1 CHAPTER ONE INTRODUCTION 1.1 Background to the Study There is increased awareness in recent times of the urgent need to improve valuers‟ methodology and practice along national, regional and international boundaries. This is informed by the growing demand on the side of investors who can no longer accommodate unreliable valuation advice, and instead are requiring sophisticated investment guidance (Gilbertson & Preston, 2005; Ogunba & Ajayi, 2007). This buttresses the strategic relevance of valuation in modern investment decision often required for sales and acquisition, mortgage transactions, insurance policies, measurement of property investment performance among others. Harvard (1995) reported that without reliable valuations, investment in property could not be reliable and efficient. Valuation has been variously described as both the art and science of estimating the worth of an interest in property for various purposes (Millington, 1988; Ajayi, 2003). The act of valuation is an inexact science largely because it depends on individual valuer‟s expertise, training, intuitional judgement, and underlying assumptions. This position coupled with the complexities of the property market in which valuers operate and the unique characteristics of property give rise to valuation variations and inaccuracies. As such, valuation standards are required to assist valuers in their process of value estimation to enable them arrive at a more transparent and objective opinion of value in accordance with the basis appropriate for each purpose that meet the requirements of their clients as the occasion demands. Valuation Standards are established and accepted procedural rules, ethics and guidance for professional valuers in the conduct of their valuation assignments. It is a summary of best 2 practice and general established criteria that are recognised and acceptable by professional valuers to guide their conduct so as to ensure reliability, effectiveness and transparency in their valuation services. According to Ajayi (2009), Valuation Standards are quality control principles (mandatory rules, best practice guidance and related commentary) for valuers under the direction of a valuation regulatory body on how to undertake and report valuations, especially those that would be relied upon by international investors and other third party stakeholders. Emphasis on valuation standards assumed greater prominence in the last quarter of the 20th Century as a result of the financial debacle which was traced to property related transactions (Gilbertson & Preston, 2005). These financial crises began in the United Kingdom (UK) in the early 1970s and were followed by the United States of America (USA) saving and loan crisis in 1980s. The UK property market also collapsed in the 1990s. All these property and financial crises were partly attributed to poor quality of valuations used to secure bank loans (Gilbertson & Preston, 2005; Dugeri, Gambo & Ajayi, 2012). This prompted the establishment of valuation standards at various levels in Europe and US. The International Valuation Standards known as the White Book is produced by the International Valuation Standards Council (IVSC) which has a universal status recommended for adoption by all regions (continents) and nations (countries). The regional valuation Standards is applicable in a given continent. These regional standards include European Valuation Standards manual known as the Blue Book produced by The European Group of Valuers (TEGoVA); the Uniform Standards of Professional Appraisal Practice (USPAP) produced by the US; and the Canadian appraisers known as The Appraisal Foundation (TAF); and also Australia and New Zealand Valuation and Property Standards produced by the Australian Property Institute (API). The National Valuation Standards are produced by each country to reflect the peculiarities of that country. Some of these national valuation standards include the Appraisal 3 and Valuation Standards by the Royal Institution of Chartered Surveyors (RICS) known as the RICS Red Book; Valuation Standards by the Hon Kong Institute of Surveyors; Philippine Valuation Standards; Guidance and Valuation Standards by the Nigerian Institution of Estate Surveyors and Valuers; among others. In Nigeria today, there is increasing concern over the quality of valuation practice among valuers ( Babawale, 2008; Gambo, 2010). Udo-Akagha (1985) in writing a foreword to the first edition of „Guidance Notes on Property Valuation‟ in Nigeria, lamented that: “there ought to be no reason why two or more valuers valuing the same interest in a property for the same purpose and at the same time should not arrive at the same or similar results if they make use of the same data and follow the same valuation approach.” Correspondingly, the editorial in the 1998 edition of the „The Estate Surveyor and Valuer‟, the journal of the Nigerian Institution of Estate Surveyors and Valuers, bemoaned that: “the valuation process has been the focus of recent debate and controversy both within and outside the profession as cases of two or more valuers giving different capital values with wide margins of variation for the same property abound”. In the same vein, efforts from the academia in Nigeria investigating issues related to valuation accuracy and variance mostly concluded that valuation as it is now, is not a good indicator for market price and mortgage transactions due to prevalent valuation non- reliability, inconsistency, and irrationality (Ogunba & Ajayi, 1998; Ajibola, 2006; Babawale & Ajayi, 2011). The introduction of the use and enforcement of valuation standards is a major effort to address problem of inconsistency in valuation. Ajayi (2009) remarked that the International 4 Valuations Standards Council is not a regulatory body and it has no ability to sanction any entity or valuer for breach of its standards. This leaves the International Valuation Standards without enforcing mechanism. Therefore the responsibility of enforcing standards by way of sanction or any similar action must be done by regulatory bodies of individual States, or by self-regulating professional organizations. It is therefore the motivation of this study to probe issues related to compliance with valuation standards among Nigerian valuers and its enforcement by regulatory bodies. Considering the cardinal role valuation plays in the efficient functioning of property and financial market, such scrutiny is not only paramount and imperative but also timely and exigent. 1.2 Statement of the Problem The aftermath of property and financial debacles which were traceable to poor quality of property valuations prompted stakeholders in the developed economies of Europe and United States to start probing issues related to valuation methodology and processes (Malaquin, 1997). This compelled the Royal Institution of Chartered Surveyors in the United Kingdom to develop and tighten standards to ensure that valuations produced by members achieved high standards of integrity, clarity and conform to recognised bases appropriate for each purpose. A Similar trail steered the formation of The Appraisal Foundation (TAF) by major US and Canadian Appraisal Organisations to produce the Uniform Standards of Professional Appraisal Practice, USPAP (Ajayi, 2009). This frantic move by separate professional bodies in Europe, United States of America, and Canada provided the premise for the development of valuation standards at international, regional and national levels to meet the investors‟ and valuers‟ clientele requirements in the property, business and financial circle. These standards at international, regional, and national levels have undergone refinements since the mid- 1970s to date. However, in Nigeria, despite the dissatisfaction expressed by mortgage and financial institutions with the degree of reliability and inconsistency in valuations carried out 5 by valuers as noted by Adegoke, Olaleye, and Oloyede, (2011); Ayedun, Ogunba and Oloyede, (2011); no significant effort is made towards refinement of the national valuation standards (Ogunba & Ajayi, 2007). The Guidance Notes and Valuation Standards of the Nigerian Institution of Estate Surveyors and Valuers came into existence in 1985 and was revised in 2006; since then it has not been updated to reflect the peculiarities of Nigeria‟s property market and the fast changing business and economic environment unlike the RICS‟s Red Book in the UK; TAF‟s Uniform Standards of Professional Appraisal Practice in the US and Canada; Hon Kong Institute of Surveyors‟ Valuation Standards etc. Appraisers and valuers in Europe, United States of America, Canada, Australia, and New Zealand are keeping abreast with the valuation standards at both national and international levels (Ellis, 2000; 2001). In Nigeria, Ajayi (2009) decried the situation and asserted that „the awareness of and use of international valuation standards and even the Standards and Guidance Notes of the Nigerian Institution of Estate Surveyors and Valuers is very low among Nigerian valuers; and that many have never even seen the standards‟. Such claim needs to be ascertained empirically. The International Valuation Standards provided by the International Valuation Standards Council is to serve as advisory and guide to be adopted and enforced by national professional and regulatory bodies with a view to promoting standards that are globally accepted, thereby harmonising standards among the world‟s state and to identify and make disclosure of differences in statements or applications of standards as they occur (Migrim, 2001). It is the responsibility of the valuation regulatory authority of each nation to ensure that standards are being enforced because the International Valuation Standards Council is not a regulatory body hence it lacks the power to enforce valuation standards in any country or to sanction any valuer or entity for breach of its standards. Ajayi (2009) maintained that enforcement of valuation standards may be done by regulatory bodies of individual states or by self- 6 regulatory organisations. Other countries such as the UK and Hong Kong have adopted the International Valuation Standards and incorporated in their national standards adequate provision for enforcement by sanctioning any valuer in the event of obvious breach. The NIESV Valuation Standards and Guidance Notes is like a fragmented portion of International Valuation Standards Council‟s (IVSC) Valuation Standards 2003 edition which has been reviewed more than five times to date. The extent to which Nigerian Institution of Estate Surveyors and Valuers‟ (NIESV) Valuation Standards ensure compliance and provide enforcement measures is not yet clear. The few studies probing the quality of valuation practice in Nigeria have only addressed the subject of valuation standards in part and based their studies on Metropolitan Lagos (see Ogunba & Ajayi, 1998; Ogunba & Ajayi, 2000; Babawale & Koleoso, 2006; Ogunba & Ajayi, 2007; Babawale, 2008; Babawale, 2012a). In addition to that, none of these earlier studies considered enforcement of valuation standards. Although the previous studies are timely pointers to the need to close the gap in the face of globalisation, suffice it to say that the width and depth of the study required to budge valuation practice in Nigeria to meet the world order and put it in a state of global competiveness is beyond the scope of a short paper, rather requires wider coverage and depth (Ajayi, 1990, Ogunba &Aj ayi, 2007) In Nigeria, several academic attempts have been made to investigate issues related to valuation accuracy and variance (see Igboko, 1992; Ogunba, 1997; Ogunba and Ajayi, 1998; Aluko, 2000; Ajibola, 2006; Babawale, 2008, Ayedun, 2009). These studies show that valuation as at present is not a good proxy for sale and mortgage transactions in Lagos. All these studies revealed that there are no commonalities in valuation practice as significant variance exists. Interestingly, all the studies identified that the absence of a regulatory frame work contributed to valuation inaccuracy/variance and recommended that compliance with valuation standards and enforcement by regulatory bodies may improve the quality of 7 valuation practice in Nigeria. It is against the foregoing that this study intends to undertake an all-inclusive study probing the use of valuation standards in practice and the enforcement measures put in place by the regulatory bodies in Nigeria: 1.3 Aim and Objectives The aim of the study is to examine the use and enforcement of Valuation Standards in Nigeria with a view to developing a framework to guide and improve the use of valuation standards for valuation best practices in the country. The specific objectives are to: 1) Evaluate the level of Nigerian valuers‟ awareness of Valuation Standards; 2) Ascertain the valuation standards in use by Nigerian valuers; 3) Determine the extent of compliance with Valuation Standards by Nigerian valuers in practice; 4) Examine enforcement measures available to the regulatory bodies in Nigeria to ensure compliance by valuers; 5) Investigate factors influencing the use and enforcement of Valuation Standards in the study areas; and 6) Develop a framework that serves as a guide for the use and enforcement of valuation standards in Nigeria. 