Real Estate is a very unique form of capital investment. Land, among majority of African communities, is a very valuable resource. This is a diminishing resource unfortunately, as the population swells. The subdivision of land into small pieces makes its price to be on an upward trend almost all the time.
The fact that land/real estate is an immovable asset, coupled with the fact that there is no free flow of information on property markets, make many people ignorant of dealings in real estate.
The role of the real estate valuer is thus critical as he advises the various stakeholders on the estimated market value or worth of properties which will be used in real estate transactions.
Market value of land is defined in the international valuation standards handbook as “…..the most probable amount for which a property would reasonably be expected to sell at a certain date between a willing buyer and a willing seller in an arm’s length transaction after a proper and reasonable marketing period wherein the parties each acted knowledgeably, prudently and without compulsion”.
Without free flow of information, the concept of market value is difficult to obtain since both the buyer and seller do not act with knowledge. In many rural communities it is almost a taboo to sell real estate, especially ancestral land. This makes the availability of information in such areas quite scarce. The situation is worse in some areas because land prices are only discussed by the elders and are usually secretive hence making it even more mystical.
This creates the necessity therefore to have a professional who will competently advise on the value of land for purposes of transaction, which is necessary for any economy.
The Kenya Government acknowledges that there is very little flow of real estate information especially in the rural areas. According to the Registered Land Act Cap 300 (Laws of Kenya), any dealing in non-urban land will have to be consented by the Land Control Board. The board may refuse to sanction a sale if they feel that the price/consideration is unfavorable to one party.
In the banking industry, for one to qualify for a mortgage, a valuer must be consulted to advise on the worth or market value of the property before the bank can disburse any money to ensure that the property being held as security can fetch the advanced amount.
In the early 1990’s the banking industry had many bad and doubtful debts which were partly due to lending money against “suspect” titles. Grabbed property constructed on road reserves were hurriedly issued with title deeds and presented to the bank for borrowing. The bank would eventually lose when it tried to sell these properties only to realize that they could not be sold in the open market. The valuer’s role thus came in handy as they can tell if the property is on road reserves, or on a public plot, and promptly advise the lending authorities.
When determining the value of a property, the valuer usually uses three main conventional methods:-
(i) Market Comparison
Here the valuer gets data on sales of similar properties to be able to come up with a logical estimate of the value. For example, if a property in Buruburu (an estate in Nairobi) is on sale, a prudent valuer will find out how much other similar properties have been selling. This is the most commonly used method.
(ii) Investment/Income Method
In this case the valuer assesses the income derived from a particular property in assessing the fair value of a property. There is usually good correlation between income (Rent) and value hence guiding the valuer in assessing the value.
(ii) Cost Method
In this case the valuer assesses how much it costs to purchase or construct a property and derives the value for the property.
Contrary to popular belief, valuers do not give value but merely interpret the market to find out the worth or value of a property.
It advisable that one consults to ensure that he understands his property’s true worth before transacting. The valuer will appraise the property objectively and independently. A valuer may also help point out any anomalies in registration and/or survey beacons as these are inspected while valuing.
As is with many professionals, valuers are required to follow a code of ethics governing their practice. Valuers in this country are regulated by two main statutory bodies namely, the Valuers Registration Board (VRB) and the Institution of Surveyors of Kenya (ISK) which among other things determine the charging of fees for valuers and disciplining of errant members.
By David Irimu
Metrocosmo Limited – Valuers, Management and Real Estate Consultants
Director of Operations
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