.

if they use the same data and adopt the same valuation strategy, they will provide the same or comparable outcomes.

In the same line, an editorial on page 2 of The Estate Surveyor and Valuer, the official journal of the Nigerian Institution of Estate Surveyors and Valuers, which was published in 1998, discussed “property valuation and the credibility problems” and stated, among other things,

As there are numerous instances of two or more valuers providing different capital values with significant margins of difference for the same property, the valuation process has recently been the subject of discussion and controversy both inside and outside the profession.

Many have questioned whether estate surveyors and valuers are value interpreters or value makers as a result of comments of this sort. It is clear from the aforementioned comments that Nigeria suffers from the twin issues of inaccuracy and inconsistency (variance) in the valuation procedure. Over the past thirty years, clients seeking guidance in increasingly complex investment markets have challenged valuers’ estimations, methodologies, and processes even in affluent nations like Britain, Australia, Canada, and the United States (Baum and Macgregor, 1992).

The apparent inadequacy of valuation estimates to effectively represent/interpret market prices or act as a collateral for bank loans has also received attention in the same spirit. Bretten and Wyatt (2002) noted that when preparing a valuation in a market environment of heterogeneity, valuers frequently follow clients’ instructions, analyze available information, make judgments, and respond to various pressures from stakeholders. However, valuers do not operate with perfect market knowledge. As in the United Kingdom (UK), where the RICS recently partnered with the Investment Property Databank (IPD) to undertake studies into valuation accuracy in Britain on a bi-annual basis, the research of valuation accuracy should, however, be an ongoing one.

In order to validate or invalidate, expand upon, and update the findings of the ground-breaking efforts of Ogunba (1997), Ogunba and Ajayi (1998), and Aluko (2000), the effort in this work will be the study of valuation accuracy and consistency and the factors influencing their occurrences over a more recent time period. As a result, the focus of the current endeavor will be on property assessment in the Lagos metropolis, which is known as the Nigerian city with the most active investment property market.