1.4 Research Questions This work sought to answer the following questions: 1) What is the level of Nigerian valuers‟ awareness of Valuation Standards? 2) What standards are in use by valuers in Nigeria? 3) To what extent do Nigerian valuers comply with the Valuation Standards in practice? 4) What enforcement measures are available to the regulatory bodies to ensure compliance with Valuation Standards? 8 5) What factors influence the use and enforcement of Valuation Standards? 6) What framework can be developed to guide use and enforcement of valuation standards in Nigeria? 1.5 Working Hypotheses H01 There is no significant variation in the level of valuers‟ awareness of Valuation Standards H02 There is no significant variation on the extent to which Nigerian valuers comply with Valuation Standards in practice H03 There is no significant variation on measures available to the regulatory bodies to ensure enforcement of Valuation Standards H04 There is no significant relationship between the use of valuation standards and factors influencing the use of Valuation Standards H05 There is no significant relationship between enforcement of valuation standards and factors influencing the enforcement of Valuation Standards 1.6 Significance of the Study The professional and regulatory bodies of most countries in the world are fast responding to the changing global economic environment by developing, tightening and refining professional practice standards. For instance the Royal Institution of Chartered Surveyors in the United Kingdom after which Nigeria patterned its professional practice started publishing Guidance Notes on Valuation of Assets first in 1976; second in 1981; and third, 1990 edition. This developed into the Manual of Valuation Guidance Notes first in 1980; second in 1981 and the third one in 1992. The RICS Appraisal and Valuation Standards Manual were published in series up to the last edition in 2002 and developed a more comprehensive RICS Appraisal and Valuation Standards first in 2003. It was amended nine times between 2003 9 and 2007. The RICS Valuation Standards were first published in 2008 and amended two times before the end of 2009 with presently the most current edition in 2014 (RICS, 2012). The professional association and the regulatory body of valuers in Nigeria- the Nigerian Institution of Estate Surveyors and Valuers (NIESV) and the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON) respectively, since the first published Guidance Notes on Property Valuation in 1985 which was revised in 2006 as the national valuation standards are yet to respond to the global trend of constantly refining and tightening standards of practice to reflect local market peculiarities. It is stating the obvious to say a study of this nature will depict the position of professional practice and expose the need to meet with global practices. More so, it may probably set the two professional bodies on their toes to respond to the growing demand to ensure best practice. The property market crash in the United Kingdom in the 1970s and 1990s, the financial crisis in the United States in the 1980s and also the recent bubble burst in 2007/2008 from subprime lending in the mortgage sector affected global property investment and finance. This study will enlighten and caution the Estates Surveyors and Valuers, financial analysts and investors on the need for compliance with and enforcement of standards which is attuned to the requirements of property, business and financial interest‟s valuations. In the absence of continuous refinement and monitoring of valuation standards application among Nigerian valuers, this research will set the pace for effective checking of the regulatory framework for valuers‟ conduct so that users of valuation services can build confidence and consciousness that a valuation provided is at least checked and in accordance with internationally recognised ethics. The study contributes to knowledge by highlighting the recent development in the content and practice of valuation with regards to application of valuation standards in valuation practice in Nigeria. This brought to limelight the extent of valuers‟ use and awareness of 10 valuation standards thereby identifying possible missing links for obvious improvement. It examines valuers‟ degree of compliance with the provisions of the standards. This will awake the consciousness of users of valuation reports on their right to ensure that valuations carried out by valuers are transparent, objective and in accordance with the tenets of best practice. It will caution valuers and users of valuation on the need for reliable valuation. It will also aid the professional regulatory bodies to anchor decisions on improving compliance and regulate the practice. The International Valuation Standards Council (2001) attributed the ability and capacity to adopt and conform to International Standards to the level of property market maturity of a nation. The study identifies and reports the level of valuers‟ professional attainment and standardisation of professional practice which Dugeri (2011) identified as an index of property market maturity. This will in turn assist investors with investment decisions to identify reliable and transparent interests in both financial and property markets. The study established factors influencing use and enforcement of valuation standards in a developing economy particularly Nigeria. This will be helpful particularly to the professional regulatory authorities and government in policy making so as to mitigate those factors that hinders best practice and encourage professionalism to thrive. The study re-examines the implication of failure to comply with valuation standards and identifies areas of possible improvement, at least at national level, thereby encouraging periodic research and refinement of the national valuation standards. Similarly, it provides empirical evidence that will facilitate comparison of valuation practice in Nigeria with other economies internationally, and also supply practical information for global investors to appreciate the stage for investment decision. 11 The study developed a framework for the use and enforcement of valuation standards in Nigeria. The developed framework can be used to guide and improve compliance with and enforcement of valuation standards in Nigeria. The developed framework if adopted will help valuation practice in Nigeria to align with global best practice to ensure valuation carried out by members achieve high integrity, clarity, and are reported in accordance with the required bases appropriate for each purpose. This framework can also be applied in any developing economy with similar characteristics as Nigeria. 1.7 Scope and Delimitation of Study A well designed research defines the operational limit which it delineates for effective coverage depending on the target audience, available resources and time frame. Real estate practice is fast growing in Nigeria on almost daily basis (Ayedun, 2009). As such, it is not realistic to expect to be able to cover the entire country. The Study basically targeted practicing Estate surveyors and Valuers and the regulatory bodies particularly in Lagos, Abuja and Port Harcourt. These three cities were selected because they are the most active property markets and constitute over 60% of valuation practice in Nigeria (Dugeri, 2011; Ogunba, 2013). Lagos is located in the South West, and was formerly the capital city of Nigeria. Lagos is said to be the most vibrant property market in Nigeria where the vast majority of Nigeria‟s valuation practice is generated (Ayedun, 2009). It remains the nation‟s commercial capital with over 80% of businesses having their head offices or at least a branch office there and it hosts 52% of the practicing Estate Surveyors and Valuers (Ayedun, 2009; Dugeri, 2011). The National Population Commission put the population of Lagos metropolis at 7, 557, 050 people in 2006 constituting 82.9% of the state population. 12 Abuja is located in the North Central Region of Nigeria and was proposed to be the new capital of Nigeria in 1976. It effectively became the nation‟s capital in 1991 and has since then enjoyed remarkable investment in infrastructure. Presently, Abuja‟s property market is second only to Lagos property market in terms of frequency and magnitude of property valuation. According to the 2006 national census it has a population of 1, 406, 239 which is entirely urban. It currently serves as the practice base of about 10% of property professionals in Nigeria (NIESV, 2006) Port Harcourt is located in the South-South Region of the country and is Nigeria‟s oil and gas hub. The Port Harcourt property market ranks next to those of Lagos and Abuja (Dugeri, 2011). The city has a population of 1,000,908 according to the 2006 census figure and has recently witnessed tremendous infrastructural development. The study captured the response of over 330 Estate surveyors and Valuers in private practice across Lagos, Abuja and Port Harcourt. Estate Surveyors and Valuers in the public sector are excluded as they are proscribed by the code of ethics from carrying out valuations for private consultation (Decree No 24 of 1975; Cap 111 LFN 1990, now Cap E13 LFN 2007). Data on enforcement of Valuation Standards were largely obtained from the authorities regulating Estate Surveying and Valuation practice in Nigeria. These include Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON); and Nigerian Institution of Estate Surveyors and Valuers (NIESV). The nature of valuers‟ professional practice in each study area- Lagos, Abuja and Port Harcourt was examined separately because the property market is highly localised in nature and no urban area can be representative of all the cities in the country since there will be different economic, cultural, social and institutional settings. The study is limited to the examination of the following issues: the perception of valuers‟ level of awareness of valuation standards; valuation standards in use in practice among Nigerian 13 valuers; extent of valuers‟ compliance with valuation standards using content analysis; and factors influencing use and enforcement of valuation standards. The study adopted cross-sectional survey approach using both qualitative and quantitative techniques for effective coverage of the objectives. Information were obtained from valuers in decision making position in each firm in the study areas and key officers of the regulatory authorities. Study on use and enforcement of valuation standards in Nigeria covers issue related to valuation professional standards how they are used and enforced in practice. In this study, the use of valuation standards is determined from valuers‟ perspective while enforcement is determined from the perspective of valuation professional regulatory bodies. Issues related to ethical standards or ethical code of conduct is outside the scope of this study. This is because professional standard only provides guide to best practice and does not regulate conduct of a professional; whereas, ethical code of conduct regulates conduct of professional members within the purview of professional practice as allowable professional ethics. Valuers‟ extent of compliance is determined by examining their adherence to the reporting requirements in the valuation standards. There are many provisions in the valuation standards such as general standards, asset standards, and valuation application. The General Standards covers scope of work, implementation and reporting. The Asset Standards covers business and business interest; intangible assets; plant and equipment; real property interest; investment property under construction; and financial instruments. The Valuation Applications covers valuation for financial reporting, and valuation of real property interest for secured lending. This study will only cover „General Standards‟ covering scope of work and reporting because the bulk of the valuation carried out by Nigeria valuers are mostly real property and other tangible assets often for mortgage purposes. Moreover, the scope of work covers the minimum requirement for every type and different levels of valuation reporting. 