Professional Services

Basis of Valuation and Methodology:

Methodology:

How does the valuer carry out a valuation assignment?

A valuation assignment entails identifying the properties, inspection, draft report writing and compiling final valuation report.

As a pre-requisite to carrying out the valuation exercise the valuer would require the following: -

• Copies of Title/ leases of all plots i.e. vacant and developed
• Tenant schedules for developed properties and currently let
• Buildings architectural plans where available
• Service contracts

Forthwith title searches at the various Government Land Offices and relevant Survey maps are solicited to aid in the exercises of identification and ascertaining property ownership.

The various basis of valuation are to conform to the International Valuation Standards. The basis generally to be employed in the valuations are as follows: -

1. Market Value;
2. Gross replacement Cost for Insurance purposes;
3. Value for Financial reporting (book) purposes;

The valuation for book purposes will be done in accordance with accepted International Standards suitable for inclusion in financial statements. In this aspect the Asset valuer will adopt the International Financial Reporting Standards (IFRS) under the guidance of international valuation standards (IVS).

Basis of Valuation and Approaches To The Various Properties:

a) Developed Properties:

i) Commercial Properties

This are to be valued on the basis of Market Value but Existing Use Value for properties occupied for the purposes of the business.

In establishing the Market Value for Commercial Rental Properties this will be in consistence with the following definition: -

Market Value is an opinion of the best price at which the sale of an interest in property would have been completed unconditionally for a consideration on the date of valuation, assuming:

1. A willing seller;
2. A willing buyer;
3. (c) That, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale:
4. That, the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
5. That, no account is taken of any additional bid by a prospective purchaser with a special interest; and
6. That, both parties to the transaction had acted knowledgeably, prudently and without compulsion.

The Existing Use Value is defined similarly with the market value but further assumes: -

7. That, the property can be used for the foreseeable future only for the existing use; and
8. That, vacant possession is provided on completion of the sale of all parts of the property occupied by the business.

The following valuation approaches will be used to avoid being caught up in one scenario which reflects only one set of circumstances after which a final reconciled valuation figure will be arrived at and adopted:-

• Comparable sales approach – analyzing sales recent sales of comparable properties.
• Income approach – analyzing the rental incomes and establishing the full market rents prevailing before capitalizing the Net Operating Income using a practically arrived at yield or YP. Rent schedules of the individual buildings will be utilised in order to accurately estimate the incomes and determine the nature of leases held e.g. determine whether there are controlled tenancies and presence of escalation clauses in leases.
• Discounted cash flow – the varying rental income receivable over some years in future will be discounted and the potential selling price (reversionary interest) after the period determined the sum of which would be the value.
• Cost approach – this will entail arriving at the costs of replacing the developments and it has two components namely cost of land and buildings. The costs of the building will be arrived at using the contractors approach and then depreciating the buildings accordingly to reflect its current physical condition. Cognizance will be taken in the case of incomplete buildings like the commercial ones whose foundations are expensive yet only a few floors are constructed but there is potential to carry more floors. The land value will be arrived at by analyzing comparable sales.

This approach will enable one to have a clear view of the current cost and compare it with the other values derived from income and comparable sales approach to determine whether the prevailing market trends are favourable or not and what is likely to happen in the long run. The long run can be predicted using established market cycles.

NB. Ordinarily valuation of the commercial properties would include the electro mechanical equipments that are parts and parcels of the buildings. The buildings can not operate without these facilities like lifts and water pumps while air conditioners and generators are also deemed to be necessities under certain conditions. While their values can be given separately, the buildings can not be valued excluding these items. A normal valuation inspection of these items will be undertaken alongside the buildings inspection and comments on their conditions included in the valuation report.