E3 Journal of Business Management and Economics

E3 Journal of Business Management and Economics Vol. 6 (2) pp. 017-026, June 2015; © E3 Journals; ISSN 2141-7482

Appropriateness of depreciation measurement in the cost method of property valuation in Lagos, Nigeria

Abstract

Valuation has been considered as an important tool for decision making in property transaction all over the world. This action requires that the valuers are expected to give reliable and consistent opinion of values. Unfortunately, this does not occur often in the estimation of depreciation in cost valuation in Nigeria. The aim of this paper is to evaluate the appropriateness of the depreciation in the cost method of valuation with a view to providing better information for the stakeholders in the built environment. Questionnaire were structured and distributed on registered estate surveyors and valuers firms in Lagos Metropolis where the head offices of the majority of estate surveying and valuation practititioners are accommodated. Stratified sampling technique was adopted in selecting firms within the districts of the study area. 154 questionnaires were distributed but 131 were retrieved for the purpose of analysis. Relative Importance Index method of analysis was adopted with the use of student T-test to determine the relationship between the depreciation generated by S-curve and the method found to be in frequent usage. The paper discovered no significant relationship. The P value (< 0.5) indicated that the variance of methods (S-curve on one hand versus the methods used) were not equal. This showed that the use of depreciation in the cost methods of valuation has accuracy deficiencies. The paper therefore concluded that depreciation measurement in the study area is user friendly, but inaccurate, inconsistent and incapable of separating components. The professional board of Estate Surveyors and Valuation Registration Board of Nigeria (EVERBON) is further challenged to regulate the use of deprecation methods in use among majority of the practititioners in the interest of accuracy, and called for further research in this area in order to develop models that will capture all the indicators of good depreciation measurement.

Keywords: Valuation accuracy, Market values, standard, obsolescence, Property