14 The scope of work covers a wide spectrum of valuation assignments. This provides the minimum requirements for reporting and each valuation report must capture the minimum reporting content. It is pertinent to state that extent of valuers‟ compliance is determined by examining compliance with adjusted minimum reporting content of International Valuation Standards which covers only valuation reporting. Figure 1: Map of Nigeria showing 36 States in Nigeria including case study cities- Lagos, Abuja and Port Harcourt Source: www.mapofworld.com-nigeria 14 http://www.mapofworld.com-nigeria/ 15 1.8 Definition of Technical Terms The following terms have been adopted, operationalized and used throughout the study: Applicability Issues: Matters relating to adherence with recognised national, regional and/or international best practices among property professionals. Basis of Valuation: A statement of the fundamental measurement principles of a valuation which represents the premise upon which the valuation is carried out. Best Practice(s): High standard of professional service(s) recognised and accepted internationally in accordance with globally established professional ethics. Compliance: Adherence to standard of professional practice recognised and accepted internationally in accordance with globally established professional ethics. Enforcement: Implementation of regulated practice by professional regulatory body. International Valuation Standards: Acceptable rules and regulatory framework for the delivery of credible and reliable valuation opinions by trained valuation professionals acting in most acceptable ethical manner in order to build confidence and trust in the valuation process, thereby making valuations meet global requirement of the fast changing economic environment and serve the interest of the sophisticated clientele. National Standards: Set of procedural rules and guidance notes for the conduct of professional practice within a state or national entity ensuring that professional services meet the best interest of service users in an ethical manner. These standards are set mostly to meet growing demand of a state or nation incidental to development of the economy; and often times fashioned to reflect globally accepted best practices. 16 Regional Standards: Set of rules and regulatory framework among professional within nations or countries in a continent for regulating professional conduct in accordance with globally acceptable best practices so as to meet regional market players‟ requirements. Sophistication: Increasing awareness of investors‟ knowledge of the market requirements and refinement, in response to the market sensitivity. Standards: recognised set rules and regulatory framework, generally accepted by members of valuation profession nationally, regionally and/or internationally which define: criteria to be used; step necessary to deal with any actual or perceived threat to members independence and objectivity; matters to be addressed when agreeing conditions of engagement; basis of value, assumption that must be taken into account when preparing a valuation; minimum reporting requirements; and matters that should be disclosed where valuations may be relied upon by third parties. Standardised Market Practices: An acceptable professional practice stemming from established global requirements, ensuring objectivity, fairness, openness, transparency and clarity of services; ultimately meeting the requirements of all market players in accordance with the tenets of best practices. Valuation Standards: An acceptable quality control manual emanating from professional principles, mandatory rules, best practice, guidance and related commentary produced by a valuation professional association or regulatory body for valuers under the scope of its jurisdiction. 1.9 Chapter Summary This chapter gives a comprehensive introductory overview of the study carried out. The research problem was highlighted contextually based on the observed issues in real practice 17 that ushered in the need for professional standardisation of valuation practice right from the financial crises that rocked the United Kingdom in the early 1970s to property crash in the United States of America in the early 1980s and most recently in the 2007/2008. The problem was also linked to dissatisfaction expressed by consumers of valuation over valuation carried out by Nigerian valuers and the query into the level of Nigerian valuers‟ awareness of valuation standards. The significance of the study was anchored on highlighting the recent development in the content and practice of valuation with respect to application of valuation standards in practice. It also buttressed the level of valuers‟ professional attainment in practice and standardisation of professional practice which is an index of property market maturity. The study covered Lagos, Abuja and Port Harcourt in geographical coverage as the most vibrant property markets in Nigeria which constitute over 60% of valuation practice in Nigeria. 18 CHAPTER TWO LITERATURE REVIEW 2.1 Preamble This chapter reviews related literature on valuation standards in different regions and countries in the world so as to establish existing gaps in previous studies that this study will fill. This is necessary in order to give focus to the existing study and appreciate the depth and relevance of other studies in relation to what is obtainable in Nigeria. The review examines the methodological approaches employed by other authors in a similar study elsewhere and considers their appropriateness to this study where feasible and also relates their findings to the present research. Valuation standards are evolving and research in that aspect are just beginning most especial in Africa. Majority of the few studies are carried out in UK, US, Germany, and Australia. 2.2 What is standard? A standard is a published document that contains a technical specification or other precise criteria designed to be used consistently as a rule, guideline or definition. Webster Reference Dictionary defines a standard as “anything taken by general consent as a basis of comparison, or established as a criterion, a grade or level of excellence or advancement generally regarded as right or fitting” (Webster, 1961 in McNamara, 1999). They are summary of best practice created by experienced experts in a particular field taking into account the interest of the experts, users of their services and relevant stakeholders. Standards contain technical specifications and other prescribed material designed to be used consistently as a rule, guideline, or definition and are aimed at helping to simplify and to increase the reliability, comparability; and effectiveness of goods and services (Gambo, 2014) 19 2.3 What are Valuation Standards? Valuation Standards are established and accepted procedural rules, ethics and guidance for professional valuers in the conduct of their valuation assignments. It is a summary of best practice and general established criteria that are recognised and acceptable by professional valuers to guide their conduct so as to ensure reliability, effectiveness and transparency in their valuation services. According to Ajayi (2009), Valuation Standards are quality control principles (mandatory rules, best practice guidance and related commentary) for valuers under the direction of a valuation regulatory body on how to undertake and report valuations, especially those that would be relied upon by international investors and other third party stakeholders. He further remarked that valuation standards should address: Generally Accepted Valuation Principles (GAVP); uniformity of valuation approaches; and ethical and competency requirements of practicing professional valuers. In addition, they should harmonise valuers/appraisers standards of value to meet various global clients‟ requirements [such as International Accounting Standards Board (IASB); International Financial Reporting Standards (IFRS); International Public Sector Accounting Standards, etc] at international level. Valuation standards are professional benchmarks or beacons that enable members to ensure that valuations produced by professional valuers achieve high standards of integrity, clarity, and objectivity and are reported in accordance with recognised bases that are appropriate for each purpose (Babawale, 2012a). Valuation standards are not concerned with „what‟ valuers should do but rather with „how‟ they should do it. According to International Valuation Standards Committee, IVSC (2003), valuation standards are not so much concerned with valuation theory and methods as they are with the mechanics of practice including the assembly, interpretation and reporting of information relevant to the task of valuation. The standards provide a framework for best practice in the execution and delivery 20 of valuations for different purposes but they do not instruct valuers on how to value, nor do they discuss valuation methodology or techniques (RICS, 2010). 