A property valuation is an appraisal and assessment of the worth of the property and the improvements upon it.
Valuation is a science that follows prescribed steps and laid down procedures to advise on the worth of the property. There are several reasons as to why property valuation is undertaken in Kenya. The first and obvious reason is when you are considering selling or buying property and you need to estimate its value. Another reason is when you intend to take a loan from any financial institution, be it a SACCO or a Bank, against which you will give a security, therefore a valuation of the asset/security needs to be carried out.
There are mainly three methods of property valuation that are accepted across the board:
- Comparison Approach
- Cost Approach
- Investment Approach
This approach compares recently-sold local similar properties to the subject property. The fundamental concept underlying this approach is that market data usually provides the best indication of market value for a property. The appraiser's task is to identify competitive properties that have sold recently on the local market and to collect basic information about the terms of the sales and the physical characteristics of the properties.
This approach is normally used for land transactions. The assumption is that such transactions take place in a free market: willing buyer and willing seller.
The cost approach assumes that the present value of the property is based on the summation of the cost of land and the cost of putting up the development. The expertise of Quantity Surveyors is sometimes used in this method, especially if the building plans and Bill of Quantities are readily available. However, since one cannot be able to ascertain the cost of each material that is used in the building, the Joint Construction Board comes up with quarterly cost estimates of how much it would be to put up a particular building with a certain level of finishing in a given area.
This approach is normally used for finished buildings.
The investment approach considers the rental income that is expected to be earned from the property over a certain period of time in the foreseeable future. This is where the actual science in valuation comes in.
The process of valuation from this description seems like a very straight forward process, however, there are a lot of adjustments that come into play as no property is identical to another.
When it comes to choosing a property valuer, it is in your best interests to choose an individual or organization that is certified by the Valuers Registration Board and the Institution of Surveyors of Kenya.