Examination of Valuation Variance in the Use of Cost Method of Valuation in Calabar Metropolis (Published)
The study examined cost method of valuation and valuation variance in valuation practice in Calabar metropolis. The study adopted the survey research design and data collection was through questionnaire administered on the study respondents. Purposive sampling technique was used in selecting the sample size which was made up of estate surveying and valuation firms in Calabar. The study used two sources of data collection i.e. primary and secondary sources of data collection. Data collected with the use of questionnaire was analysed with both descriptive and inferential statistics. The simple linear regression indicates that the correlation coefficient (r) was computed at p < 0.05 while the result shows that F calculated is significant at 0.000 which indicates that the predictor variables i.e. cost method of valuation was statistically significant at p less than 0.05. The result of the test of hypothesis shows that there is significant relationship between cost method of valuation and variance in valuation practice in the study area. The implication of the findings show that Estate Surveyors and Valuers prefer to use the cost method of valuation majorly to carry out valuation even when there is data available for other methods to be used. While some valuers adopt the use of the cost method of valuation they still do not follow the appropriate way of measuring depreciation as most of them do that through assumptions and others taking only the physical wear and tear of the property to consideration without giving concern to economic and functional aspects of depreciation in the property. Some valuers while carrying out valuation using the cost method tends to assume cost of building materials without consulting a quantity surveyor to get the current building cost of the materials that will be used. All these factors contribute to valuation variance in the study area. The study concludes by recommending among others that valuers should consult quantity surveyors who are cost estimators on data on current cost of construction, they should always adopt the appropriate bases and valuation method in carrying out valuation, avoid variance and inaccuracy in valuation practice by using appropriate and reliable methods and depreciation should be assessed as total accrued depreciation and not just considering the physical tear and wear of the property or rule of thumb.
Keywords: Depreciation, Valuation, cost method, methodology, variance
CHALLENGES OF USING THE COST METHOD OF VALUATION IN VALUATION PRACTICE: A CASE STUDY OF SELECTED RESIDENTIAL AND COMMERCIAL PROPERTIES IN AWKA AND ONITSHA, ANAMBRA STATE, NIGERIA (Published)
By Definition, the cost method also known as the Depreciated Replacement Cost (DRC) method of valuation is a method of determining the value of a property or an asset by reference to the cost of replacing the property or asset as new, and then making allowance for depreciation to take care of age, wear and tear and other forms of obsolescence (Ifediora, 1993). In valuation practice, it is usually adopted where there is a lack of data for income method or where the property is new and there is no sufficient evidence of recent property transactions in the open market. The DRC method from the professional view point however relies on a good knowledge of construction costs or unit rates of construction as regards landed property or assets generally. This can pose serious challenges where relevant data is not available. It could in turn result to assumptions which are indefensible in a court of law.
Keywords: Construction Rate, Depreciation, Replacement Cost, Valuation