ARDHI UNIVERSITY

SCHOOL OF REAL ESTATE STUDIES

DEPARTMENT OF LAND MANAGEMENT AND VALUATION
COURSE: LM 262: PRINCIPLES AND METHODS OF VALUATION
ASSIGNMENT: 01
COURSE INSTRUCTOR: MR. MREMA, E.
Bsc. LMV2 GROUP NO.11 MEMBERS
S/N

NAME OF PARTICIPANT

01.
02.
03.
04.
05.
06.
07.
08.
09.
10.

VENANCE, PROSCOVIA
CHANDE, FADHILI HASSAN
MAVUNDE, MARIAM
SENEMA, FRED SANGUDI
NAIMANI, JANE
CHISTOPHER, LETICIA
JACOB, SIMONI O
MWALONGO, ZENOBIUS V
MWALUSAKO, LWITIK0
TABU, SALUM A

REG.#
7347/T.2014
7248/T.2014
7300/T.2014
7334/T.2014
7318/T.2014
7250/T.2014
7270/T.2014
7312/T.2014
7313/T.2014
7342/T.2014

PROGRAMM
E
Bsc. LMV
Bsc. LMV
Bsc. LMV
Bsc. LMV
Bsc. LMV
Bsc. LMV
Bsc. LMV
Bsc. LMV
Bsc. LMV
Bsc. LMV

TASK;Valuation is a dynamic profession which faces challenges of globalization. With these

forces from the commercial world, practices, standards and principles need to be frequently
rejuvenated. With reference to the profession in Tanzania,

Identify the main professional challenges which water down application of the global
principles and techniques to valuation

How can the profession get improved to remain buoyant in the global valuation
profession?

TABLE OF CONTENTS
COVER PAGE............................................01
TABLE OF CONTENTS........................................02
Group No.11: BSc. LMV2(2015/2016) Page 1

ACKNOWLEDGEMENT......................................................03
GENERAL INTRODUCTION...................................................................04
VALUATION STANDARDS AND PRINCILPLES:........................................................09
MEANING OF GLOBALIZATION; CAUSES, AND IMPACTS TO VALUATION
PROFESSION..............................................................................................................,.......12
GENERAL CHALLENGES FACING VALUATION PROFESSIONALS WHEN
UNDERTAKING THEIR DUTIES FOR VARIOUS PURPOSES.....................................13
POSSIBLE MEASURES WHICH CAN BE TAKEN IN ORDER TO KEEP VALUATION
PROFESSION BOUYANT IN TANZANIA.......................................................................20
REFERENCES......................................................................................................................26.

ACKNOWLEDGMENTS
This task would not have been possibly completed without almighty Gods help through His
blessings. First of all we would like to thank and praise our Almighty God for enabling us as
a group to undertake this Task completely as to the required standards.
Moreover we would like to extend our special thanks and appreciation to MR. Mrema, E (our
course instructor) for his preparation and monitoring of the whole task. We also thank Mr.
Regnald Mushi (Director), from MAJENGO ESTATES DEVELOPMENT (T) LTD located
in Mwenge street in Dar es Salaam Tanzania, for his contribution to accomplish this report.

Group No.11: BSc. LMV2(2015/2016) Page 2

Finally, it impossible to thank every individual; we take this opportunity to thank all those
who in one way participated in completion of this work and found their names not mentioned,
as well as every member of Bsc. LMV2 Group number eleven whose active cooperation and
positive participation was indispensable in completion of this task.
Thank, you All.

GENERAL INTRODUCTION
We were required to consult valuation firm , to inquire about the
challenges facing valuation profession especially those resulting from
globalization and suggestions on how to solve them so as to keep the
profession bouyant in Tanzania. As a group we were obliged to visit at
MAJENGO ESTATE DEVELOPERS (T) LTD- a valuation firm located in
Mwenge street in Dar Es salaam on Tuesday 03rd, 2016. Then after
following all reception procedures we were instructed to Mr. Reginald
Mushi, who instructed us about the questions we asked and responded to
Group No.11: BSc. LMV2(2015/2016) Page 3

