THE CONVENTIONAL METHODS OF DETERMINING THE CAPITAL VALUES OF REAL PROPERTIES BY PROFESSIONAL ESTATE SURVEYORS AND VALUERS

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(A CASE STUDY OF PORT HARCOURT)

ABSTRACT

This study aimed at assessing the conventional methods of determining the capital values of real properties by professional estate surveyors and valuers Nigeria,a case study of Port Harcourt metropolis.The research work used both primary and secondary data and adopted qualitative survey method of collecting data.Simple random technique was used and a total number of fifty (50) questionnaires were administered to  estate surveyors and valuers and in the study area while a total number of forty two were retrieved and analyzed in order to achieve  the aim and objectives of the study.Tables, percentages and likert scale were used for data analysis.findings from the study revealed That the opinion of value seeked by the valuers during valuation is the open market value of the property in the study area,most of the estate surveyors in the study area have carried out capital valuation and also Most of the conventional method of valuation have many flaws in determining capital values of landed properties ,hence, the study recommendsestate surveyors and valuers should continue to comply with the professional ethics by adopting the appropriate methods in the determination of capital values of landed properties in the in order to  improve the practice of real estate valuation.The research work conclude by  stating that if the recommendation stated is followed in accordance,itwill impact positively on the different segment of people involved in real estate investments, transaction, developments, and ownership.Thus, professional estate surveyors, owners and developers, the government and even future researchers.                                                                                                                                                                         

LIST OF TABLES

Table 4.1: Numbers of Questionnaires Distributed and Returned.    –        –        –        41

Table 4.2 Demographic Characteristics of Respondents         –        –        –        –        42

Table 4.3 Response on how estate surveyors obatain valuation brief in the study area-        43

Table 4.4 Response on the frequent use of a valuation method        –        –        –        44

Table 4.5 Response on the problem of residual method of valuation-        –        –        45

Table 4.6 Response on the problem of depreciated replacemect cost method of valuation..46

Table 4.7 Response on the problem of profit/account  method of valuation        –        –        47

Table 4.8 Response on the problem of investment  method of valuation   –        –        48

Table 4.9 Response on the problem of comparative method of valuation  –        –        49

Table 4.10 Response on whether estate surveyors cosult other professionals during valuation process.      –        –        –        –        –        –        –        –        –        50

Table 4.11 Response on how often estate surveyors indicate the purpose of each valuation assignment. –        –        –        –        –        –        –        –        –        51

Table 4.12 Response on how often estate surveyors indicate the basis of each valuation assignment. –        –        –        –        –        –        –        –        –        51

Table 4.13 Response on how often estate surveyors indicate the purpose of each valuation..52

Table 4.14 Response indicating the level of influence of clients in capital valuation.-   52

LIST OF FIGURES

Fig. 1.1       Map of Rivers State       –        –        –        –        –        –        –        8

Fig 1.2      Map of Port Harcourt-         –          –          – –        –        –        9

TABLE OF CONTENTS

Cover page –        –        –        –        –        –        –        –        i

Title Page    –        –        –        –        –        –        –        –        ii       

Certification         –        –        –        –        –        –        –        –        iii

Dedication  –        –        –        –        –        –        –                  iv

Acknowledgement         –        –        –        –        –        –        –        v

Abstract               –        –        –        –        –        –        –        iv

List of tables        –        –        –        –        –        –        –        –        v

List of figures       –        –        –        –        –        –        –        –        vi

Table of Content

CHAPTER 1:                 INTRODUCTION

1.1       Background to the Study      –        –        –        –        –        1

1.2     Statement of  Problem   –                  –        –        –        –          2     

1.3     Aim and Objectives       –        –        –        –        –        –          3

1.4Research Questions  –        –        –        –        –        –          3

1.5      Scope of the Study       –        –        –        –        –        –          4

1.6Significance of the Study    –        –        –        –        –        –        4

