Valuation Conundrum

mike eric juru

Many a time, upon realizing the trade or profession of a new acquaintance, people tend to seek immediate free advice and the author being a property Valuer, the question frequently asked to him is “What is the value of my property in this location with such improvements”. This is one of the most difficult conundrum for the valuation experts, not that they cannot do their work but as the expression goes, “Garbage In, Garbage Out”, it applies in this respect since, without proper instructions for one to understand the context which the value is required and undertaking of the actual inspection of the subject property, one will never get the correct value indication.

Valuation a Purposive exercise.
There is more to giving an educated scientific opinion on the value of an asset than what generally is perceived. Firstly, valuation is fundamentally a purposive exercise and there are various reasons which include; for undertaking a transaction, statutory and regulatory financial reporting, performance measurement, monitoring portfolio strategy, mortgage origination, remortgaging or re-pricing of mortgage loans, risk management, arrears management, non performing loans, asset quality review, taxation for Capital Gains, stamp duty and estate duty. Valuation should thus be fit for purpose, especially in our constantly evolving difficult market.

Valuation instruction
It is thus imperative for a client needing a valuation to meet with the Valuer to discuss and agree upon in writing certain details before the work starts, the information includes but is not necessarily limited to; identification of the subject property, the client and the Valuer, the purpose of the valuation, the valuation date, bases of value adopted, nature and extent of the Valuer’s work which includes investigations and any limitations, nature and sources of information upon which the Valuer will rely on, any special assumptions made, format of report, confirmation that the valuation is undertaken according to International Valuation Standards (IVS) and a statement that compliance with these standards may be subject to our local regulations and a statement setting out any limitations. This information is critical as it enables the valuer to produce a report that is professionally adequate for its purpose after necessary investigations have been carried out.
Kindly take note the bases of value (standards of value) include market, rental, equitable, investment worth, synergistic and liquidation value. The standard allows for the adoption of other bases outside the stated.

Valuation Process
For a Valuer to undertake a valuation, the process involves agreeing on the terms of engagement with the client, investigation (which includes inspection, analysis, market research and public database) data handling and interpretation (processing and calculation, qualification and verification, analyzing) post valuation process reporting (value generation and valuation report) and the main result of this process is a single value presented in a report bearing in mind that the report is much more than just a value but also the ultimate communication tool between the Valuer and the client, it provides the client with independent written confirmation of the value of a property that is neither ambiguous nor misleading.

Valuation skill
Valuers fulfill a pivotal, complex and responsible role operating at the interface between clients, financial providers, and holders of property assets. As such, a competent Valuer must possess a mix of competencies: hard skills such as gathering data through investigation, inspection, and research, tempered with analytical insight, the exercise of professional judgment and people skills. Understanding the client’s needs and expectations, and explaining the use and limitations of a valuation in a way the client understands and accepts, is an important part of the role. The exercise plays a crucial role in real estate related decisions. The generally expected competencies of a valuer include the following; inspection, measurement of land and property, conduct rules and professional practice, client care, communication and negotiation, conflict avoidance and dispute resolution procedures, accounting principles and procedures, data management, health and safety, sustainability, team working and actual valuation

Regulated Profession
Valuation is a regulated profession superintended by Valuers Council under the Valuers Act. The manor and form in which the profession is regulated in Zimbabwe is such that decisions to engage one are based on anything else other than the fees to undertake the valuation since the fees are set in the appropriate scale of fees.

The above draws attention to the fact that getting a value of your property is much more than a simple question to a known Valuer. It actually requires much more and knowing that eliminates part of the valuation conundrum which arises from inadequate instruction, lack of understanding of the skill required and the process involved. It remains a fact, the engagement of appropriate professionals guarantee long term savings and the benefits outweigh the cost associated with acquiring the service without abiding by the best practice. Valuations require hands-on competent professionals who are equipped to adequately provide valuable advice for decision making. (Source rics.org)

By Dr. Mike Eric Juru