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1.0 Background of the Research

The practise of estimating market price is known as valuation. Uncertainties will influence such estimation. Uncertainty in the available comparable information; uncertainty in existing and future market conditions; and uncertainty in the subject property’s individual inputs.

These input uncertainties will be reflected in the output figure, the valuation (French, 2007).The words ”development valuation” or ”development appraisal” refer to expert studies conducted to establish the feasibility and viability of a proposed land upgrade.

(Ajayi, 1996) defined such evaluations as pre-development feasibility/viability assessments that give a customer with an estimate of the expected project costs, revenues, and profitability associated with a development scheme.

Uncertainty is often attributed to a lack of understanding and weak or inaccurate information about all of the inputs that can be employed in the valuation study (Byrne, 1995). Risk and uncertainty are frequently used interchangeably. Risk is said to be a euphemism for uncertainty.

However, this colloquial usage of the words is ineffective in pinpointing the main issues at hand. It is critical to define these terms explicitly. A number of papers and books (Bryne, 1995; Hargitay and Yu, 1993; Pellat, 1972; Pyhrr, 1973; Robinson, 1987; Sykes, 1983; Whiple, 1988; Wooford, 1978) contain definitions and discussions of risk and uncertainty.

According to Baum and Crosby (1988), risk/return is the primary emphasis of current investment analysis. Sophisticated investors, particularly in more advanced property markets such as those in the United States and the United Kingdom, are increasingly expecting downside risk analysis and adjustment from Valuers/Appraisers in valuation and investment analysis.

Ogunba and Ajayi (2007) and Ogunba (2008).Because the valuer is unable to describe and price properly all present and future influences on the value of the asset, risk and uncertainty are fundamental aspects of the valuation process (Adair and Hutchison, 2005).

As a result, valuation estimates have been described as a “snapshot” in time that is intended to represent market pricing at a particular point in time. It is an estimate, and all estimates are subject to uncertainty (Joslin, 2005). Uncertainty arises in property valuation due to incomplete information or a lack of knowledge of all the elements required in the estimation of value.

As a result, eliminating uncertainty from property valuation will be impossible because no valuer has perfect knowledge of all the circumstances that can influence the outcome of the exercise at his disposal.

Any estimate is dubious unless a property is actually sold to determine market value (Lorenz, Truck, and Lutzkendorf, 2006). The valuer’s task is thus to examine current market conditions and develop a single assessment from a “sea of uncertainty” (Joslin, 2005; Lorenz, Truck, and Lutzkendorf, 2006).

Ratcliff (1965) stated almost four decades ago that the necessity to analyse risk in investment analysis; “we must recognise that the value of a property cannot be expressed in a single unchallengeable figure.” The appraiser must admit openly that his forecasts are plagued with varying degrees of trustworthiness.

As a result, he is accountable for providing his client (the investor) with his opinion on the degree of certainty of his findings, expressed as a probability qualifier to the value figure in his report.” Ratcliff’s argument has gained backing from UK authors like Baum et al (2000), Mallinson and French (2000),

Dubben and Sayce (1991), and Enever (1981). There has recently been a similar effort in Nigeria (Ajayi, (1994), Aluko (2000) and 2007; Bello and Babajide, 2005; Otegulu, Mohammed, and Babawale 2011; Ajayi, 2014).

The economy has seen dramatic structural changes in recent years. The optimism of the 1970s and 1980s has shifted dramatically. In our dynamic and unpredictable economic system, the development appraisal on which decision-making in property development is based is becoming increasingly challenging (Bello and Babajide, 2005).

1.2 Statement of the Problem Research

The property valuation profession in Nigeria has persistently failed to meet the new challenges posed by the country’s increasingly sophisticated clients (Ogunba and Ajayi, 2007). This is a risky tendency, given that badly planned property values have had far-reaching negative implications around the world.

The Schneider Affair in Germany, where the collapse of Jorgen Schneider’s business due to DM5 billion in debt to 40 banks exposed the prevailing poor valuation standard and education in Germany in the mid-1990s (Gilbertson and Preston, 2005; Otegbulu and Babawale, 2011), is a classic example.

Other instances of bad property assessment practises wreaking devastation include the Savings and Loan Crisis in the United States and the Asian Financial Crisis. The Asian crisis was precipitated by the failure of the Bank of Bangkok due to the weight of property debts, with globalisation insuring a domino effect in other Asian economies when stock prices in these nations fell.

While numerous studies have been completed in the domain of valuation accuracy and rationality of property value performed by practitioners in Nigeria, no attempt has been made to investigate risk and uncertainty in valuation reports. The level to which Nigerian valuers have expressed uncertainty has mainly gone unexplored.

While Oluwunmi et al. (2011), Aluko (2007), Ayedun et al. (2011), and Adetokunboh et al. (2012) all focused on assessing lender clients’ satisfaction with the quality of mortgage valuation reports in the country, Babawale (2012) examined the compliance of valuation reports with International Valuation Standards as part of assessing the current standard of real estate valuation practise in the country.

To the best of my knowledge, no known study has evaluated the incorporation of risk and uncertainty into Nigerian valuation and investment appraisal reports.