1.7     Study Area –        –        –        –        –        –        –        5      

1.8     Limitation to the Study  –        –        –        –        –        9

1.9     Definition of Operational Terms       –        –        –        –        10     

CHAPTER 2:       LITERATURE REVIEW 

2.1Introduction    –        –        –        –        –        –        –        12

2.2     The Concept of Valuation                 –        –        –        –        12

2.2.1     Who is an Estate Surveyor andValuer    –        –        –        13

2.3Functions of an Estate Surveyor and  Valuer in Valuation          –        13              

2.4The End Result of A valuation              –        –        –        –        14

2.5 Types of Valuation  –        –        –        –        –        –        14

2.5.1  Statutory Valuations    –        –        –        –        –        –        14

2.5.2 Non-Statutory Valuations       –        –        –        –        –        15     

2.6     Basis of Carrying out Valuation       –        –        –        –        15

2.7     Purpose of Valuation     –        –        –        –        –        –        16

2.7.1  Compensation and Compulsory Acquisition       –        –        –        17

2.7.2  Company Accounts and Merger       –        –        –        –        17

2.7.3  Investment  –        –        –        –        –        –        –        17

2.7.4  Sale   –        –        —       –        –        —       –        –        18     

2.7.5  Purchase     –        –        –        –        –        –        –        18

2.7.6 Rating and Taxation       –        –        –        –        –        –        18

2.7.7Mortgage      –        –        –        –        –        –        –        –        18

2.8Classification of Landed Properties that can be Valued     –        –        19     

2.8.1Residential Properties     –        –        –        –        –        –        19

2.8.2 Commercial Properties   –        –        –        –        –        –        19     

2.8.3 Industrial Properties       –        –        –        –        –        –        19

2.8.4 Agricultural Properties   –        –        –        –        –        –        19

2.8.5 Recreational Properties  –        –        –        –        –        –        20

2.8.6 Public Properties  –        –        –        –        –        –        20

2.8.7 Religious Properties                 –        –        –        –        –        20

2.9Summary of the Methods Used in Determining Capital Values of

Landed Properties          –        –        –        –        –        –        –        20

2.9.1Profit/Account Method of Valuation –        –        –        –        22

2.9.2  Depreciated Replacement Cost Method of Valuation    –        26     

2.9.3  Comparative/Comparison Method   –        –        –        –        31

2.9.4  Investment method        –        –        –        –        –        –        32

2.9.5 Residual Method   –        –        –        –        –        –        34

CHAPTER 3:                 RESEARCH METHODOLOGY

3.1 Introduction   –        –        –        –        –        –        –        37

3.2     Research Design   –        –        –        –        –        –        37     

3.3     The Study Population    –        –        –        –        –        –        37

3.4     Sampling Method and Sampling Size         –        –        –        –        38

3.5     Research instruments     –        –        –        –        –        –        38

3.6Method of Data Collection –        –        –        –        –        –        39

3.7Methods of Data Analysis           –        –        –        –        –        39

CHAPTER 4:       DATA PRESENTATION AND ANALYSIS

4.1            Introduction –        —       –        –        –        –        –        41

4.2     Analysis of Questionnaire Distribution and Retrived   —       –        41

4.3       Analysis of Respondents Characteristics –        –        –        42

4.4     Data Analysis, Results  and Interpretations                  –        –        43

CHAPTER 5:       SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1     Introduction         –        –        –        –        –        –        –        53

5.2Summary of Findings         –        –        –        –        –        –        53

5.3     Conclusion —       –        –        –        –        –        –        53              

5.4     Recommendations         –        –        –        –        –        –        54

REFERENCES    –        –        –        –        –        –        –        55

APPENDICES     –        –        –        –        –        –        –        57

CHAPTER 1

INTRODUCTION

1.1      Background to the Study

The evolution of Estate surveying and valuation as a distinct and recognized profession is a middle-age development, rooted in the feudal societies of Europe, the Lords of theManor of the Medieval Europe owned extensive and sometimes far-flung landholdings,usually only a small portion of each of these estates was held and exploited directly bythe land owners, the rest which constitute the bulk of these holdings, each landownerappointed stewards or agents to oversee their estates for them.