2.4 Who sets valuation standards? Standards are set by bringing together the experience and expertise of all interested parties – the producers, sellers, buyers, users and regulators of a particular material, product, process or service (McNamara, 1999). Valuation standards are set by various professional bodies at international, regional and/or national levels. However, in some countries, valuation standards are set up by the government or its agency most especially standards that relate to statutory valuation (valuation for compensation and taxation purposes). For instance, in Germany, valuation standards and regulation are well entrenched in the national and Federal legislation (Lorenz, 2002). In some states in the United States of America standards for real estate practice is produced by the professional body in collaboration with the central government agency. The International Federation of Surveyors (IFS) noted that the main actors in the development of standards are usually the academia and public servants whose organizations can afford them the time to travel and spend time on the necessary meetings (IGS, No 28). This position was supported by Kohnstamm (1995) who observed that the task of formulation of uniform valuation standards often rests on academic researchers who supply information and analysis on the criteria used in comparative international studies as part of their role. 2.5 The Evolution of Valuation Standards Issues related to Valuation Standards came to the front burner with various unfolding developments at the national, regional and international levels in the last quarter of the twentieth century. These developments took place at various times and in different countries 21 and regions starting first with isolated standards in various countries and region then later developing into collective valuation standards at international level. In the United Kingdom, the Royal Institution of Chartered Surveyors (RICS) published Valuation Standards colloquially known as “The Red Book” in 1974 in the wake of the property market crash of that time (RICS, 2010). At that time, there was substantial criticism of the valuation profession from both within and outside the profession informed by the property market collapse of early 1970s (French, 2003). This prompted RICS to investigate valuation methods, principal bases and how they were applied. The move resulted in the production of the guidance notes (the original Red Book). At the commencement of the application of the original guidance notes, it was not mandatory and only covered asset valuations. Later on, when there was financial unease in the early 1990s, the RICS joined the British Banking Association (BBA) to produce a new version of the valuation guidance notes to guide bank lending early in 1994 (RICS, 1994). To aid further improvement, the Mallinson Committee was set up in 1994 to review all aspects of the commercial property valuation process. This resulted in the publication of the first unified mandatory valuation standards (The Red Book 4th edition) in 1995 (Mallinson, 1994) which have been mandatory since 1991 with the publication of the 1990 issue (RICS, 2010). French (2003) generalised Guidance Notes on the Valuation of Assets together with Manual of Valuation Guidance Notes and listed the editions as: first edition 1976; second edition 1981; third edition 1990; fourth edition 1995; and with the fifth edition in 2003. RICS (2010) in the latest edition of the RICS Red Book clarified that the Appraisal and Valuation Manual was originally published as two titles:  Guidance Notes on the Valuation of Assets: First edition 1976 Second edition 1981 22 Third edition 1990  Manual of Valuation Guidance Notes: First edition 1980 Second edition 1981 Third edition 1992 The RICS Appraisal and Valuation Manual was reprinted in 1993, twice in 1996, and once each in 1998, 2000 and 2002. The RICS Appraisal and Valuation Standards were first published in 2003, with nine amendments published between March 2003 and April 2007. The RICS Valuation Standards were first published in 2008, amended in September 2008, reprinted in March 2009, amended in July 2009 and printed in April 2010 as the latest version (RICS, 2010). It is evident that the Red Book is an evolving document set to reflect current changes in the economic environment and reveals its international status. The latest edition has reflected the suggestion by Carsberg Report (2002) to help improve the independence of the valuer from the client. In Europe, elements of globalisation and the need to facilitate cross-border investment necessitated uniformity of practice among property professionals. Hordijk and Condit (1997) noted the difficulties investors, international traders and property appraisers would have to undergo with each of the European countries having its own customs, currency, tax structure, aviation regulations, language, banking system and real estate /property practices. Each has some natural resources but none is self-sufficient. As a result, they have to rely on each other. In some of the countries, restrictions inhibited international investment in real estate. The introduction of Single European Act of 1985 and the subsequent Maastricht Treaty of 1991 resulted in promoting European integration (McParland, McGreal & Adair, 1997). The essence of the Single European Act was to introduce competition in Europe‟s internal market by 1992 so as to create a continental trade area; improve regional research and technical 23 development; ensure progress in European economic and monetary union; and improve working conditions in the European countries. The removal of barriers along international boundaries facilitated cross-border investment in trade and professional practices. However, with increasing activities in property investment the Royal Institution of Chartered Surveyors identified variations in valuation practice within Europe as a problem for globalisation of the property market (RICS, 1993). RICS General Practice, Planning and Development Division Sub-Committee then demanded for research to examine various methods of valuation in European Countries so as to determine the degree of broad unanimity within valuation practice and the appropriateness of the different methods. Following this, there was growing interest in valuation standards and approaches within Europe both from the academia and the practitioners (RICS, 1993). According to McParland et al. (1997), prior to the 1990s there was not much emphasis on the standardisation and globalisation of valuation methodologies within the property investment circle. Contrary to this stance, was the view that the progress recorded by the European Group of Valuers Association (TEGOVA) in the publication of the Guide Bleu (Blue Book) which established Approved European Valuation Standards was what prompted the adoption of a common basis (Bruhl, 1997). TEGOVA was formed by the merger of The European Group of Valuers of Fixed Assets (TEGOVOFA) and European Property Valuers Association (EUROVAL) in 1987. Similarly, in the United States, the financial crises of early 1980s prompted the need for standards of valuation practice to meet financial standard requirements. The Appraisal Foundation (TAF) together with some Canadian Appraisal Organisations came together to form the Uniform Standards of Professional Appraisal Practice (USPAP) (Ajayi, 2009). International Valuation Standards emerged in the property market arena during the last quarter of the twentieth century (Dugeri, Gambo &Ajayi, 2012). Gilbertson and Preston (2005) reported that valuation standards first emerged at the national levels in an attempt to 24 address financial crises traceable to property related transactions. The series of property and financial crises that affected the UK economy in the 1970s and 1990s; the American financial crash of the 1980s and of 2007/2008 and also that of Germany in 2005/2006 were all attributed to poor quality of valuations (see French, 2003; Gilbertson & Preston, 2005; Schnaidt& Sebastian, 2012). It appears, as asserted by Hordijk and Condit (1997), that rapid and effective action for the standardisation of valuation practice at international level was taken by the property professionals within the real property market. They categorised these players into three groups: inter-European appraiser organisations committed to standardising valuation; practice; professional organisations; and the real property investors who are the major users of valuation services In the category of the Inter-European Appraiser Organisations is the European Group of Valuers Association (TEGOVA) which came into existence through the merger of the European Group of Valuers of Fixed Assets (TEGOVOFA) and European Property Valuers Association (EUROVAL) (McParland et al., 1997). Before the merger of the two professional bodies, TEGOVA under its previous name (TEGOVOFA) had been providing guidance for valuation standards to member countries and European Union bodies since 1977. This unified professional body in Europe has published the Guide Blue (Blue Book), establishing Approved European Valuation Standards which covers a wide range of valuation activities (Champness, 1997). With regards to professional organisation, the Royal Institution of Chartered Surveyors (RICS) in UK has been the most effective body working towards the unification of valuation standards at international level. They have, since 1976, been actively involved in the publication of Valuation and Appraisal Standards which have influenced valuation practice in 25 UK and Europe (RICS, 2010). The RICS has established offices outside the UK in France, Germany, Belgium and Spain and have also been active in developing valuation philosophy and standardisation of guidance produced by TEGOVA (Hordijk& Condit, 1997). In the same vein, The Appraisal Foundation (TAF) has made progressive effort towards the development of valuation standards at international level. According to Ajayi (2009), the necessity for the International Valuation Standards was compelled by the savings and loan crises which led to the formation of The Appraisal Foundation (TAF) by mainly the US and Canadian Appraisal Organisations which came together to produce the Uniform Standards of Professional Appraisal Practice (USPAP). The third and the possibly the most influential players in the effort towards the standardisation of valuation practice at international level are the real property investors. Despite the pace set by inter-European valuer organisations and other professional bodies, progress toward unification of standards at international level has been slow. For the same reason investors became increasingly frustrated (Hordijk& Condit, 1997) due to overwhelming fluctuations in the property market in the 1980s. These investors perceived the exigencies for standardisation and the need to improve quality of valuation if they were to have confidence in the market and thereby preserve the quality and liquidity of their portfolios. The timely demand by the investors was based on apt justification that property investors suffer more in times of economic down turn than the banking sector and other financial sectors which receive government intervention. The business and financial world recognised the strategic role of real property and other assets in their corporate organisations and demanded for quality valuation practice in accordance with International Accounting Standards. Hussey and Ong (2005) reported that the need for uniform accounting standards at international level necessitated the formation of International Accounting Standards by the International Accounting Standards Committee in 1973 by different accounting bodies from 26 Australia, Canada, France, Germany, Mexico, the Netherlands, the United Kingdom, and the United States with a view to achieving consistency internationally in the definitions, measurement and treatment of transactions thereby enabling financial reporting that allows for international comparability. The International Accounting Standards Committee (IASC) which later changed to International Accounting Standards Board (IASB) has been responsible for accounting standards since 1970s which is still undergoing changes. The changing economic environment and the need for the international investors to compare and judge their property investment performance with other investment class put a daunting task on the accountants and financial analysts which compelled property professionals to harmonise valuation standards to meet International Accounting Standards requirements (Ellis, 2002). It can so far be said that the rapid economic changes in the 1970s underscored the importance of property valuation in Europe. The obvious and glaring quickening pace in the globalisation of investment markets drew attention to the urgent need for internationally accepted standards for property, business and financial interest valuation. In response to