According to Ogunba (2002), the risk and uncertainty problem is reportedly not fully recognised in current evaluation practise. It is based on the observation that, against the backdrop of unreliability, the appraiser’s poor risk evaluation causes his profession to lag far behind the field of general finance and may even lead to the profession being regarded obsolete (Olaleye, Aluko, and Ajayi, 2007).

1.3 Goals and Objectives

The study’s goal is to look into how Nigerian valuers account for and convey risk and uncertainty to their clients in property valuation and investment appraisal.


1. To investigate the level of understanding/awareness and risk analysis application.

2. To identify the many types of risk influencing Nigerian real estate investment.

3. To investigate, if any, technique used by Nigerian real estate valuers in incorporating and reporting risk and uncertainty in real estate valuation and investment appraisal.

4. To assess the appropriateness of the approaches commonly used by Nigerian real estate valuers in incorporating and reporting risk and uncertainty in real estate valuation and investment. Appraisal

5.To propose acceptable approaches for incorporating and reporting risk and uncertainty in real estate valuation and assessment in light of the country’s current economic realities and best practises.


1. What is the level of risk analysis understanding/awareness and application?

2. What are the various sorts of risks associated with real estate investment in Nigeria?

3. What strategies, if any, are used by Nigerian real estate valuers to include and report risk and uncertainty in real estate valuation and investment appraisal?

4. How adequate are the methodologies often used by Nigerian real estate valuers for incorporating and reporting risk and uncertainty in real estate valuation and investment? Appraisal

5. In view of the country’s current economic realities and best practises, what are the most acceptable strategies for incorporating and reporting risk and uncertainty in real estate valuation and appraisal?

1.5 Significance of the Research

The significance of development/investment appraisal stems from the need to determine the viability of proposed development projects; to attract development finance; to attract and persuade a joint developer of the profitability of investing in the development;

to enable the developer to choose between two or more alternative investments; and to determine the type of development to which a specific piece of land could profitably be put as well as the intensity of usability.

The meticulous estimate of all aspects that contribute to value in real estate investment valuation and appraisal. As a result, if the value (benefit) in relation to the cost is positive, the project is viable or profitable (Okoh, 2008). According to Ajayi (2014),

incorporating risk in real estate appraisal is critical in real estate development projects because it guides decision makers through the overall risk management process by identifying such factors that have potential impact on the conceived project and may likely affect the expected income, timely completion, and successful execution of the project.

Thus, without assessing or analysing the risk, responding to and controlling it will be impossible. As a result, the study is designed to identify how property development assessment might be improved in order to reduce financiers’ and end users’ exposure to downside risk in property development (estate surveyors & valuers, developers, development financiers).

Financial evaluation of capital investment decisions is an important feature of feasibility and viability studies, particularly for private investors whose primary goal is profit maximisation (Ibiranke, 1998).

Risks in real estate valuation and appraisal must be considered and should not be underestimated since they affect project management, finance, and development processes in terms of project management, project cost overrun, and product quality (Khumpaisal and Chen, 2010).

Thus, the interplay of various actors, as well as the large range of factors involved in real estate investment, necessitate comprehensive risk modelling, which would also assist developers in structuring the decision-making process (Khumpaisal, Ross, and Abdulai, 2010).

In real estate investment, once a decision is made, it may be impossible or prohibitively expensive to reverse. As a result, investment decisions must be appraised, and the requirement for a trustworthy technique for assessing real estate investment cannot be overstated (Zakariyyah, 2012).

According to Olaleye (1998), while the disciplines of development evaluation and risk analysis in real estate investment and development are of some academic interest, real estate practise in Nigeria has not fully embraced them. As a result, there is a need to conduct a study that combines risk and uncertainty into real estate valuation and investment appraisal.

1.6 Scope of the Research

The study concentrated on a few real estate enterprises that solely operate in Lagos. According to the Nigerian Institution of Estate Surveyors and Valuers (2014) directory, more than fifty (50) percent of registered firms in Nigeria,

or approximately 309, have their headquarters in Lagos metropolis, indicating that Lagos state has the highest population of Estate Surveyor and Valuers firms in Nigeria.

This serves as the foundation for selecting Lagos-based practitioners as the research population, which would be based on the number of valuation and investment appraisals performed by Estate Surveyors and Valuers firms.

It did not seek to explore the thoroughness of market surveys or evaluate the accuracy of development appraisal and valuation reports since it is necessary to first determine whether risk and uncertainty are factored into valuation and investment appraisal.

1.7 Limitations of The Study

1. Due to the secret nature of the reports, getting previous valuation and assessment reports from firms proved difficult.

2. The number of responses to a questionnaire sent to estate surveyors and valuers about the operation of their firms and experience on issues such as how they incorporate risk and report it in their valuation and investment appraisal reports has become difficult to determine due to the small number of firms that actually carry out these types of reports.

3. It was also shown that most firms do not include risk in their valuation and investment appraisal reports. This provided a significant issue due to the scarcity of information proving the inclusion of risk in the appraisal report and determining the technique employed to incorporate these risks.

4. It was revealed that assessment reports are not usually generated due to the country’s current economic position. The number of reports completed has likewise decreased significantly during the past year. As a result, the findings of this investigation must be based on the few reports that were accessible.

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