Why asset valuation is never an easy process

‘I expect a very good valuation of my property and the bank manager says he needs your report urgently’.

Valuers have heard this statement many times from their clients. It is usually made at the point when the customer is presenting a letter of instructions to the valuer.

Most clients don’t find anything wrong with the statement because to them, valuation is just a means to getting the loan approved. They hardly bother to read the letter of instruction to appreciate the roles and responsibility of the valuer.

They never imagine that there is a process and a technical way to carrying out this exercise. Most expect the valuer to just get on and manufacture figures that match their expectations and charge very little fees.

After valuers go through due processes, and prepare their reports, clients go to the last page and only look at the valuation figures without regard to all the detailed contents of those reports. It is important for clients seeking such services to understand the purposes for which property valuation is required and the processes necessary for production of reliable and useful reports.

Property valuation is the practice and technique of developing an opinion of value of real property. It is carried out by trained and licensed professionals normally referred to as valuers or appraisers.

In Kenya for one to practice, one has to be certified by the Institution of Surveyors of Kenya, registered and licensed by Valuers Registration Board in accordance with the provisions of Valuers Act Cap 532.

The need for valuation arises from the heterogeneous nature of property. No two properties are identical, and all differ depending on location, physical development and the bundles of rights afforded by their documents of registration.

Property valuation is required for several purposes the main being purchase or sale, rental, taxation, accounting, mortgage or loan, insurance, compulsory acquisition and forced sale.

It is, therefore, clear that most property transactions, investment and management decisions rely on professional valuation reports. One report can contain valuation figures for different purposes.

Every valuation purpose requires use of a different methodology or approach and results in different figures. The mortgage value is different from insurance value and also not similar to forced sale value.

Valuers do not create property values. They only assess and compute those figures based on legal prescriptions as in the case of compulsory acquisition or in line with internationally accepted standards and methodologies.

Of necessity the valuer is required to carry out a physical inspection and measurement of the subject property, title search, collect market and other related information on planning and the neighbourhood.

All this data is used in analysis and computation of the requisite values. It is important for users of valuation reports to appreciate that value is not necessarily equal to price or cost the whole or part of a property.

The writer is a land economics and management expert. Email: makathimo@vidmerck.com