VALUERS’ DIGEST

No. V100/LAT/107701
Enhancing Objective Credible and Reliable Valuations

VALUATION – A STRATEGIC AND

RISK PRONE INPUT SERVICE
Valuation is a fundamental input service with a growing
demand across the global space. Individuals, investors,
business entities and government agencies require valuation
as a critical input for informed investment, accounting and
transactional decisions regarding real, business and financial
assets. According to IVS (2022): “Valuations are widely used
and relied upon in financial and other markets whether for
inclusion in financial statements, for regulatory compliance
or to support secured lending and transactional activity”.
Aswath Damoradan noted that valuation plays a key role in
many areas of finance - in corporate finance, in mergers and
acquisitions, and in portfolio management. Highlighting the
vital role of valuation, Kamalahasan Achu remarked:
“Property valuations play an important role in many aspects
of business and corporate decision-making. The role of
valuations in the commercial and residential lending sector is
self-explanatory in that they act as a risk control measure in
the capital adequacy system maintained by financial
institutions”.

The Estate Surveyors and Valuers (Registration, Etc) Act

(CAP.E13 LFN 2014) while outlining the purposes of
valuation stated: “A valuation may be in respect of capital
gains tax, estate duty, compensation, rental, acquisition,
probate, mortgage, company takeover and mergers,
insurance and other relevant matters”.
Basel II regulations covering capital adequacy requirements
stipulated that a collateral tendered for secured lending
purposes must be valued to determined its current market
value, and that frequent revaluation should be carried out “at
a minimum once every year”. Basel II regulations further
recommended the engagement of a professional valuer in the
valuation or revaluation of collaterals.: “A qualified
professional must evaluate the property when information
indicates that the value of the collateral may have declined
materially relative to general market prices or when a credit
event, such as default, occurs”.

ESV Timothy Azowenunebi: MRICS ANIVS RSV Tel: 08023215746 Email:[email protected]

 VALUERS’ DIGEST
No. V100/LAT/107701
Enhancing Objective Credible and Reliable Valuations

Demand for Objective Credible and Reliable Valuation

Julian Roche in driving home the role of valuation asserted:
Since valuation is a critical input service and underpins a
“Without valuation, a money economy ceases to function” host of real and financial asset transactions and operations,
Why such assertion? Julian tells us: “Because behind every there is globally a growing drive for objective, credible and
major resource allocation decision that a company makes lies reliable valuations produced for clients and valuation users
some calculation of what that move is worth…And the such as financial institutions who rely on the output of
allocation of resources, in turn, is a key driver of a company’s valuation for informed investment analysis and decisions.
overall performance”. Julian added: “Entertaining Regulatory bodies also demand objective, credible and
momentous financial decisions without knowing the current reliable valuations from valuation professionals driven by
value of the company is risky, and can result in equity and the need to protect investors from loss of capital or loss of
other financial transactions at below optimal levels for investments arising from misleading valuations. For all
owners”. investors, capital is sacrosanct. No investor wants to throw
capital to the winds or lose assets through reliance on
valuation reports fraught with market misjudgments.
Valuation Risk
While valuation is a key requirement for rational investment
decisions and resource allocations, history reveals that poor
valuations were blamed for the property crash of the 1970s
in the UK, the “Savings and Loan” crisis of the late 1980s
in the US, the 1994 “Schneider affair” in Germany (one of
the biggest property market crash in the country) and the
2008 global financial meltdown. These incidents and more
indicate that valuation is risk prone and underscore the need
for caution in generating opinion of values or making value
conclusions regarding real, business and financial assets.

A money economy is one where assets are exchanged on

monetary basis and requires assessment of the monetary
value of assets for optimum pricing. Without proper
assessment of value, assets could be underpriced or
overpriced. For investment decisions relating to real and
financial assets, including preparation of financial
statements, it is required that such decisions or activities are
anchored on valuation-based numbers and narratives.
Valuation provides a basis for rational investment decisions
and is required for the production of objective, reliable and
true financial statements. Making business and economic
decisions regarding real and financial assets without
valuation or appraisal is considered a gamble. Most often it
results in disastrous consequences.

ESV Timothy Azowenunebi Tel:08023215746 Email:[email protected]

 VALUERS’ DIGEST
No. V100/LAT/107701
Enhancing Objective Credible and Reliable Valuations

Valuation Risk - A Growing Concern Mitigating Valuation Risk

In recent times there has been a heightened concern over risk There are various ways to mitigate valuation risk. We shall
across the business and professional sectors. With increasing consider two of them briefly in this article.
twists and turns in global, national, regional and local
economies, market participants are becoming more risk Understanding the Role of a Valuer
conscious. The International Valuation Standards Committee The first step toward mitigating valuation risk is
(IVSC) is turning the attention of valuers to valuation risk in understanding the role or function of a valuer. Essentially,
the current edition of IVS which would become effective in the valuer is an assessor of value not an inventor or
January 2025. In the new International Valuation Standards merchant of value. Wyatt (1983) stated: “The valuer’s
(IVS 2024 Exposure Draft) valuation risk is defined as function is to interpret the market and its pricing
follows: mechanism – including the illogicalities”. In other words,
“The risk that the resultant value will not be appropriate for Valuers do not create value but interpret market trends and
its intended use”. dynamics to determine the value of assets. Professor Sarah
Sayce in her paper Sustainability from a Property Valuer’s
Perspective: What The Valuer Needs outlined this function.
She wrote: “The Role of the Valuer is to reflect markets, not
lead them”. RICS also alluded to this function in the Red
Book (VPGA 8 Section 2ciii) and its guidance note
Sustainability and ESG in Commercial Property Valuation
and Strategic Advice thus: “While valuers should reflect
markets, not lead them, they should be aware of
sustainability features and the implications these could
have on property values in the short, medium and longer
term”.

