Land is a very valuable resource but it is diminishing with population increase. Real estate, like land, is an immovable asset but many people are ignorant of its dealings.
The role of the real estate valuer is critical as he or she advises stakeholders on the estimated market value or worth of properties that will be used in real estate transactions.
The 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”.
Consulted for mortgage
Prudential Financial Group’s Investment Manager David Mworia says: “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 land, especially an ancestral one. In some areas, land prices are only discussed by the elders and are usually secretive, making it more mystical.
The need for a professional valuer who will competently advise on the value of land for purposes of transaction is necessary for any economy.
The Government acknowledges 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 it feels the price consideration is unfavourable 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 in question before any monies can be disbursed. This is to ensure the property being held as security can fetch the advanced amount.
In the early 1990s, the banking industry held many bad and doubtful debts partly due to lending money against “suspect” titles. Grabbed property constructed on road reserves were hurriedly issued with title deeds and presented to banks as security. Banks eventually lost when they tried selling the properties.
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 is advisable that one consults a valuer to ensure he or she understands a property’s true worth before transacting.
A valuer will appraise a property objectively and independently. He or she 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.
Costing a property
When determining the value of a property, the valuer usually uses three main conventional methods:
1. Market comparison
Here the valuer gets data on sales of similar properties to come up with a logical estimate of the value. This is the most commonly used method.
2. 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.
3. 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.
The writer is a columnist with the Financial Journal.