An Examination of Valuation Practice: Basis, Purpose and Method. Case Studies of Commercial Properties (Plaza)
CHAPTER ONE
Objective of the study
The objectives of the study are;
- To generate cost data with respect to different types of residential and commercial properties
- To ascertain method as used by Valuers in practice with a view to articulating the challenges.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THEORETICAL FRAMEWORK
The Depreciated Replacement Cost (DRC) Method
As earlier defined the DRC method of valuation is a method of determining the value of a property or an asset by reference to the cost of replacing it or procuring an acceptable substitute. The method is often used by practicing Estate Surveyors and Valuers, which acclaims its wide acceptance as a good method (Ifedora, ibid). The Dictionary of Real Estate Appraisal (4th ed.) defines replacement cost as the estimated cost to construct, at current price as of the effective appraisal date, a building with utility equivalent to the building being appraised, using modern materials and current standards, design, and layout. The aforementioned definition gives the DRC method a global undertone. Depreciated cost itself simply means cost less depreciation (for wear and tear, deterioration, etc) as at the date of the appraisal. Therefore put together the DRC method can be defined as the replacement costs of an asset which is subject of a valuation or appraisal, less depreciation to allow for determination physical wear and tear or other forms of depreciation.
Data Requiements
Valuation by the DRC method requires the following data:
- replacement cost new of subject property
- depreciation allowance to take care of age, wear and tear, etc
- value of land as though it were vacant
Replacement Cost New
In theory estimating the cost of reproducing the subject property as if new (or reproducing a new similar property or comparable) entails calculating the gross floor area of the property and then multiplying by the construction cost per square meter. But in practice, this not so easy to come by as the appraiser would need to source for relevant cost information from government ministries or departments such as housing and works. On the other hand, relevant cost info can be gotten from the experience of the Valuer or by reference to comparable.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought an examination of Valuation practice: Basis, Purpose and Method.
Case studies of commercial properties (plaza)
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information examination of Valuation practice: Basis, Purpose and Method. Case studies of commercial properties (plaza). 200 staff of selected real estate in Lagos was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
DATA ANALYSIS
The data collected from the respondents were analyzed in tabular form with simple percentage for easy understanding.
A total of 133(one hundred and thirty three) questionnaires were distributed and 133 questionnaires were returned.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain an Examination of Valuation practice: Basis, Purpose and Method. Case studies of commercial properties. (plaza). In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenge of Valuation practice: Basis, Purpose and Method. Case studies of commercial properties. (plaza).
Summary
This study was on an Examination of Valuation practice: Basis, Purpose and Method. Case studies of commercial properties. (plaza). Two objectives were raised which included: To generate cost data with respect to different types of residential and commercial properties and to ascertain method as used by Valuers in practice with a view to articulating the challenges. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of selected real estate in Lagos. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human processing engineers, electricians, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
The study of the challenges involved in using the method in valuation of is a charm call on valuers in practice to be more professional and scientific in using the method. Two major areas that can undermine the suitability of the method are the determination of the unit rate construction in N terms and the calculation or measurement of depreciation. The first requires the contribution of the quantity surveyors while the other requires a good knowledge of methods of economic factors which could affect it
Recommendation
The Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON) should prevail on firms to document valuation processes including calculations for record purposed. The board can also create a model template for use of the DRC method. This will include studies for measurement of economic depreciation.
References
- Appraisal institute (2002). Dictionary of real Estate Appraisal (4th ed) Illinois: Appraisal Institute Ifediora, G.S.A. (1993) Appraisal Framework. ENAAP Press Ltd.
- Kalu, I.U. (2001) Property Valuation and Appraisal. Owerri: BON Publications.
- Longman (2009) Dictionary of Contemporary English. England: Pearson Education Limited
- Olusegun, K (2008) Introduction to Property Valuation. Lagos: Climax Communications Ltd
- Onyejiaka, J.C., Emoh, F.I. and C.C. Egolum (2012) “Developing a Database for Efficient Property Valuation in Nigeria,” Journal of the Nigerian Institution of Estate Surveyors and Valuers. Vol.36 No.2 January 2012, pp 22-23. www.about.com/Straight Line Depreciation Method http://www.assetaide.com/depreciation/calculation.html www.google.com/Cost Method of Valuation
- Adetiloye, K.A., 2013. Valuation and appraisal in real estate. Unpublished Lecture Notes Delivered to M.Sc Banking and Finance Students. Covenant University, Ota, Nigeria.
- Asteriou, D. and S.G. Hall, 2011. Applied econometrics. 2nd Edn., Palgrave Macmillan. pp: 172-196.
- Brown, G.R. and G.A. Matysiak, 2000. Real estate investment. A capital market approach. FT, Prentice Hall, Financial Times, Pearson Education Limited. pp: 12-89.