While a professional valuer is best positioned to establish the

value of an asset, there is the risk or probability that the value-
estimate obtained may not be appropriate, or may be way off
the acceptable bracket of variance. In other words, resultant
values could be wrong. Wrong valuations lead to wrong
investment decisions and increases valuers’ exposure to
It should dawn on every valuer from the above referenced
liabilities and loss of public confidence. The reality and
sources that our role is to reflect the markets in our value
dangers of valuation risk demand that appropriate measures
are put in place by valuers to mitigate it, to ensure that conclusions and not to invent figures unsupported by the
valuations are delivered to clients which would promote the markets. When valuers function within the boundaries set
right pricing of investment assets and that would not result in by the markets, reflecting the equilibrium price or
financial misrepresentation or wrong financial reporting of aggregate thinking of participants within the markets, it
company assets. would go a long way in mitigating valuation risk.

ESV Timothy Azowenunebi Tel: 08023215746 Email [email protected]

 VALUERS’ DIGEST
No. V100/LAT/107701
Enhancing Objective Credible and Reliable Valuations

Market Cycles
Reflecting markets implies understanding and reflecting the
stage of the market cycle or business cycle as the date of
valuation. Thomsett remarked: “Markets always move in
cycles. Therefore, every market – including the real estate
market- will exhibit periods of strong growth and periods of
stagnation and even decline in market values. While these
cyclical changes may be temporary, they are part of the
investing process”.

According Sopon, a real estate analyst, “the cycle in real

estate is a very critical consideration” and “an investor, a
developer, or even a home buyer should know where they Compliance with Global Valuation Standards
are in the cycle of the real estate market at any particular The second way of mitigating valuation risk is by
point in time”. Mckenzie and Betts made a similar remark: compliance with the best practice procedures and principles
“One of the most difficult aspects of real estate investing in of Global Valuation Standards. The history of the valuation
recent years has been interpreting where we are in the real profession indicates that valuation standards were prepared
estate cycle. This interpretation is critical, as property in response to poor valuations and the need to deliver
should be worth more…if its cyclical influences are all objective, credible and reliable valuations. Gilbertson and
positive and worth less if its cyclical influences are Preston relating the origin of valuation standards wrote:
negative”. “Most of the national crises exposed wide variations in
valuation approaches that led to vastly different, often
unrealistic estimates of similar assets and the dangers of
fraud or dishonest conduct where valuers were not properly
trained or regulated. The concern to avoid such collapses led
to the emergence of valuation standards, first on national
and then on an international level”.

Market cycle consist of peaks, troughs, upward and

downward swings, expansion and recession phases,
reflecting the condition of the market at a given point in
time. We must note that buyers’ and sellers’ responses or
behaviors are not the same at all stages of the market cycle.
To reflect markets accurately valuers must take the cycles
into consideration and avoid the assumption that values
always point upward regardless of the state of the market,
assets condition or performance at the valuation date. Doing
so will lead to market misjudgment.

ESV Timothy Azowenunebi Tel:08023215746 Email:[email protected]

 VALUERS’ DIGEST
No. V100/LAT/107701
Enhancing Objective Credible and Reliable Valuations

Continuing on the role of valuation standards, Gilbertson

and Preston stated: “International valuation standards
could make cross-border investment less risky and reduce
the inherent instability of many stock exchanges by ensuring
proper valuations of assets owned by quoted companies.
This integrity would reduce the likelihood of a valuation-
induced collapse in one financial centre potentially
triggering a more global collapse”.
Dr. Gambo contributing on the origin of valuation standards
tells us: “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… 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 International Valuation Standards (IVS)
known as the Blue Book produced by The European Group of “The objective of the IVS is to increase the confidence and
Valuers (TEGoVA); the Uniform Standards of Professional trust of users of valuation services by establishing
Appraisal Practice (USPAP) produced by the US; and the
transparent and consistent valuation practices”.
Canadian appraisers known as The Appraisal Foundation
(TAF); and Australia and New Zealand Valuation Property “International Valuation Standards (IVS) are a fundamental
Standards produced by the Australian Property Institute (API). part of the financial system…The purpose of IVS is to
The National Valuation Standards are produced by each promote and maintain a high level of public trust in
country to reflect the peculiarities of that country. Some of valuation practice. As such, they establish appropriate
these national valuation standards include the Appraisal and global requirements for valuation that apply both to the
Valuation Standards by the Royal Institution of Chartered parties involved in the process and to those who oversee the
Surveyors (RICS) known as the RICS Red Book [now with process”.
global reach]; Valuation Standards by the Hong Kong Institute
of Surveyors; Philippine Valuation Standards; Guidance and “The International Valuation Standards Council (IVSC) is
Valuation Standards by the Nigerian Institution of Estate an independent not-for-profit organization committed to
Surveyors and Valuers [now The Nigerian Valuation Standards advancing quality in valuation profession. Our primary
- The Green Book); among others”. objective is to build confidence and trust in valuation, by
producing standards and securing their universal adoption
Objectives of Valuation Standards and implementation for the valuation of assets across the
The risk mitigating role of valuation standards is indicated in world…The International Valuation Standards (IVS) are
their set objectives. Outlined below are these pristine, standards for undertaking valuation assignments using
insightful and revolutionary objectives. generally recognized concepts and principles that promote
transparency and consistency in valuation practice”.

