Ethiopian Civil Service University

College of Urban Development & Engineering

Department of Housing & Real Estate Property
Management (Weekend Program)
Real Property Valuation theories,
Practices & Ethics (RPV-6021)

Yeshitla Agonafir (PhD Candidate)

CUDE ESCU,
Addis Ababa, Ethiopia
October, 2021

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1. Module Introduction
• Module title: RPV Theories, Practices & Ethics
• Module No: RPV-6021,
• Module Type: Core Module
• Credit hours: 7 ECTS

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1.1 Module Outcomes:
Upon the completion of the course, students will be able to:
• Become familiar with various concepts of property,
• Comprehend the various valuation concepts and theories
• Identify the determinants of property value
• Understand the various methods of property valuation
• Know and realize the ethics in property valuation,
• Evaluate the real practice of property valuation in Ethiopia.
• Design real property valuation manual for various purposes
• Apply valuation methods in real property valuations.

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1.2 Module Contents:
1. Introduction to Basics of Land
• The nature & Unique features of land
• Concepts of Land, Real estate, real & personal property
2. Introductions to the concept of Valuation
• Defining Valuation, appraisal
• Basic terms in valuation i.e. Worth, Price, Cost and Value
• Defining market value
3. Bases and Purposes of Valuation
• Bases of valuation: Market vs. non market valuation
• Purposes of property valuation
• The valuation process
• The valuation report
• Economic Principles of value

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 Contents cont’d…
4. Determinants of property values;
• Socio-economic, physical & political factors.
• Demand factors
• Supply factors
• Property related factors
5. the Valuation approaches/Methods;
• Sale comparative approach
• Cost approach
• Income approach (Residual & investment),

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 contents Cont’d…
6. Fundamental Ethical Principles in Valuation
• Integrity
• Objectivity
• confidentiality
• professional competence and due care
• professional behavior
• Valuer’s Obligation to his Client
• Valuer’s Primary Duty and Responsibility
• Valuer’s Obligation to other Valuers
• Unethical & Unprofessional Valuation Practices

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 Content Cont’d…
7. Threats and Safeguards
7.1 Threats
• Self-interest threat
• Self-review threat
• Client conflict threat
• Advocacy threat
• Familiarity threat
• Intimidation threat
7.2 Safeguards
• Safeguards by profession, legislation or regulation
• Safeguards in the work environment
• Safeguards enhancing citizenship and attitudinal changes
8. the valuation practices of Ethiopia & other counties experiences in
Property Valuation
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 1.3 Didactic Methods:
• Interactive lecture,
• Group work and presentation
• Article Review
• Reading Assignments

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 Cont’d
1.4 Mode of Assessment:
• Test (20%)
• Individual Assignment (20%)
• Group Assignment (20%)
• Final Exam (40%)
1.5 Grading: As per the university Legislation

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1.6 Punctuality
• Attendance is mandatory (90% is a must)
• Expectation for Classroom Behavior
• Contribute in class discussion
• Meet assignment deadlines
• Courtesy and respect
• Discipline
• Cell phones must be silent
• Late submission is not acceptable
• Plagiarism
• May disqualify your assignments,
• Missing Exam and Tests (medical case & emergency only)
• Need to be supplemented by relevant documents

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1.7 References
• Introducing Property Valuation by Michael Blackledge 2nd edition
• Alan Millington (2000) An Introduction to Property Valuation 5th edition
• Peter Wyatt (2013) Property Valuation 2nd edition
• Peter Wyatt (2007) Property Valuation: In an Economic Context
• Sayce.S, Smith.J.,Cooper.R., and Venmor-Rowland.P. (2006) Real
estate Appraisal: From Value to Worth. Black Well publishing Ltd. ISBN:
978-1-4051-0001-4
• Wang.K. and Wolverton.L.M. (Eds.). (2002) Real estate Valuation
Theory. Research Issue in Real Estate, Volume 8. Appraisal
Department and America