At the beginning, what was required of these stewards was that they were men of Honour, which could be trusted with fiduciary relationship. This explains the sobriquet, “Noble” sobriquet, ‘Noble’, which is attached to the profession of estate surveying and valuation. As time went on and the business of managing these estates increased in sophistication, the requirements for the job increased. First it became necessary that the practitioners keep pace with the ever-increasing demand of record keeping. Next knowledge of book-keeping was required to accommodate the accounting requirement involved and later on, the ability to tackle various proprietary and commercial relationships involved in managing these estates arose, thus estate profession became necessary.

The foundation of what is now known variously as Estate Management, Estate Surveying and valuation, or Land Economics was laid in the mid-eighteenth century. In the wake of the industrial revolution, a major re-organization took place in most parts of Europe. In the UK especially, this resulted in a massive population shift from rural to urban areas and a subsequent re-distribution of land rights and property interests.

The real estate profession has come of age and it is fast gathering momentum in Nigeria. Realtors and other investors in real properties seek advice from estate surveyors and valuers regarding the open market capital value of their properties    regarding the open market value of their properties. (Wikipedia).

Real properties vary in type ranging from residential,commercial,industrial,recreational, and institutional to specialized properties such as churches, mosques and shrines. Real properties used for residential, commercial and industrial purposes form the bedrock of real estate market and transactions in the sense that they are dynamic particularly in Rivers state. Most investors in landed properties, property owners, developers and even financial institutions all over the world are curious to know how much their property would worth if sold in the open market and this has informed the carrying out of this study.This research will investigate the contemporary or conventional methods of determining the capital values of real properties by Estate Surveyors and Valuers in Nigeria generally and Port Harcourt in particular.

1.2     Statement of Problem   

The determination of capital values of real properties is an exclusive function of a professional Estate Surveyor and Valuerwho advises on how much a property would worth if sold in the open market at a specific date with the operation of the prevailing market forces on that date.

It is however very pathetic to observe that most properties in Rivers State today are sold by quacks that are not professionally trained to determine the open market capital value of real properties. Thus, properties are sold and purchased at values far below or beyond their expected market capital values.

This research will examine the conventional methods of determining the capital values of real properties by professional Estate Surveyors and Valuers.

1.3     Aim and Objectives

The primary aim of this research is to investigate the various methods of determining capital values of real properties by Estate Surveyors and Valuers in Nigeria with particular reference to Rivers state with a view to identifying the strength and weakness of each method and thereafter proffering possible solutions to them.

The following objectives will be judiciously followed in order to achieve the afore-stated aim of study.

i.        To examine the conventional methods currently being adopted by Estate Surveying and Valuation firms in determining capital values of real properties in Rivers state.

ii.       To identify the various purposes for determining the capital values of real properties in the area of study.

iii.      To identify problems currently being encountered in determining capital values of real properties by the Estate surveyors and Valuers in the area of study.

iv.      To proffer possible solutions to those problems by making appropriate recommendations.

v.       To examine the basis of determining capital values of properties in the study area.

1.4    Research  Questions

In order to highlight the statement of problem, the following research questions have been formulated.

i.        What are the purposes for determining the capital value of real properties by Estate Surveyors and Valuers?

ii.       What are the various types of real properties in respect of which valuation for capital values can be carried upon?

iii.      What are the methods of valuation that can be adopted by valuers to determine the capital values of real properties?

iv.      Who is indeed an Estate Surveyor and Valuer?

v.       What are the basis for determining capital values?

1.5     Scope of the Study

The study entails an investigation into the current methods of determining capital values of real properties in Rivers State. Few examples out of the total number of practicing Estate Surveying firms in both private and public sectors have been selected due to difficulty of identifying the whole. In addition, emphasis has been laid onselected residential and commercial properties and not the entire real properties sectors in Rivers State.