this market instability, concerted efforts by different countries at various times started progressive moves toward internationalisation of valuation standards. Principal actors among these professional bodies are members of a Technical Committee of Royal Institution of Chartered Surveyors (RICS) and representatives of US appraisal organisation who began series of meetings towards the close of the 1970s which resulted in the formation of The International Assets Valuation Standards Committee (TIAVSC) in 1981. The two cardinal objectives of TIAVSC then were:  “To formulate and publish, in the public interest, valuation standards for property valuation and to promote their worldwide acceptance; and 27  To harmonise standards among the world‟s states and to identify and make disclosure of differences in statements and/or applications of standards as they occur”. (Milgrim, 2002). The International Assets Valuation Standards Committee (TIAVSC) changed its name in 1994 to International Valuation Standards Committee (IVSC). The International valuation Standards were published in 1985, 1994/97, 2000, 2001, 2003, 2005, 2007, 2009 and most recently in 2011. The IVSC publishes standards which cover requirements for financial statements, mortgage secured lending, and real property valuation for all purposes (Fernandez, 2005). The IVSC has membership of all major valuation affiliated professional bodies from 52 countries (IVSC, 2003) including Nigeria. The International Valuation Standards Committee was renamed to International Valuation Standards Council (IVSC) retaining its acronym in 2008. The IVSC collaborates with member states and liaises with International agencies such as the Organisation for Economic Cooperation and Development (OECD), the World Bank, the International Monetary Fund (IMF), the World Trade Organisation (WTO), the Commission of the European Union, the Bank of International Settlements (BIS), and the International Organisation of Security Commissions (IOSCO). It also maintains good working relationship with International Accounting Standards Board (IASB), the International Financial Reporting Standards (IFRS), the International Federation of Accountants (IFAC) - the International Public Sector Accounting Standards Board and the International Auditing Assurance Standards Board (IVSC, 2003). Thus, what is obtainable today as the International Valuation Standards started with isolated national and regional standards in a swift response to the financial crises attributed to poor quality valuations. Some of these national and regional standards include the Appraisal and Valuation Manual of the UK Royal Institution of Chartered Surveyors (Red Book); the 28 Uniform Standards of professional Appraisal Practice (USPAP) of The Appraisal Foundation (TAF) in US; Canadian USPAP of the Appraisal Institute of Canada (AIC); the Australian Property Institute‟s Professional Practice; and the European Group of Valuers‟ Association (TEGOVA) Approved European Practice Standards (Blue Book). These national and regional standards no longer exist in isolation but had to harmonise with each other for a single benchmark of common standards at international level in accordance with the role IVSC fulfils (Edge, 2002). The current IVS is divided into three broad categories of application:  General Standards- which cover scope of work, implementation, and reporting  Assets standards- cover business and business interests, tangible assets, plant and equipment, real property interests, investment property under construction, and financial instruments  Valuation Application- valuation for financial reporting, and valuation of real property interests for secured lending The various efforts from professional organisations, professional practitioners and investors saw the formation of valuation standards at international, regional and national levels. This perhaps was necessitated by the increasing need for the valuation standards in the investment arena. 2.6 The Need for Valuation Standards in Professional Practice Valuation being an art and a science requires the judgement of a professional valuer who must apply some scientific processes in value estimation to arrive at the value of an interest in property. Harvard (1995) described valuation as an inexact science which makes the process of value estimation dependent on the valuer‟s knowledge and interpretation of trends in the market place. More so, the heterogeneous nature of the property market in which the 29 properties exist and their unique attributes couple with the differences in individual valuer‟s intuitive judgement and training make value estimation to the valuer a daunting task which creates room for diverse opinions of value tied to different approaches. It is therefore pertinent to assist valuers in their process of value estimation to arrive at more transparent and objective opinion of value to meet the requirements of their clients. The Valuation Standards contain basic underlying concepts and principles of value which are the targets of any valuer, and aid their understanding in any given task. The essence of the standards is to ensure that valuations produced by members achieve high standards of integrity, clarity and are reported in accordance with the required bases appropriate for the purpose (Babawale, 2012a). According to Mills (2007), the purpose of setting standards at international level is to facilitate cross-border transactions, contribute to the viability of international property markets, promote transparency in financial reporting, promote reliability of valuations and to serve as a professional benchmark globally. Valuation Standards such as the one provided by RICS‟s Red Book, TEGOVA‟s Approved European Property Standards, and International Valuation Council‟s Standards contain mandatory and non-mandatory guides to be applied in most valuation tasks embarked upon by members (RICS, 2010; IVSC, 2011) The need for valuation standards is closely linked to IVSC‟s focus on increasing the confidence of users of valuation services. In fact their overriding objectives for providing standards are to:  promote consistency and aid the understanding of all types of valuation by identifying or developing globally accepted principles and definitions;  identify and promulgate common principles for the undertaking of valuation assignments and the reporting of valuation;  identify specific matters that require consideration and methods commonly used when valuing different types of assets or liabilities; 30  identify the appropriate valuation processes and reporting disclosures for the major purposes for which valuations are required;  reduce diversity of practice by enabling the convergence of different valuation standards used in specific sectors and stages (IVSC, 2011). The standards are provided to be applied by professional valuers and intended to benefit users of valuation services and regulate market operations generally. RICS (2010) also reaffirmed that valuation standards are to provide an effective regulatory framework within the rules of conduct so that users of valuation services can have confidence that a valuation provided by any member is not only in accordance with internationally recognised standards but also that there is an obligation placed on the individual valuer or firm to follow these standards, and that there are effective sanctions in the case of material breach. Similarly, unprecedented court litigations have also impelled the need for valuation standards. Sampson, Waller and Waller (1988) observed that the courts have always looked up to the published standards for professional bodies to guide their judgements. These standards have aided the courts to establish liability cases in negligence and fraud. Fernandez (2006) maintained that valuation standards are important as they aid valuers display high levels of integrity and competence. They serve as gauge for the duty of care valuers owe their clients since they contain the code of ethics, enunciation of principles of valuations supported by outline of best practices. Valuation carried out based on specifications of the standards is a good defence when a valuer is challenged in a court of law, on charges of negligence. More so, the client may institute action against the valuer for any claim where it is established that the valuer did not comply with valuation standards. Gilbertson and Preston (2005) considering the importance of valuation required by investors to measure investment performance and for banks in secured lending; enjoined valuers to understand and interpret the dynamics of the market place and the role which the valuation 31 standards perform. The authors also noted that the increasing amount of cross-border financial activity in investment or lending requires that valuers develop the dexterity to meet global business and financial investment requirements for which valuation is a key player. Also, world over, all listed investments in the capital market are attuning to International Financial Reporting Standards (IFRS). This puts pressure on valuers to refine their professional practice to match accounting standards as incorporated in the Valuation Standards. The International Accounting Standards Board (IASB), responsible for IFRS, is working in collaboration with IVSC to draw up compatible valuation practices that meet global financial requirements (IVSC, 2003). The International Valuation Standards Committee remarked that the introduction and implementation of valuation standards are essential to the consolidation of the property and capital market particularly in the developing economies and that the quickening pace in the globalisation of the investment market further underscores the need for international accepted standards for reporting the value of property (IVSC, 2001) 2.7 Dynamics of the Regulatory Framework The regulatory bodies play an important role in ensuring that professional valuers conform to acceptable valuation standards in their discharge of professional duties. Professional regulatory bodies are majorly concerned with, issues pertaining to ethics, best practices, research development, and the enforcement of rules and regulations guiding the profession among others. Professional activities of valuers have been regulated since in the 16th century in the UK (McNamara, 1999). The professional body in UK (RICS) regulating activities of valuers has been publishing valuation standards known as the „Red Book‟ since 1974 (RICS, 2010). The published standards have been changing with circumstances required along with the dynamic economic environment. For instance, when there was bank disquiet in the early 1990s, the RICS joined with the British Banking Association (BBA) in a concerted effort 32 which resulted in the publication of new valuation guidelines on bank lending in 1994 (RICS, 1994). The RICS valuation department also initiated another research in 1994 through the Mallinson Committee which resulted in the publication of the first unified mandatory valuation standards which was issued in 1995. French (2003) remarked that RICS valuation standards (The Red Book) is an evolving document and in the last ten years the profession has produced a number of reports that have influenced and structured the changes that have been incorporated in the manual. RICS series of revised editions include the 1976, 1981, 1990, 1995, 2003, 2007, 2008, 2010 and 2012 editions. RICS is affiliated to the European Group of Valuers Association (TEGOVA) which is a regional standard setting body, and also to the International Valuation Standards Council (IVSC), which has 52 member states (RICS, 2003). The International Valuation Standards Council has been attuning to investors‟ sophistication to enable it provide a proper code of conduct and practical information to achieve high professional best practices. The increasing demand in the business and financial world requiring valuations are carried out in accordance with International Accounting Standards compelled the IVSC to promulgate standards ensuring that valuations by members enable investors measure and compare their investment performance in the capital market. (Fernandez, 2005). The International Valuation Standards Council also published standards in editions of 1985, 1995/97, 2000, 2001, 2003, 2005, 2007, 2009 and the latest now in 2011 In Nigeria, the first Guidance Notes on Property Valuation was published by the Nigerian Institution of Estate Surveyors and Valuers (NIESV) in 1985. This was probably influenced by the development unfolding in the UK about the same time. The second edition which has close semblance with the 6th edition of the International valuation Standards was published 33 in 2006. Since then there has been no further revisions of the NIESV Valuation Standards and Guidance Notes. 