ESV Timothy Azowenunebi Tel:08023215746 Email:[email protected]

 VALUERS’ DIGEST
No. V100/LAT/107701
Enhancing Objective Credible and Reliable Valuations

RICS Valuation-Global Standards “The Nigerian Valuation Standards thus sets out vital
valuation practice procedural rules and guidance for
“The Red Book Global Standards reflects the growing
registered valuers. The Green book also covers matters
importance of successfully combining professional, technical
relating to ethics and conduct and established a framework
and performance standards in order to deliver high quality
for uniformity and best practice in the execution and
valuation advice that meets the expectations and
delivery of valuations. The Green Book is, therefore, a
requirements of clients; of governments, regulatory bodies
positive step to improving the quality of valuation advice to
and other standards-setters; and of the public…The aim
clients and in eliminating their dissatisfaction. The
simply stated… is to engender confidence, and to provide
document will ensure that clients consistently received a
assurance to clients and recognized users alike that a
high standard of valuation and reporting from valuers”.
valuation undertaken by an RICS-qualified valuer anywhere
in the world will be undertaken to the highest professional Valuation Standards - Quality Control Tools
standards overall”.
From the role of valuation standards highlighted above it is
evident that valuation standards are quality control tools.
Professor Ajayi indicated this in his definition of valuation
standards, which runs thus: “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”.

To benefit from its risk mitigating potential, valuers must

see valuation standards, not merely as guidance notes but
as indispensable quality control tools for the production and
World Bank delivery of objective, credible and reliable valuations.
“As a consequence of globalization, market efficiency Total Compliance Demanded
requires consistency, transparency and comparability.
International standards are the backbone”. Given the aims of valuation standards of promoting
credibility and trust in valuation reporting, valuation
The Nigerian Valuation Standards (The Green Book) standards setters demand total compliance with the
“The Nigerian Valuation Standards is a comprehensively requirements of these standards. IVS 102 (10.1) states: “To
robust practice document incorporating high level valuation be compliant with IVS, valuation assignments, including
principles and embracing the adoption and implementation reviews, must be conducted in accordance with all of the
of universal valuation standards. The document is primarily principles set out in IVS that are appropriate for the
aimed at ensuring consistent, high standards of valuation purpose and the terms and conditions set out in the scope of
among valuers in Nigeria. The Green Book has been work”. Again IVS states: “When a statement is made that a
designed to ensure that valuations undertaken in Nigeria are valuation …has been, undertaken in accordance with the
performed to the highest internationally recognized valuation IVS, it is implicit that the valuation has been prepared in
standards” compliance with all relevant standards issued by the IVSC”.

ESV Timothy Azowenunebi Tel: 08023215746 Email:[email protected]

 VALUERS’ DIGEST
No. V100/LAT/107701
Enhancing Objective Credible and Reliable Valuations

The Red Book also states in PS 1 (1.1) - “All members and

regulated firms, wherever practicing, must comply with the
professional, valuation technical and performance standards
(designated by the prefixes PS and VPS) in parts 3 and 4 of
this global edition”.

Basis for Judicial Decision in the Case of Negligence

To drive home the fact that compliance with valuation

standards is imperative for risk mitigation, valuation standards
are made the basis of judicial decision and disciplinary action
against valuers in the case of negligence or unwarranted
departure from stipulated procedures and principles. The
Green book states: “In addition, and just as important to a
valuer’s professional life, it is the likelihood that, in the course
of a negligence action against the valuer, the court would take
account of the provisions of the document in deciding whether
the valuer has acted with reasonable competence”.

RICS made a similar statement in the guidance note tilted

Discounted cash flow for commercial property investments: “It
is for each individual surveyor to decide on the appropriate
procedure to follow in any professional task. However, where
members depart from the good practice recommended in
guidance notes, they should do so only for good reason. In the
event of litigation, the court may require them to explain why
they decided not to adopt the recommended practice”.

Therefore, while valuation occupies a crucial place in business

or investment value chain, valuers must exercise caution to
avoid giving misleading value opinions to clients that would
lead to valuation-induced financial ripples, business
disruptions, loss of investments or destructive risk exposures.

ESV Timothy Azowenunebi Tel:08023215746 Email:[email protected]