In addition, the merits and demerits of each method of determining the capital values of real properties will be examined and recommendations will be given as to the way forward.

Due to the fact that Rivers state has a multi-ethnic nature it would appear almost impossible to carry out a research on the whole state. For this aforementioned reason the study will be centered in Port Harcourt the capital city.

1.6     Significance of the Study

This study is relevant and significant because it will expose the strength and weaknesses of each method of determining capital values of different types of real properties by Estate Surveyors and Valuers in Rivers State. Consequently, the findings and recommendations will be corrective measures to improve the system of determining capital values of real properties in Rivers State.

The outcome of the research will be of immense benefit to upcoming researchers, professionals and investors in real properties. Investors in real estate will also benefit from the research, they will come to the awareness that there is a formal way of determining capital values of their landed properties by trained professional and not through quacks.

1.7     The Study Area

Rivers State, also known simply as Rivers, is one of the 36 states ofNigeria. According to census data released in 2006, the state has a population of 5,198,716,     making it the sixth-most populous state in the country.Its capital and largest city, Port          Harcourt, is economically significant as the centre of Nigeria’s oil industry. Rivers State       is bounded on the South by the Atlantic Ocean, to the North by Imo, Abia and Anambra States, to the East by AkwaIbom State, and to the West by Bayelsa and   Delta states. It is home to many indigenous ethnic groups:Abua, Ikwerre, Ibani, Opobo, Eleme, Okrika, and Kalabari, Etche, Ogba, Ogoni, Engenni, Egbema, Obolo and others. The people from Rivers State are known as “Riverians”.

The inland part of the state consists of tropical rainforest; towards the coast the typical Niger Delta environment features many mangrove swamps.

1.7.1  Climate

Rainfall is generally seasonal, variable, as well as heavy, and occurs between the months of March and October through November. The wet season peaks in July, lasting more than 290 days. The only dry months are January and February having little to no effect.

Total annual rainfall decreases from about 4,700 mm (185 in) on the coast, to about 1,700 mm (67 in) in the extreme north. It is 4,698 mm (185 in) at Bonny along the coast and 1,862 mm (73 in) at Degema. For Port Harcourt, temperatures throughout      the year are relatively constant with little variation throughout the course of the seasons. Average temperatures are typically between 25 °C−28 °C. Some parts of the state still receive up to 150 mm (6 in) of rainfall during the dry period. Relative humidityrarely dips below 60% and fluctuates between 90% and 100% for most of the year.

1.7.2  Geography

Rivers State is a predominantly low-lying pluvial state in southern Nigeria, located in the eastern part of the Niger Delta on the oceanward extension of the Benue Trough. The inland part of the state consists of tropical rainforest, and towards the coast, the typical Niger Delta environment features many mangrove swamps. Rivers State has a total area of 11,077 km² (4,277 mi²), making it the 26th largest state in Nigeria. Surrounding states are Imo, Abia and Anambra to the north, AkwaIbom to the east and Bayelsa to the west. On the south, it is bounded by the Atlantic Ocean. Its topography ranges from flat plains, with a network of rivers to tributaries.

1.7.3  Terrain

The land surface of Rivers State can be divided into three zones: freshwater swamps, mangrove swamps and coastal sand ridges. The freshwater zone extends north wards from the mangrove swamps. This land surface is generally less than 20m above sea level.As a lower Niger floodplain, it contains a greater silt and clay foundation and is more susceptible to perennial inundation by river floods. The floodplain’s total thickness rises to about 45m in the northeast and over 9m in the beach ridge barrier zones to the southwest.

On coastal sand ridges, the soils are mostly sandy or sandy loams. Various crops are supported including coconut, oil palm, raffia palm and cocoyam. The drier upland region of Rivers State covers 61% of landmass while the riverine areas, with a relief range of 2m to 5m, take up 39%.