2.8 Form and Contents of Valuation Standard Manuals There are categories of valuation standards at international, regional and national levels. The International valuation standard is set by the International Valuation Standards Council (IVSC) which is a global standard known as the White Book. The International Valuation Standard Council is concerned with developing global standards for real estate, personal property, financial and business interests. The International Valuation Standards (IVS) are frequently being updated with its current edition in 2014. The International Valuation Standards produced by IVSC is not mandatory for use in practice by valuers around the world and they do not have to adhere to its provision except where their national valuation standards incorporate aspects of it and make it mandatory. The IVSC do not have power to enforce on members but can enforce through adoption in the national standards. Regional valuation standards include the European valuation standards produced by The European Group of Valuers‟ Association (TEGoVA) known as the Blue Book. The European Valuation Standard is produced for valuers that are members of the 45 valuers‟ association from 26 countries representing the membership of TEGovA (TEGoVA‟s Bluee Book, 2012). The Uniform Standards of Professional Appraisal Practice (USPAP) is produced by the Appraisal Standards Board of The Appraisal Foundation (TAF) for appraisers in the United States of America and Canada. This standard has a regional status as it applies outside the USA and extends to Canada and some Asian countries. The valuation standards manual produce by the Royal institution of Chartered Surveyors (RICS) known as the Red Book is meant to be a national standard for the UK but has gained the status of a regional standard because it is of its influence across the globe, in particular 34 Commonwealth countries (Fernandez, 2006). The Australia and New Zealand valuation and property standards set by Australian Property Institute (API) is a national standard that came into effect on 1 st August 2006 with the latest edition produced in 2012. The Guidance Notes and Valuation Standards produced by the Nigerian Institution of Estate Surveyors and Valuers (NIEVS) is a national standard which operates within Nigeria. The Nigeria‟s standards was first published in 1985 and revised in 2006, since then nothing is done about it. The NIESV valuation standard is like a fragmented portion of the 2003 International Valuation standards produced by the IVSC. The contents of valuation standards carry along with its professional considerations with the practical needs of the market place (Babawale, 2013). The essence of the standard is to impose sanctions or serve as advisory or combination of the two. Worthy of note is the fact that it is only regional or national valuation standards that can enforce compliance. This is done through appropriate professional regulatory bodies whose jurisdiction covers a region or nation. However, Babawale (2013) opined that standards can be imposed by personal conscience, by national professional institutions or by law. Valuation standards are not necessarily concerned with valuation theory and methodology but are concerned with mechanics of practice including assembly, interpretation and reporting of information relevant to any valuation assignment (RICS, 2003). In the light of the foregoing, Edge (2002) made a distinction between valuation standards and methodology in that methodologies are dynamic, changing with need, fashion, demand, and analytical techniques borrowed from the fields; standards should be consistent, a benchmark of good practice. A typical valuation standard manual contains at least three parts these are – the standards, the application, and the Guidance Notes and commentary (IVSC, 2003; 2014). The standards section addresses issues related to valuation bases and reporting among others. The application section focuses on application of the standards to business and financial interests 35 and valuation for lending purposes, while the Guidance Notes focus on specific valuation issues and commentary of business and service producing situations. Complimentary sections provide the glossary of terms, short discussions on valuation principles and techniques, history and recent developments. The IVSC (2014) has an introductory section with three broad sections. The Introductory section covers principal changes to previous edition of the standards, International Valuation Standards (IVS) definitions, International Framework. The First Section is General Standards which covers Scope of Work (IVS 101), Implementation (IVS 102), and Reporting (IVS 102). The Second Section of the most recent valuation standards is Asset Standards which captures Business and Business Interests (IVS 200); Intangible Assets (IVS 210); Real Property Interest (IVS 230); Investment Property Under Construction (IVS 233); and Financial Instruments (IVS 250). The Third Section is Valuation Application which covers Valuation for Financial Reporting- Property, Plant and Equipment in the Public Sector (IVS 300); and Valuation of Real Property Interest for Secure Lending (IVS310). Some regional and national standards contain codes of professional ethics and enforcement procedures for appropriate sanctions in the event of material breach. 2.8.1 The Minimum Reporting Content of Valuation Reports under the Scope of Work The section on minimum reporting contents of a valuation reports as set out in the valuation standards specifies in clear and unambiguous terms what each valuation report should contain. The report should not be ambiguous or misleading; neither should it create a false impression. This minimum reporting content is used as a benchmark to determine compliance with the provision of valuation standards. It is therefore paramount and imperative to examine minimum reporting contents of various valuation standards so as to come up with the best possible benchmark for examining valuation reports and valuers‟ compliance with the standards. 36 The IVS sets out the minimum content of what should be contained in every report irrespective of the varying degree of valuation advice that may be provided. The scope of work in the IVS (IVS 101) sets out the agreed purpose of the valuation, the extent of investigation, procedure that will be adopted, assumptions that will be made and the limitations that will apply. These report contents sets out by IVSC (2011) are as follows: a) Identification and status of the valuer The valuer can be an individual or firm. A statement confirming that the valuer is in a position to provide an objective and unbiased valuation and is competent to undertake the valuation shall be included. The report shall include the signature of the individual or firm responsible for the valuation. If the valuer has obtained material assistance from others in relation to any aspect of the assignment, the nature of such assistance and the extent of reliance shall be referenced in the report. b) Identification of the client and any other intended users. The party commissioning the valuation shall be identified together with any other parties whom it is intended may rely on the valuation. c) Purpose of the valuation. The purpose of the valuation shall be clearly stated and distinguished from the basis. d) Identification of the asset or liability to be valued (subject of valuation clarification may be needed to distinguish between an asset and an interest or right of use of that assets, it will be necessary to clarify whether those assets are included in the valuation, excluded but assigned to be available or excluded and assumed not to be available. e) Basis of value 37 This shall be appropriate for the purpose. The source of the definition of any basis of value used shall be cited or the basis explained. Some common valuation bases are defined and discussed in previous chapter. f) Valuation date The valuation date is the date to which the opinion of value applies. This may be different from the date on which the valuation report is issued or the date on which investigations are to be undertaken or completed. Where relevant, these dates shall be clearly distinguished in the report. g) Extent of investigation The extent of investigations undertaken, including the limitations on those investigations set out in the scope of work, shall be distinguished in the report. h) Nature and source of the information relied upon The nature and source of any relevant information relied upon in the valuation process without specific verification by the valuer shall be disclosed i) General and special assumptions All assumption and any special assumption made shall be clearly stated. j) Restriction on use, Distribution or publication Where it is necessary or desirable to restrict the use of the valuation or those relying upon it, this shall be stated. k) Confirmation that the valuation has been undertaken in accordance with the IVS. While confirmation or conformity with IVS is required, there may be occasions when the purpose of the valuation will require a departure from the IVS. Any such departure shall be identified, together with justification for that departure. A departure would not be justified if it results in a valuation that is misleading. l) Valuation Approach and Reasoning 38 To understand the valuation figure in context, the report shall make reference to the approach or approaches adopted, the key inputs used and the principal reasons for the conclusions reached. The IVS identifies basically the three approaches to value- market approach, income approach, and cost approach. This requirement does not apply if it has been specifically agreed and recorded in the scope of work that a valuation report shall be provided without reasons or other supporting information. m) Amount of the Valuation or Valuations (statement of value) This shall be expressed in the applicable currency. n) Date of the valuation Report The date on which the report is issued shall be included. This may be different from the valuation date (f above) (IVSC, 2011:30) The RICS valuation standards (RICS, 2012) remarked that it must deal with all the matters agreed between the client and the member in terms of engagement and include the following minimum information, except where the report is to be provided on a form supplied by the client: a) Identification of the client; b) The purpose of the valuation; c) The subject of the valuation; d) The interest to be valued; e) The type of property and how it is used or classified by the client; f) The basis of valuation; g) The date of valuation; h) Disclosure of any material involvement or a statement that there has not been any previous material involvement; i) If required, a statement of the status of the valuer; 39 j) Where appropriate, the currency that has been adopted; k) Any assumptions, reservations, any special