Formerly Valuation Lecturer, Obafemi Awolowo University, Ile-Ife, Nigeria
and former Head, Department of Estate Management & Valuation,
Federal Polytechnic, Ilaro, Nigeria
Published in Nigeria
by
Dash Mill Media;
17, Ahmed Onibudo Street, Victoria Island, Lagos
http://dashmill.com
© T. A. Ashaolu (+234 8159840499, 8023220961), 2016
All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the prior permission of the copyright holder.
ISBN: 978-978-951-770-1
Printed and bounded by
Solar Offset Nig. Limited
2, Mako Street, Ring Road, Ibadan, Nigeria
Statistics: 71,072 words
ii
Dedicated
To the Glory of my God and Maker
iii
ACKNOWLEDGEMENTS
All glory to the Almighty God, the source of life, health and knowledge.
In the preparation of this book, the contributions of some colleagues – senior and otherwise –
must be appreciated. Professor S. A. Oloyede of Covenant University, Ota, ESV M. A. Ajose-Ismail
and ESV M. O. Olaniran both of the Federal Polytechnic, Ilaro all painstakingly read through the
manuscripts with useful corrections. Professor M. O. Bello and Dr (Mrs.) V. A Bello (an Associate
Professor) both of the Federal University of Technology, Akure made time to peruse the contents
and offered valuable guides. The contribution at the earlier stage of the work, by Oyewole
Oyesomo, an ex-corps member attached to the Federal Polytechnic, Ilaro is also acknowledged.
The author further acknowledged the conducive working atmosphere and encouragements
received from the immediate past Rector at the Federal Polytechnic, Ilaro –Dr. R. A. Oloyo (an
Associate Professor) – the incumbent Rector - Architect O. O. Aluko and the Dean of the School of
Environmental Studies, Blder. Tayo Fajuyitan. The cooperation from my other colleagues in the
Department of Estate Management and Valuation – ESV F. A. Onifade, ESV B. O. Onakoya, ESV
K. B. Akinbola, Mrs. S. O. Olagoke-Salami and Messrs J. S. Odunaike and G. K. Babalola are
equally appreciated. Mrs. S. Bamiro, the Secretary and Miss Oluwatoyin Awanu (an industrial
attachee) were found quite helpful.
Finally, I must put on records, the inconveniences caused to, and supports received from my wife
and children during the course of preparing the book.
iv
Preface
Another book on Valuation? Not just that! Although there have arisen considerable efforts at
providing textbooks for estate management and valuation students by Nigerian authors, the
aspect of valuation is still deficient. Beyond this, there remains the need to address students’
yearnings for simplicity, and a theoretical presentation blended with practical local contents and
appeal.
This text is a product of the author’s two decades’ cumulative lecturing experiences at two tertiary
institutions (Obafemi Awolowo University, Ile-Ife and Federal Polytechnic, Ilaro both in Nigeria)
and his three decades of practical experience that centred on valuation. The fear being expressed
for valuation by students at both the Polytechnic and University levels must be put in check as
proficiency in the course is central to professionalism in estate surveying and valuation.
As earlier remarked, this book has been designed to blend theory with practical field experiences
and two chapters have been introduced on ‘Measurements in Property Valuation’ and ‘Data
Collection for Valuation Purpose’. The chapter on ‘Contemporary Issues and Methods of
Valuation’ has been presented with the simplicity that should interest practitioners while that on
‘Negligence and Fallacies in Valuation’ is a compendium of real-life inadequacies that must be
redressed.
The book has been made partly elementary for beginners with some sections designed for the
more advanced post-graduate scholars. The general undertone however borrows from practical
experience in the Nigerian valuation field. It is therefore believed that every category of
stakeholders -valuation students at different levels, lecturers and practitioners alike - would find
aspects of it invaluable for use.
This is the first edition and accordingly, readers’ reactions and observations are highly welcomed.
