VARIANCES IN VALUES OF RESIDENTIAL PROPERTY RESULTING FROM VALUERS’ APPROACH IN ANCHORING AND ADJUSTMENT HEURISTIC IN METROPOLITAN LAGOS

AUTHOR: UMEH, OBINNA LAWRENCE

DEPARTMENT: ESTATE MANAGEMENT

AFFILIATION: NNAMDI AZIKIWE UNIVERSITY, AWKA

The effect on capital values of anchoring and adjustment heuristic approaches used by independent valuers are sources of concern in the estate surveying and valuation practice. To determine the sources of standard (market evidence) and non standard anchors, how the anchors are used; determine adjustment approaches for differences in the attributes when determining capital values of residential properties;ascertain the significance of differences between the market values of the properties determined by valuers; as well as ascertain the significance of variances in the mean of capital values of a property resulting from the approaches of valuers in Lagos; a field survey, process tracing method (verbal protocol), and controlled experiment were used. The valuers were selected from six local government areas of Lagos Island, Lagos Mainland, Eti-Osa, Ikeja, Apapa, and Surulere; where clusters of estate firms obtain. The population of the registered estate firms in the city was 260 as at the time of survey; while the accessible population representing the sample frame in the selected area is 164. The statistical formula of Yamane (1967) and a standard error of 0.05 were used on the sample frame for determination of the sample size of 116 firms of which 79 responded. Questionnaires were distributed to 144 valuers in the 79 firms; and the respondents and participants were 104 (72.2%). The controls in the experiments were to isolate the impact of key explanatory variables and exogenous influences. The results showed that valuers in the study area source anchor from most of the sources lifted from literatures; as well as used different approaches in managing the same valuation problem. Valuations of ten residential properties in different neighborhoods of the study area were carried out to ascertain the variance effect of anchoring sources and adjustment amounts on capital values of the properties. Using the Statistical Package for Social Sciences (SPSS), version 20, One sample T-test showed that for the 1040 values of ten properties provided by 104 valuers, there were significant differences (below 0.05) in the capital values. For the F- test, p-values of 0.023 and 0.047 (below 0.05) were the results for two out of the ten properties valued and these imply that variances in the mean of values were statistically significant for only the two. From the results of the T-test, the sources of anchors and how the anchors were used in the valuations of each of the ten properties by the valuers resulted in significant differences in capital values. In the case of adjustment amounts, values of five properties were significantly different; while for the other five, they were insignificant. Also, variances in sample means using F-ratio were insignificant. Recommending that the sources of anchor be streamlined to recent sales price of similar properties from local experts is not an end, since the study also showed that even with the relatively large number of valuers that used recent sales price from local experts (RSPLE) as anchor data, significant differences in values still resulted. There is therefore the need to make sure that chosen similar properties are always inspected to determine variables that can contribute to wide variances in final values. Arbitrary adjustment approaches without identification of differences in the attributes on the site is dangerous in the valuation profession and should be avoided as this may lead to misrepresentation of comparables. To prevent significant variances in values, valuers should pick sales that have very few areas of adjustments. This is so that even big errors in the adjustment will not make much difference in final capital values.

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