them comprehensively and exhaustively for all group members to

understand.
According to Mr Mushi, Valuation has often been defined as the art and/or science of
estimating values. We will come to see why this has been a common perception of the
profession; more formally however:
Valuation means 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, with or without associated
information, assumptions or qualifications. However, it does not include a forecast of value.
Valuation is simply a model to try to determine price. Value is the end result. It is the
quantification of an understanding of the market; the legal impact; the physical constraints;
the planning regime; the availability of finance; the demand for product and the general
economy all influence the value of property.
Thus, in the property market, what is often called valuation is the best estimate of the
trading or spot price of a building/land.
Whereas Appraisal means the written provision of a valuation, combined with professional
opinion, advice and/or analysis relating to the suitability or profitability, or otherwise, of the
subject property for defined purposes, or to the effects of specified circumstances there on, as
judged by the valuer following relevant investigations. It may incorporate a calculation of
worth.
It is worth (no pun intended) mentioning at this point that the nomenclature employed is often
dependent upon the jurisdiction of use, for example both the terms valuation and appraisal are
used invariably to mean the same thing in Jamaica, whereas in the USA, the term appraisal is
all encompassing and would include the UK definition of valuation .
Furthermore is a specific investors perception of the capital sum which he would be prepared
to pay (or accept) for the stream of benefits [real or inferred] which he expects to be produced
by the investment while price is the actual observable exchange price in the open market and
Value is the estimate of the price that would be achieved if the property were to be sold in the
market.
THE PURPOSE OF CARRYING OUT VALUATIONS
Valuation matters. It underpins a major proportion of financial decisions in mature
economies, especially where it serves as collateral for loans or as an important element in the
Group No.11: BSc. LMV2(2015/2016) Page 4

published company accounts. Failure to ensure assets are properly valued risks financial
exposure for wide range of stakeholders:

Banks that use property as collateral for loans;

Shareholders that have invested in quoted companies and the companies themselves
that become vulnerable to take-overs and asset stripping if the properties they own are

not regularly and correctly valued in the balance sheet;

House-buyers;
Future pensioners whose savings are invested by funds;
Whole economies that depend on stable banking systems.

An estimate of value may be required for a number of purposes. Several are common and
provide what is often considered the bread and butter of valuation firms. Others are
specialist in nature and require the skill and training of the valuer to be directed towards the
specific nature of the valuation process and interest being considered. Requests for valuation
will include the following: Sale; Purchase; Mortgage; Insurance; Lease/Rental; Financial
Reporting; Statutory Purposes; Probate, Property Tax, Land Acquisition, Rent Restriction,
Transfer Tax, Hotel Incentives
The Roles of the Valuer; The service of a valuer may be sought by anyone with an
interest in, or contemplating a transaction involving land and buildings. For example, a valuer
may be required to advise a vendor on the price he should pay, a mortgagee (lending
institution) on the value of the security and a person dispossessed under compulsory powers,
on the compensation he can claim.
Valuation Accuracy and Standardisation;
The difference of opinion, which can occur between competent valuers, should not vary much
in times of stable market conditions, provided market information is available to all and is not
under-reported. There should be little difference too between the valuation and subsequent
sale price of properties provided the sale took place within a short period of time after the
valuation was undertaken.
A few celebrated cases have noted wide variations (in excess of 10%) between valuations
commissioned for the same property, but undertaken by different valuation firms. The
Queens Moat Case in the UK being a notable example.

Group No.11: BSc. LMV2(2015/2016) Page 5

In that country the financial and property crash of the 1970s was largely blamed on a wide
variation in the approach to valuations which [threw] up vastly different and often
completely unrealistic figures for similar assets.
As is often the case, it took a market bust to reveal some inconsistencies and abuses that had
been going on during the boom. The Royal Institution of Chartered Surveyors (RICS)
responded by developing and publishing its Red Book, which sought to set standards for the
valuation process in the UK and to codify the basis on which valuations could be produced.
Here in Jamaica, the Real Estate Dealers and Developers Act was passed in 1989 and sought
to address some of the failings of the local market as identified by the Duffus report of the
1970s. While the Act introduces a minimum qualification for Valuers to practice, there is no
regulation of the profession, although there is a local professional body, The Association of
Land Economy and Valuation Surveying (ALEVS). See also White Paper: Valuation in
Emerging Markets, ISVC.
Increased cross-border trading resulting from the impact of globalisation has spurred the need
for an international way of communicating an international set of standards. The
International Valuation Standards Committee (ISVC) has recommended the formation of
National Standards bodies and has revised practice statements in accordance with national
bodies such as the RICS. These standards are aimed at meeting various international
accounting and capital adequacy regulations.