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 Week 1:
Introduction to Real Property Valuation
1. Contents:
• Definition of terms:
• the nature of land & real property
• Real estate, Real property & personal property
• Nature & characteristics of the property Market
• Defining valuation, Appraisal, Price, Value, Cost etc.
• Definition of Market Value

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 Learning Outcomes:
At the end of this session, students will be able to;
• Understand the nature of land & real property
• Understand the nature & features of land/property market
• Understand the concept of valuation
• Differentiate among price, cost &value
• Comprehend the determinants of Market value

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 the Nature of Land
• The term “land” is used to describe an area of ground used
for agriculture to grow food, for construction to create shelter
and for resource extraction.
• Land is unique as a resource as it is immovable, yet
extremely versatile in terms of its nature, quality and use.
• It forms the basis of all development and is the primary
source of a plethora of other resources crucial for human
survival and growth.
• In the context of the built environment, land represents both
the beginning and the end of the development life cycle.

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 the Nature of Land
• Its the ultimate resource i.e. without it life on earth
cannot sustain.
• Is the free gifts of nature w/ch yield an income
(Classical economist)
• Includes all the surface, subjacent & super-jacent
things of a physical nature like buildings, trees,
minerals etc. (Lawyer’s defn).
• Is a primary source of wealth, social status, & power.
• Is the basis for shelter, food, and economic activities.

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 Basic features of Land
Unlike other factors of production, land has many unique features such as;
• Heterogenity:
• Each parcel of land is unique
• Renders information assymetry
• Incurs immmense transaction cost
• Immobility:
• a real property with its fixtures like buildings & factories is in exchangeable
• No national/central market
• Source of negative/positive externalities
• Longevity/durability:
• Undepreciability of land unlike other factors of production
• Serve as inflation proof/protection.
• Serves as a basis for savings/ as a collateral.

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 Basic features of Land Cont’d
• Relative Fixity of it’s supply:
• Supply of land is perfectly inelastic thus, one use can be
increased at the expense of the other
• Land is the least flexible factor of production
• Cause a tendency of monopoly by lessors, vendors etc
• Costyness:
• requires bulk finance to acquire & develop
• Incurs immmense transaction cost.
• No cost of creation:
• It is a free gift of nature not a commodity
• Thus, its more than just an asset:
• Its linked to individuals & community identity, history and
culture, as well as being a source of livelihoods and,
• the only form of social security for many poor.

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 Basic features of Land Cont’d
• Subject to the Law of Diminishing returns:
• It states that, MOT, AOT & TOT of land eventually
diminishes after successive application of labor &
capital to a given area of land.
• Absence of market for ‘Land’:
• unlike other factors of production transaction is not in
land itself, but in interests/rights in, on, under & over
land.

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 Real estate, Real Property & Personal Property
 Real Estate:
 Physical Land and Appurtenances affixed to the land
(e.g. Land, structures)
 Real Property:
 all interests, benefits and rights inherent in the
ownership of real estate,
 Whole/Portions of the bundle of rights,
 Personal Property:
 Moveable items not permanently affixed to, or part of,
the real estate such as;
 Manufactured Housing, Plants
 Fixtures; movable property that is attached
permanently to the land like machines.
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Characteristics of Real Property

• Economic Characteristics
• Scarcity
• Improvements
• Permanence of investment
• Location
• Physical Characteristics
• Immobility
• Indestructibility
• Uniqueness

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The nature & characteristics of the property Market
• Market is an organized action b/n buyers (demand) and sellers
(supply) that permits trade.
• Its the interaction of individuals who exchange real property rights
for other assets like money.
• Real property Market is thus, an arrangement by which buyers &
sellers of virgin land, agricultural estates, industrial buildings,
offices, shops & houses are meet together to determine the
price of exchanged.
• Real property markets may be classified in several ways:
• by geographic area;
• by property type or
• by the scope of prospective market participants.
• Real property transactions are not on the land it self, but on
interests/rights over the land,
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 Items in the Property Market
• Are resources affixed with land
• Are neither physically movable.
• They differ from labor, capital & other goods in general.
• Too heterogeneous:
• Imperfect Information/assymetry among participants
• Low transaction frequency: participants buy/sell infrequently)
• No central market: mainly in informal markets
• Relatively small no of buyers and sellers
• Property Market is either formal or informal.