1.7.4  Natural resources

The state is famous for its vast reserves of crude oil and natural gas. It was perhaps the richest and most important section of the African zone of the British Empire. Rivers State has two major oil refineries, two major seaports, airports, and various industrial estates spread across the land. More than 60% of the country’s output of crude oil is produced in the state. Other natural resources found within its boundaries are silica sand, glass sand and clay.

1.7.5  Agriculture

Prior to the discovery of oil in commercial quantity in 1951, Agriculture was the primary occupation of the people of Rivers State. Around the 19th century when the industrial revolution reached its peak in England, the area was then referred to as Oil Rivers Protectorate, this was due to its abundant palm oil and kernel which basically constituted the main revenue source of the country. In a sample survey carried out by the Federal Ministry of Agriculture and Natural Resources, about 40% of the rural inhabitants were committed to farming in 1983. Rivers State is one of the leading states in the production of yam, cassava, cocoyam, maize, rice and beans. About 39% (760,000 hectares) of the state’s total land mass, particularly in the upland area, is suitable for cultivation. Major cash crops produced are oil palm products, rubber, coconut, raffia palm and jute. Other crops grown for food include, vegetables, melon, pineapples, mango, pepper, banana and plantain. The fishing industry is an important sector in Rivers State. Besides being lucrative, fishing is also a favourite past time activity. There are approximately 270 species of fish existing; with many artisanal fishermen in the riverine areas. The state provides valuable seafoods such as crabs, oysters, shrimps and sea snails among others. Vertebrates like birds, mammals and reptiles are also found in the region.

         

1.8     Limitations of the Study

Diverse problems were encountered in the course of carrying out this research and these had significant impact on the timely completion of the study.

Firstly was the issue of inadequate finance. The researcher did not have enough money to needed to fund the research as at when due, and therefore resorted to alternative sources thereby using money meant for other purposes finance the    research.

Secondly, time was another constraint to the study in the sense that it was done simultaneously with the normal school programmes such as lectures, tests, practical and field trips. The researcher had to adopt time apportionment basis by working out     tight schedules that could allow me visit the study area severally and create a balance      with other academic activities.

Thirdly, was the issue of proper understanding of the prime purpose of this research by the respondents particularly whose properties have been valued for one purpose or the other by Estate Surveyors and Valuers. Some of them were not very cooperative during the data collection.

Fourthly, was the very tight schedule of professional Estate Surveyors and Valuers who hardly found time to attend to questions posed orally for the purposes of giving a vital information that are pertinent to the study. Most of the questionnaires administered were very late due to lack of time on the part of these Estate Valuers.

It is, however, pertinent to mention that despite the above constraints which acted as limitations to the study, the research was concluded on schedule with very rewarding findings and recommendations.

1.9     Definition of Operational Terms

          The following terms have been specifically defined to suit purpose of this          study.

Investigation: The oxford advanced learners Dictionary of Current English defines it as a detailed enquiry into the occurrence and outcome of a matter be it social or scientific.

Method: The same dictionary defines it as procedures, techniques or modalities for doing a thing.

Determining: The dictionary defines it as the process of assessing or evaluating a thing.

Capital Value: This refers to the worth of an asset or real property if offered forsalein the open market on the condition that both buyer and seller are fully informed about the conditions of the property and prevailing market situations. It is ruling price in the market which is determined by demand and supply forces.

Real Properties:In English common law, real property, real estate, realty, or immovable property is land which is the property of some person and all structures (also called improvements or fixtures) integrated with or affixed to the land, including crops, buildings, machinery, wells, dams, ponds, mines, canals, and roads, among other things.

Estate Surveyors And Valuers: These are professionals who have been trained in all matters on land and building and who by law are qualified to practice Estate Surveying and Valuation in Nigeria through the enabling decree of the Nigerian Institution of Estate Surveyors and Valuers  (NIESV) and the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON).

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