Thomas A. Ashaolu
Federal Polytechnic, Ilaro
taashaolu@yahoo.com +234 8159840499
January, 2016
v
FOREWORD
I have known the author of this book since his undergraduate days in the Department of Estate
Management, University of Ife (now Obafemi Awolowo University), Ile-Ife. From the time he
graduated to date, we have been in constant touch hence I can vouch for his academic and
professional capabilities. Reflecting on my years of experience in Oyo State Ministry of Lands and
Housing, Ibadan, during which period Igbogila Farm Settlement land was acquired, my nineteen
years with Federal Mortgage Bank of Nigeria as well as my academic journey through Obafemi
Awolowo University, Ile-Ife and presently with Covenant University, Ota; I could understand
why I am qualified to write the foreword to this book.
Carrying out a valuation exercise is an interesting but challenging task because of the intricacies
involved and the society’s varying interests and assumed public knowledge about any object
being valued. Carrying out a valuation exercise is challenging because there are many concepts of
value, derivation of valuation formulae, statutory provisions, and different purposes of valuation
as well as principles that must be properly mastered and applied. The society expects a credible
valuation figure on each occasion. No matter the number of estate surveyors and valuers called
upon, in case of a disagreement about the figure presented, the valuation figure submitted by one
estate surveyor and valuer should be able to stand the test of time.
For the foregoing reasons, I have found this book quite appealing and novel on different fronts. It
commenced by launching the reader through the theory of property and value thus giving him a
solid base that would form the bedrock of intellectual reasoning. By so doing, the reader would
appreciate what was, how it came to be as well as the influence of today on the future. In addition
the book represents simple and explicit presentation of principles and their application. It went
further in equipping readers about what is expected of an estate surveyor and valuer during field
work. Also, it contained a catalogue of identified lapses and conduct witnessed by the author in
past valuation exercises. All these would serve as a guide in future valuation assignments.
Since there is a difference between a vocation and a profession, any serious minded professional
must know his/her onions to the letter. This book covers the ‘dos’ and ‘don’ts as far as property
valuation is concerned especially now that there is international competitiveness in methods and
procedures of doing things taking cue from the advances in information and technology that has
almost broken all business barriers.
Professor Samuel A. Oloyede
Sub-Dean, Post Graduate School,
Covenant University,
Ota, Nigeria
vi
TABLE OF CONTENTS
Pages
Acknowledgements
Preface
Foreword
CHAPTER
1
iv
v
vi
VALUE, VALUATION AND VALUER
1-12
1.1
Understanding Valuation, Valuers and Professional Valuer
1.2
Differences among value, price and cost
1.3
Concepts of Value
1.4
Influences on Value
1.5
Basis of Valuation
1.6
Where valuers operate
1.7
What makes a valuer
1.8
Valuation being date-dependent
1.9
Significance of Knowledge of Purpose in Valuation
1.10 Natural and Statutory Valuation
Practice Questions
1
2
3
5
7
8
9
10
10
11
12
CHAPTER
13-20
2
THEORY OF PROPERTY AND VALUE
2.1
2.2
2.3
2.4
2.5
2.6
Why studying Theory?
Theory of Property
Value Theory or Valuation Theory?