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 Cont’d
• Transactions may be formally recognized (Auction advertised) or
• Exchanges may also be informal (introduced by estate
agents, dealings b/n principals, brokers etc.).
• Its impossible to distinguish the means by which people are
informed from but, much is advertised through news papers
or personally which in turn is part of the market.
• So, land market is subject to the law of supply & demand w/ch
determine the price & value of land.

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 Cont’d
• Unlike Labor & Capital, land/property market is the least
efficient b/c of;
• Imperfect knowledge of buyers & sellers ( need experts
like surveyors, lawyers, valuers),
• Heterogeneity & immovability of land,
• Imperfect competition (monopoly interests),
• Relatively high cost of dealing.

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 Cont’d
• Prices are not determined by the market, rather by
other factors which differ in each transaction (e.g.
Crisis, location etc.). So, no clearing fixed price.
• High transaction cost: high purchase & sale costs
• Therefore, property markets are imperfect & not 100%
efficient.
• If rights are clearly defined and costs of negotiation are
minimized, then the market will work efficiently.

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 Defining Valuation
• Valuation is the provision of a written opinion as to
capital price or value, or rental price or value, on
any given basis in respect of an interest in
property.
• However, it does not include a forecast of value.
• Is the art and/or science of estimating the
monetary value of an asset at a particular point in
time for a specific purpose.
• It could be the value to an individual or in the open
market.
• In the case of real property, it is interests/rights in
property and not property by itself that are valued
i.e. either freehold or leasehold interests.

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 Definitions (Appraisal)
• Appraisal means the written provision of a valuation,
combined with professional opinion, advice and/or analysis
relating to the suitability or profitability, of the subject
property for defined purposes, as judged by the valuer
following relevant investigations.
• It may include a calculation of worth.
• Worth: is a specific investor’s perception of the capital
sum which he would be prepared to pay or accept for a
property,

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 The Relation among Price, Cost and Value
• Valuers should carefully distinguish b/n value, cost and
price during valuation.
a) Price
• Is related to exchange of property rights/interests.
• Is the actual observable exchange price in an open
market.
• Is “The amount asked, offered, or paid for a property.”
• Price is a fact, whether publicly disclosed or retained in
private.
• Because of the financial capabilities, motivations or
special interests of a given buyer or seller, the price paid
for a property may or may not have any relation to the
value that might be ascribed to that property by others.”
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b) Cost
• is “The amount required to create, produce, or obtain a
property.”
• Cost is either a fact or an estimate of fact.
• Is a production-related concept, not related from
exchange,
• Is the amount of money required to develop a property,
service,
• Is a historic fact after development.
• May be in different forms direct/indirect.

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c) Value
• Is the estimate of the price that would be paid if the
property were to be sold in the market.
• Determined by market or non-market bases,
• Value is “the monetary r/ship b/n properties and those
who buy, sell, or use those properties.”
• Value is never a fact, but always an opinion of the worth
of a property at a given time in accordance with a
specific opinion of value.
• Value must always be defined like, market value,
liquidation value, book value, insurance value,
investment value.”
Price ≠ Cost ≠ Value
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Bases of Value
three principal bases of Value (IVSC,2019);
• “Market value” is an estimated amount for which an asset
or liability should exchange on the valuation date b/n a
willing buyer and a willing seller in an arm’s length
transaction, after proper marketing and where the parties
had each acted knowledgeably, prudently and without
compulsion.
• “Investment Value” is the value of the asset to the owner or
a prospective owner for individual investment or operational
objectives.
• “Fair Value” is the estimated price for the transfer of an
asset or liability b/n identified knowledgeable and willing
parties that reflects the respective interests of those parties.
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 Defining Market Value
• Is an estimated amount for which an asset should
exchange;
• on the date of valuation,
• b/n a willing buyer and a willing seller,
• in an arm's length transaction,
• after proper marketing wherein the parties had each
acted;
• knowledgeably,
• prudently and
• without compulsion.