instructions or departures; l) The extent of the valuer‟s investigations; m) The nature and source of information relied on by the valuer; n) Any consent to, or restrictions on publication; o) Any limits or exclusion of liability to parties other than the client; p) Confirmation that the valuation accords with these (RICS) standards; q) A statement of the valuation approach; r) A statement that the valuer has the knowledge, skills and understanding to undertake the valuation competently; s) The opinion of value in figures and words; t) Signature and date of the report (RICS Red Book, 2012:40) The European Group of Valuers‟ Association‟s (TEGoVA) valuation standards (European Valuation Standards, Blue Book, 2012) requires that valuers should establish client‟s needs and requirements with precision as requirements of best practice. The terms of engagement should be attached to the report as an appendix to the report. The valuation report must make reference to:  The client‟s identity, specifying a corporate or personal identity;  The purpose of the valuation and the importance of restricting the use of the valuation to the stated purpose;  The precise extent of the property/interest being valued with reference to a plan or other fixed object;  The basis or bases of value;  A specific valuation date, not “as of the date of valuation” 40  Any previous involvement with the property or the parties involved;  The status of the valuer, clarifying whether acting in an external and independent capacity, specifying a corporate or personal identity; or as an internal valuer;  All assumptions and special assumptions that will be made in preparing the report;  The scope and extent of investigations that will be undertaken and any verification that will be required by the client or his representatives, together with confirmation of the valuer‟s competence to undertake the instruction;  Reliance placed on information provided by the client, the client‟s representatives or third parties;  Any restriction placed on publication of part or all of the valuation produced;  The extent to which a duty of care will be provided, stating any exclusions as to parties or matters as determined by the valuer or requirements of insurers”.  Compliance, where appropriate, with European valuation standards  The basis of fee to be charged as determined by the valuer or prescribed by third parties or statute (TEGOVA, 2012:62) The Australian and New Zealand‟s Property and Valuation Standards, ANZPVS (2012) require valuation report to have the following content:  Instruction – which must capture details of instructing party and/or client who is to rely on the valuation.  Purpose – a statement as to the purpose of the valuation  Date of valuation – date of valuation is usually the date of inspection of the property.  Basis of valuation – basis or bases of value on which the valuation is conducted.  Methodology, Reconciliation and Value Range – Unless not required in pro-forma report, the methodology should be appropriately outlined for each approach along 41 with important calculations and rationale. A reconciliation of the approaches adopted should be included. A value range may be expressed before being reconciled to a single point figure.  Legal Description – noting any encumbrances on the available title documentation and the impact on value and marketability of the property. Title research should also be conducted.  Nature of interest – nature of interest to be valued – fee simple vacant, fee simple subject to tenancy or lessee‟s interest.  Lease or license details – where the property is the subject of a lease, license or other agreement, the valuers should note all the relevant details on that lease/licence/agreement and their impact (if any) upon the value. Where no document is obtained or sighted in respect of the lease/licence/agreements, then reference to the fact should be noted in the report.  Dimensions and Area – measurement covering land area should be provided  Location and Locality – the position of the property in relation to the Central Business District (CBD), nearest town or regional centre, locality requires description of the neighbourhood and surrounding developments, drawing attention to prominent features which may affect value positively or negatively.  Town planning/Resource Management – details of town planning approval is required here, noting the planning or the name of the planning authority and comment on the present use of the property with regards to its zoning. Valuer should take note of the need to sight and review any development or other consent and conditions that may affect the property. It is needful that the valuer comment on the „highest and best use‟ of the property; and also considers any public or private authority reservations, designations or proposals. 42  Site, services and environmental Hazards – description of the nature of the site, its services and information on any significant observable/visual or known hazards such as mining sites, flooding, site contamination, inadequate drainage etc. Valuers should indicate that they are not expert in contamination issues (unless that is the case) when comment is made on such matters.  Structural Improvement – description of structural improvements touching approximate age, area and accommodation of buildings and their general state of repair should be included.  Lease(s) – where a property is under lease(s), it should be clearly stated. A statement should be made regarding source of the documents and whether they have been sighted or not.  Outgoings and Recoveries – operating expenses should be included where a property is under one lease or more leases which permit the use of the income capitalization approach.  Marketability – information regarding any inherent or external features favourable or adversely affecting the marketability of the property should be noted.  Further investigation other experts – any information that may require input from other expert should be noted.  Condition of the market – requires information on the market circumstances for the class of that property. More detailed analysis of the market dynamics may be appropriate.  Market Evidence – comment on any sale of the subject property within the previous 3 years (or longer if considered relevant) and any known circumstances regarding the sale. In case of property this should include sales and rental data evidence and justification by reference to the market evidence of any capitalization rate adopted. 43  Single Valuation Figure – market value should be reported as a single valuation amount.  Sale in One Line or Single Transaction – valuation of multiple properties in one development should be completed on the basis of a single transaction or sale in one line to one buyer. Valuation of multiple properties in one development, such as lots in a subdivision or units in a building, the sum of the individual values or gross realization assessed on the basis of an orderly marketing and sale program should be clearly defined as the total gross realization.  Property Development – where the subject property is a proposed development, the report should state: source of information on which the report is based; valuation on an „As if complete‟ basis, any assumption necessary to ensure the basis of the report is clear.  General Market Advice – valuer may be required in some cases to provide general market advice on a specific property. Valuers should be aware that such advice may still be interpreted in a legal sense as a valuation. The scope of work should be defined to protect the interest of all parties who may rely on the advice.  Going concerns – a property valued as a going concern should: state the source of the trading figures; have annexed to it, a copy of trading figures supplied; and show any adjustments made to those figures in the valuation process.  Disclaimer and Qualifications – appropriate disclaimer and qualifications should be included in a valuation report.  Signing the Report (endorsement) - the report should be signed by the person who carried out the valuation (who must be the person who inspects the property. Where the report is counter – signed, the capacity in which the counter – signatory is signing the report must be stated. This is to clear the doubt that of anyone relying on the 44 report who might otherwise be under the impression that a co – signatory signing as a „valuer, would have also inspected the property and had significant involvement in the valuation process. An example, the following clause could be used: The counter signatory, who has read and signed this report, verifies that the report is genuine and is endorsed by (firm name). The opinion of value expressed has been arrived at by the person who conducted the valuation (Australia & New Zealand Property and Valuation Standards, ANZPVS, 2012:8.1.2). The Hong Kong Institute of Surveyors‟ Valuation Standards (2012) stated categorically that it is one of the objectives of the valuation standards to provide standards on reporting of valuations for the valuers to follow in communicating such analysis and opinion in a manner that is not misleading to their clients and readers. It further stated that the format and extent of the detail of the report are a matter of the valuer‟s discretion except where the report is to be provided on a form supplied by the client. The presentation of the valuation report should take into account the need for any special format and should contain the following minimum required information: a) the identity of the client; b) the purpose of the valuation; c) the subject of the valuation; d) the interest to be valued; e) the basis or bases of valuation; f) the valuation date; g) the status of the valuer and where appropriate and applicable, the disclosure of any material involvement, previously or current; h) the currency in which valuation is to be expressed; 45 i) any assumptions, special assumptions, reservations, any special instructions or departures; j) the extent of the valuer‟s inspections and investigations; k) the nature and source of information; l) any consent to, or restrictions on, publication; m) any limits or exclusion of liability to parties other than the client; n) the confirmation that the valuation complies with the requirements set out in the standards; o) a statement or description of the valuation approach; p) the analytical process and empirical data used to arrive at the value conclusion; q) a statement of valuer‟s competency in performing the valuation; r) the opinions of value in figures and words; s) the name and signature of the valuers; and t) the date of the report (HKIS, 2012:41). The Uniform Standards of Professional Appraisal Practice (2014-15:17) requires in developing a real property appraisal that appraisers must: a) identify the client and other intended users; b) identify the intended use of the appraiser‟s opinions and conclusions; c) identify the type and definition of value, if the value opinion to be developed is market value, ascertain whether the value is to be the most probable price: i) in terms of cash; or ii) in terms of financial arrangements equivalent to cash; or iii) in other precisely defined terms; and 46 iv) if the opinion of value is to be based on non-market financing or financing with unusual conditions or incentives, the terms of such financing must be clearly identified and the appraiser‟s opinion of their contributions to or negative influence on value must be developed by analysis of relevant market data. d) identify the effective date of the appraiser‟s opinion and conclusion; e) identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, including: i) its location and physical, legal, and economic attributes; ii) the real property interest to be valued; iii) any personal property, trade fixtures, or intangible items that are not real