Value as Normative or Positive
Value as Moral and Ethical Concepts
Further implication of Value theory on Valuation
2.61 Valuation as pricing or assessment
2.62 Concepts of value and the influence of morality and ethics
2.7
Valuation Theory
Practice Questions
References and Further Reading
vii
13
13
15
17
18
18
18
18
18
19
20
CHAPTER
3
TYPES OF PROPERTY
3.1
3.2
21-29
Introduction
Classification of Landed Property
3.21 Types of Property by Location
3.22 Types of Property by Use
3.23 Types of Property by Tenure/ Rights
3.3
Shares in Property
Practice Questions
21
21
23
23
25
27
29
CHAPTER
30-48
4
DERIVATION OF VALUATION FORMULAE
4.1
Introduction
4.2
Concepts in Derivation of Valuation Formulae
4.3
The Formulae
4.31 Amount of N1 (The Compound Interest) Table
4.32 Present Value of N1 Table
4.33 Amount of N1 per annum Table
4.34 Annual Sinking Fund (ASF) Table
4.35 Present Value of N1 per annum
4.36 Annuity N1 will Purchase
4.4
Differentiating the Formulae
4.5
More Worked Examples
Practice Exercises
30
30
32
32
34
35
35
37
39
40
41
47
CHAPTER
49-62
5.1
5.2
5.3
5.4
5.5
5.6
TRADITIONAL METHODS OF VALUATION
Introduction
Direct Comparison (or Market) Approach
Income Capitalisation (or Investment) Approach
The Cost (or Contractor’s Test) Approach
Profit’s (or Accounts) approach
Residual Approach
CHAPTER
6.1
6.2
5
6
49
49
52
54
58
59
VALUATION OF INVESTMENT PROPERTIES I - GENERAL 63-75
Introduction
Concepts of Rent in Valuation
6.2.1 Determination of Rent
63
63
64
viii
6.3
6.4
6.5
6.6
Outgoings
Investment properties subject to completion/redevelopment
Advance Rental Payment
Discounted Cash Flow Valuation
CHAPTER
7.1
7.2
7.3
VALUATION OF INVESTMENT PROPERTIES II –LEASEHOLD 76-83
Introduction
Remunerative and Accumulative rates
Adjustment for Taxation in Leasehold Valuation
CHAPTER
8.1
8.2
8.3
8.4
8.5
7
8
9
9.5
9.6
84
89
94
95
97
REVIEW OF CONVENTIONAL INVESTMENT
VALUATIONS
9.1
9.2
9.3
9.4
76
76
78
VALUATION OF INVESTMENT PROPERTIES III – COVENANTS 84-101
Introduction
Surrender and Renewal of Leases
Marriage (and Divorce) Valuation
Premium and Improvements
Virtual (or sitting) rent
CHAPTER
64
66
68
72
102-119
Introduction
Freehold in Possession (or Vacant or let at Full Rental Value)
Freehold let at above Full Rental Value (Over-Rented Freehold)
Freehold with Reversionary interest
9.41 Initial Yield Method
9.42 Term and Reversion
9.43 Layer Method
9.44 Hard-Core Method
9.45 Equivalent Yield Method
Leasehold interests to be valued in stages (Varying profit rent
Redressing Staged Errors in Leasehold Valuation
9.61 Sinking Fund Method
9.62 Double Sinking Fund Method
9.63 Pannell’s Method
9.64 Annual Equivalent Method
ix
102
102
102
103
103
104
104
105
105
107
109
109
110
112
116
CHAPTER
10
CONTEMPORARY METHODS IN VALUATION
10.1 Introduction
10.2 Background to the Methods
10.3 Concepts under the Methods
10.4 The Equated Yield Analysis
10.5 Rational Valuation Model
10.6
Real Value/Equated Yield
10.7 Application of Contemporary Models to Leasehold Valuation
10.8 Remarks on Conventional Versus Explicit Models
10.9 Multiple Regression Method
10.10 Computer-Aided Mass Valuation
10.11 Geographic Information System Valuation Approach
10.12 Artificial Neural Network
References
120-140
120
120
120
126
126
127
133
137
137
137
138
139
140
CHAPTER 11 ADJUSTMENT FOR RISKS IN PROPERTY VALUATION 141-162
11.1
11.2
11.3
Introduction
Risks in Property Valuation
11.21 Systematic and Unsystematic Risks
11.22 Upside and Downside Risks
Methods of Risk Adjustment
11.31 Sensitivity Analysis