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 Definition of Market Value Cont’d
• Market Value assumes a price negotiated in an open &
competitive market,
• Market for one property may be an international or local,
• the market may consist of numerous buyers and sellers or
a limited number of participants.
• the property must be exposed for sale in a non restricted
or constricted market.
• A market with out any barrier for entry and exit,

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 Definition of Market Value Cont’d
• Does market value mean the best price that is likely to be
obtained in the market at the time? or
• Is it an average price in current market conditions?
• ‘the estimated amount’…refers to a price expressed in
terms of money, payable for the property in an arm’s
length transaction.
• MV is measured as the most probable price reasonably
obtainable in the market on the date of valuation,
• therefore MV is not typically an average.

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 Definition of Market Value Cont’d
• Property is relatively illiquid and a reasonable marketing
period is needed to achieve the best price.
• Do you assume that this marketing period has already
taken place before the date of valuation or that it has still to
take place?
• The choice of time perspective could make a big difference
to the end figure in a market where prices are moving
rapidly up or down.

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 Definition of Market Value Cont’d
• after ‘proper marketing’ means;
• the property would be exposed to the market in the most
appropriate manner to effect its disposal at the best
price,
• the length of exposure time may vary with market
conditions,
• But, the time must be sufficient to allow the property to
be brought to the attention of many of potential buyers.
• exposure period occurs prior to the valuation date.
• the seller should not be under any time pressure to sell;
• Example; liquidation case may affect the price.

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 Definition of Market Value Cont’d
• ‘A willing seller:
• Is neither an over-eager nor a forced seller, who
prepared to sell at any price,
• nor one who prepared to hold out for a price not
considered reasonable in the current market.
• Should be motivated to sell the property at market terms
for the best price attainable in the (open) market after
proper marketing, whatever that price may be.
• ‘willing seller’ is a hypothetical owner not factual.

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 Definition of Market Value Cont’d
• ‘A willing buyer:
• one who is motivated, but not compelled to buy.
• neither over-eager nor determined to buy at any price
• one who purchases in accordance with the realities of
the current market and
• with current market expectations, rather than an
imaginary or hypothetical market that cannot be
demonstrated or anticipated to exist.
• Should not pay a higher price than the market requires.
• A Valuer should make realistic assumptions about
market conditions or assume a level of market value
equal with the real condition.
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 Definition of Market Value Cont’d
• Valuation must determine the highest & best use of a
property,
• HABU is ‘the most probable use of a property which is;
• Physically possible,
• appropriately justified,
• legally permissible,
• financially feasible, and
• which results in the highest value of the property.

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 Definition of Market Value Cont’d
• MV should be based on an ‘arm’s length transaction.
• Arms length transaction means;
• A transaction b/n parties who do not have a particular
special r/ship (for example, parent and subsidiary
companies or landlord and tenant) that may make the
price level uncharacteristic of the market.
• A transaction presumed to be b/n unrelated parties,
each acting independently.

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 Definition of Market Value Cont’d
• MV should be based on transaction b/n parties who
act ‘ knowledgeably and prudently’. This means;
• both the willing buyer and seller are reasonably
informed about;
• the nature and characteristics of the property,
• its actual and potential uses of the property, &
• the state of the market as of the date of
valuation.

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 Definition of Market Value Cont’d
• Both parties act for self-interest with that knowledge
and prudently seek the best price for their
respective positions in the transaction.
• Prudence is assessed by referring to the state of
the market at the date of valuation, not at some
later date.
• Prudent buyer/seller will act in accordance with the
best market information available at the time.

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 Market Value Cont’d
• MV should be based on a transaction made without
compulsion on both parties. Which implies that;
• Each party should be motivated to undertake the
transaction by themselves,
• But, neither of them should be forced or unduly
coerced to undertake the transaction.

End of session!!!
Question or Comment?
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