What you should know about valuation

Not many people understand what valuers consider when determining market prices of property in real estate. From my personal experience, I have in the recent past engaged different valuation to value a house I wanted to buy but all of them came up with different values. What do these professionals look at?

Pravin, Nairobi

For starters, valuation is the practice of analysing real properties and developing an opinion on their value using tested and proven scientific processes and methods.

Registered valuers are often required, not only when buying and selling property but also for other purposes including insurance.

Others are when banks are advancing loans against securities, reparation in cases of disputes, for court sureties, book value and determination of land rates.

Valuation also comes in handy before the State acquires private property by compulsory acquisition. For instance, such valuation reports would currently come in handy to individuals whose property has been acquired by the State for construction of the Standard Gauge Railway (SGR).

Professionally, a valuation report may help to tabulate compensation amount and it should only be undertaken by professionals registered with the Valuers Registration Board (VRB)

The valuers analyse several aspects of property before arriving at a market price by mainly considering the locality, state of repairs and maintenance of the property and soil characteristics.

Other variables include topography, geological and environmental components, financial factors, and prevailing macro-economic and fiscal policies.

Social, political and cultural factors and a host of legal factors surrounding the instrument of ownership are also amongst their areas of interest.

Even as involving the professionals in real estate transactions are important, prospective buyers on property are perplexed when two different valuers give different market values.

The argument for the different values could be that the variables that valuers consider during valuation keep changing. Nevertheless, the margin of error should not be so wide as to arouse suspicion on the credibility of the valuer.

Professional valuers use various methods but the common ones are the investment approach and the depreciated construction cost and sales comparable method.

 Finally, valuation reports have several factual details like the plot number of the property, date of inspection, location of the property and details on the title deed.

The report also entails social and infrastructural services within and near the property such as roads, electricity and piped water. It also has details of the plot, which include the shape, topography and type of soil. Valuers also describe the type of development on the plot before winding up the report with the valuer’s opinion and estimate the market value at that time. As a rule of thumb, It is paramount to engage a registered valuer in property transactions to avoid making rash decisions that may include selling at a lower value or paying more.

The writer is an Advocate of the High Court of Kenya

 harold.ayodo@lsk.or.ke