property but are included in the appraisal: iv) any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature; and v) whether the subject property is a fractional interest, physical segment, or partial holding. f) identify any extraordinary assumptions necessary in the assignment- an extraordinary assumptions may be used in an assignment only if: i) it is required to properly develop credible opinion and conclusion; ii) the appraiser has a reasonable basis for the extraordinary assumption; iii) use of the extraordinary assumption results in a credible analysis; and iv) the appraiser complies with the disclosure requirements set forth in USPAP for extraordinary assumptions; 47 g) identify any hypothetical conditions necessary in the assignment- a hypothetical condition may be used in an assignment if: i) use of the hypothetical condition is clearly required for legal purposes, for purpose of reasonable analysis, or purpose of comparison; ii) use of the hypothetical condition results in a credible analysis; and iii) the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions; h) determine the scope of work necessary to produce credible assignment results in accordance with the Scope of Work Rule (USPAP, 2014/15:17) The USPAP categorises appraisal report into two which are „Appraisal Report‟ and/or „Restricted Appraisal Report‟. A report that included parties other than the client is regarded as „Appraisal Report‟. When the intended users do not include parties other than the client, a „Restricted Appraisal Report‟ may be provided. The distinction between these two options is in the content and extent of information provided. The category of report and level of information to be provided in each circumstance depends on the intended use and the intended users. A party receiving a copy of Appraisal Report or Restricted Appraisal Report in order to satisfy disclosure requirements does not become an intended user of the appraisal unless the appraiser identifies such party as an intended user of the assignment. The report content and level of information provided in USPAP standard are minimum for each type of report. The minimum reporting content of each are presented hereunder: A) The content of an Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum: i) state the identity of the client and any intended user(s), by name or type- an appraiser must use care when identifying the client to ensure a clear understanding 48 and to avoid violation of the „Confidentiality‟ section of the Ethics Rule. There are instance when the client may like to remain anonymous, an appraiser must still document the identity of the client in the work-file but may omit the client‟s identity in the report. Intended users may be lender, employees of government agencies, partners of a client, and a client‟s attorney and accountant. ii) state the intended use of the appraisal; iii) summarise information sufficient to identify the real estate involved in the appraisal including the physical. Legal, and economic property characteristics relevant to the assignment- The real estate under consideration can be specified, for example a legal description, address, map reference, copy of a survey map, property sketch, and/or photographs or the like; iv) state the real property interest appraised- this requires evidence of property right, as needed by copies or summary of the descriptions or other documents that reveal any known encumbrances; v) state the type and definition of value and cite the source of the definition- stating the definition of value also requires any comments needed to clearly indicate to the intended users how the definition is being applied; vi) state the effective date of the appraisal and the date of the report- the effective date of the appraisal establishes the context for the value opinion, while the date of the report indicates whether the perspective of the appraiser on the market and property as of the effective date of the appraisal was prospective, current, or retrospective; vii) summarise the scope of work used to develop the appraisal- intended users‟ reliance on an appraisal may be affected by the scope of work, the report must enable 49 them to be properly informed and not misled. Sufficient information included disclosure of research and analyses performed and might also include disclosure of research and analyses not performed; viii) summarise the information analysed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions, and conclusions; exclusion of the sales comparison approach, cost approach, or income approach must be explained- must include sufficient information to indicate that the appraiser complied with the requirements of STANDARD1. The details of the information required will vary with the significance of the information to the appraisal. The appraiser must provide sufficient information to enable the client and the intended user(s) to understand the rationale for the opinions and conclusions, including reconciliation of the data and approaches, in accordance with USPAP Standards Rule1-6 ix) state the use of the real estate existing as of the date of value and the use of the real estate reflected in the appraisal; x) when an opinion of highest and best use was developed by the appraiser, summarise the support and rationale for that opinion; xi) clearly and conspicuously: o state all extraordinary assumptions and hypothetical conditions; and o state that their use might have affected the assignment results; and xii) include a signed certificate in accordance with USPAP Standards Rule 2-3 B) The content of a Restricted Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum: 50 i) state the identity of the client, by name or type; and state a prominent use restriction that limits use of the report to the client and warn that the rationale for how the appraiser arrived at the opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser‟s work-file- an appraiser must use care when identifying the client to ensure a clear understanding and to avoid breaching of the Confidentiality section of the Ethics Rule. There are instances when the client wishes to remain anonymous, an appraiser must respect that but document the client‟s identity in the work-file; ii) state the intended use of the appraisal- the intended use must be consistent with the limitation on use of the Restricted Appraisal Report option in the Standards Rule (i.e., client use only); iii) state information sufficient to identify the real estate involved in the appraisal; iv) state the real property interest appraised; v) state the type of value and cite the source of its definition; vi) state the effective date of the appraisal and the date of the report; vii) state the scope of work used to develop the appraisal; viii) state the appraisal methods and techniques employed, state the value opinion(s) and conclusion(s) reached, and reference the work-file; exclusion of the sales comparison approach, cost approach, or income approach must be explained; ix) state the use of the ral estate existing as of the date of value and the use of the real estate reflected in the appraisal; 51 x) when an opinion of highest and best use was developed by the appraiser, state that opinion; xi) clearly and conspicuously state: o all extraordinary assumptions and hypothetical conditions; and o that their use might have affected the assignment results; and xii) include a signed certification in accordance with USPAP Standards Rule 2-3 USPAP Standards Rule 2-3 requires each written real property appraisal report must contain a signed certification that is similar in context to the following form: I certify that, to the best of my knowledge and belief: o the statements of fact contained in this report are true and correct. o The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. o I have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved. o I have performed no (or the specified) services, as an appraiser or any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. o I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. o My engagement in this assignment was not contingent upon development or reporting predetermined results. 52 o My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favours the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. o My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the „Uniform Standards of Professional Appraisal Practice‟. o I have (or have not) made a personal inspection of the property that is the subject of this report. ( If more than one person signs this certification, the certification must clearly specify which individuals did and which individuals did not make a personal inspection of the appraised property) o No one provided significant real property appraisal assistance to the person signing this certification. (If there are exceptions, the name of each individual providing significant real property appraisal assistance must be stated). (USPAP, 2014/15:22) The NIESV (national) Valuation Standards and Guidance Notes (2006), demands that a valuer assures that the analysis, information and conclusions presented in the valuation report fit the specifications for the assignment. The specifications for the valuation assignment include the following seven requirements: a) An identification of the real property, personal (plan and equipments; furniture, fixtures, business or other) property subject to the valuation and other classes of property included in the valuation besides the primary property category. b) An identification of the property rights (sole proprietorship, partnership, or partial interest) to be valued. 53 c) The intended use of the valuation and any related limitation; and the identification of any subcontractors or agents and their contribution. d) A definition of basis or type of value sought. e) The date as of which the value estimate applies and the date of the intended report. f) An identification of the scope/ extent of the valuation and of the report. g) An identification of any contingent and limiting conditions upon which the valuation is based (NIESV Valuation Standards & Guidance Notes, 2006:30) The NIESV valuation standard manual is a fragmented portion of the 2003 edition of IVSC‟s valuation standards which is outdated. The seven-item minimum requirements cannot sufficiently cover a good valuation report. The NIESV Standards has the least requirement of all valuation standards manual capturing only seven items in the minimum reporting content. There are lots of critical requirements missing in the NIESV valuation standards. The standard does not provide for identification of the valuer; purpose of valuation; definition of value to be estimated; disclosure of any material involvement; extent of investigation; nature and source of information; state of the valuation approach; opinion of value in figure and words and also the currency adopted; signature of the valuer, pictorial representation of the property or interest valued. The various valuation standard manual have captured basically what is required to be contained in a valuation report. However, there are some peculiarities noted in these valuation standards manual. A close examination showed that the Hong Kong Institute of Surveyors‟ Valuation Standard contains similar minimum reporting content with that of RICS Valuation Standard (Red Book); the only difference is in the alphabetical arrangements of how these requirements appear. The International Valuation Standards has not specified signature of the valuer. So also TEGOVA‟s Valuation Standards has not specified signature of the valuer. Definition of the type of value to be estimated is missing in almost all the 54 valuation standards except the USPAP. In all the Valuation Standards Manual examined, it is Australian and New Zealand‟s Property and Valuation Standards that captures legal description of the