11.32 Expected Net Present Value Method
11.33 Risk Adjusted Discount Rate
11.34 Certainty Equivalent Method
11.35 Decision Tree
11.36 Simulation Method
CHAPTER
12.1
12.2
12.3
12.4
12.5
12.6
12
VALUATION OF SPECIALISED PROPERTIES
Introduction
Hotels (and Motels, some Restaurants, Eateries and Bars)
Amusement parks, stadia, cinema houses
Sacred properties (churches, mosques, shrines etc) and Cemeteries
Historic properties (including museums)
Schools and Hospitals
x
141
141
141
142
145
146
149
151
151
155
162
163-175
163
163
167
168
170
170
12.7
12.8
12.9
12.10
12.11
12.12
Government Buildings
Agricultural (and Rural) Properties
Specialised Factories
Way-leaves and Rights-of-ways
Mineral-laden Properties
Fuel Stations
CHAPTER 13
13.1
13.2
13.3
Introduction
Mortgage Valuation
13.21 Terminologies relating to Mortgage transactions
13.22 Principles of Valuation
13.23 Value Concepts under Mortgage
13.24 Mortgage Interest Calculation
13.25 Amortisation of Mortgage
13.26 Positive and Negative adjustments to Amortisation
Insurance Valuation
CHAPTER 14
14.1
14.2
14.3
14.4
15
16
176-187
176
176
176
176
177
178
179
180
185
188-192
188
190
190
192
VALUATION OF DEVELOPMENT PROPERTIES
Introduction
Concept of Highest and Best Use
CHAPTER
16.1
16.2
16.3
VALUATION OF COMPANY ASSETS
Introduction
Basis of Valuation
Going Concern Valuation
Valuation of Goodwill
CHAPTER
15.1
15.2
VALUATION FOR MORTGAGE AND INSURANCE
170
170
170
171
171
171
193-197
193
193
STATUTORY VALUATIONS I: PROPERTY RATING
General
Basis of Valuation
Methods of Valuation
198-204
198
198
198
xi
CHAPTER
17
STATUTORY VALUATION II: OTHER PROPERTY –
RELATED TAXES
17.1
17.2
17.3
17.4
17.5
17.6
205-209
Introduction
Capital Transfer Tax (CTT)
Capital Gains Tax (CGT)
Estate Duty or Probate Tax
With-holding Tax (WHT)
Concluding Remarks
CHAPTER
18
205
205
206
207
208
209
STATUTORY VALUATION III: COMPENSATION
ASSESSMENT
210-226
18.1 Introduction
18.2 Aspects of Statutory Control
18.3 Chronology of Statutes Governing Compensation in Nigeria
18.4 Procedure in Compulsory Acquisition
18.5 Compensation Assessment under Nigerian Land Use Act, 1978
18.6 Worked Examples
18.7 Specific Aspects of Compensation Assessment
Reference
210
210
212
215
216
216
222
226
CHAPTER
227-230
19.1
19.2
19.3
19.4
VALUATION OF ENVIRONMENTAL ASSETS
Introduction
Meaning of Environmental Assets
Measurement and Valuation
17.31 Hedonic regression analysis
17.32 Use of Contingent valuation survey
17.33 Remediation cost
Valuation of Contaminated Land, Dumpsites, Landfills etc
CHAPTER
20.1
20.2
20.3
20.4
20.5
19
20
MEASUREMENTS IN PROPERTY VALUATION
Introduction
Premises
Building Area and Internal Accommodation
Boundary Fence
Measuring Instruments
xii
227
227
228
228
229
230
230
231-235
231
231
233
234
234
CHAPTER
21.1
21.2
21.3
21.4
21.5
21.6
21.7
21.8
22
23
236-239
236
236
236
237
237
238
238
238
NEGLIGENCE AND FALLACIES IN VALUATION
Introduction
Erroneous Acts and Procedures
Fraudulences in Valuation
CHAPTER
23.1
23.2
23.3
23.4
23.5
23.6
23.7
DATA COLLECTION FOR VALUATION PURPOSE
Introduction
Location
Site
Title
Design
Construction
Appendages – Sketches, Pictures
Market Survey
CHAPTER
22.1
22.2
22.3
21
240-244
240
240
243
THE FUTURE OF PROPERTY VALUATION
Introduction
Context of Property Valuation
Data Sourcing and Usage
Point Estimate to Range
Domain of Property Valuation
Application of Statutes and Inter-Disciplinary Handshake
Globalisation
245-247
245
245
245
246
246
246
247
APPENDIX: TYPICAL EXAMINATION QUESTIONS AND ANSWERS
248-253
Index
254-256
xiii