THE CONCEPT OF VALUATION DYNAMICS

Valuation professional does not remain static it changes from time to time. It includes; from
informal oral traditional, passed on among these who dealt with determine value, to more
formal practice, then to the written words and establishment of professional associations,
professional training and finally valuation of real estate becoming a formal scientific
discipline(Vandell 2007). Though valuation professional has become formal scientific
Group No.11: BSc. LMV2(2015/2016) Page 6

discipline but still there are changes occur over time in valuation practices and methodology.
Changes in valuation professional can be described as follows,
Changes of exogenous nature; These are the changes in valuation professional which are
influenced by the institutions which tend to shape the valuation area, such as International
Valuation Standards Council and TEGoVa, responsible for shape of valuation of real estate in
international level but in national level is TIVEA. These organizations have been striving for
over thirty years to develop common valuation principles, though these efforts as not yet
successed to meet demand of valuation professional therefore there are still changes occur in
professional thus why valuation professional is termed as dynamic. The organizations
abandoned the standardization of the code of conduct and valuation methodology, leaving the
definition standards and standards of the document from the valuation process as the area of
operation. However, even in the area of definition standards the interpretation of the market
value category has not been made uniform (GRZESIK, ZROBEK 2012).
Influence of valuation theoreticians originating mainly from the academic circles; some
of the changes in valuation professional are influenced by different scholars who propose
various maters in order to improve valuation approaches, methods and techniques.
Influence of economy and behavioral finance on perception of the valuation
methodology; the group of valuation methodologist has been joined by psychologists,
economists and behavioral financiers, trying to answer a question whether the fully formed
valuation model, the so-called normative model, matches the reality. This is because it has
been noted that valuation practitioners did not respect this model. An attempt has been made
at answering a question in what direction should this model therefore evolved.
Market influence factors; Market conditions has influence changes in valuation professional
and this changes occur in order to meet current needs of the clients, these conditions include
the followings

Previous mortgage was involve only house but now days clients need to understand
how surrounding environment affect the value of house/building, due to this need
principle of valuation change in order to involve surrounding environment in
determining a value of property. Example of principles of Valuation which consider
surrounding environment in estimating value of real property include, Principle of
conformity and principle of regression and progression. (

Group No.11: BSc. LMV2(2015/2016) Page 7

Now days valuation is not only based on plot or plain land but also future
development or benefits one will obtain from a particular plot or what investor can

invest.
Competition within a market, Real estate market is growing as times goes, therefore
this lead to existence of competition in both valuation company and also in acquire
real property. Existence of competition among valuation company influence different
changes in valuation approaches in order to attract more client also competition
influence development of technology in valuation professional in order to meets

requirement of clients.
Heterogeneous characteristics of real property; In real property market, real properties
are heterogeneous in nature they differ from one area to another therefore principles
applied differ from one property to another and sometimes principles applies fails to
meet a requirement of particular properties and therefore needs improvement.

The changes in technology and Globalization: Another reason for valuation

professional to be dynamic is changes in technology which is associated with
globalization where by technology in real estate lead to new innovation for instance in
building technologies, architectural designs which eventually results into high quality and
standardized buildings at the lowest possible costs also due to globalization influence
more factors to be consider in valuation professional in order to reach on reasonable
market value of a property these factors include improvements and surrounding
environment of a property.

VALUATION STANDARDS AND PRINCIPLES

Valuation Standards
Invariably a code of practice for any profession which is drawn from regulations, policy
memoranda of a professional body or central government statutes or local government by-

Group No.11: BSc. LMV2(2015/2016) Page 8

laws. Such a code of practice sets rules of conduct to be adhered to by all members in the
profession. It is these rules of conduct that have come to be known as standards.
Valuation standards refer to a simple guide, directive, a pattern or some principles outlined
which are systematic that have to be followed by valuers (Woods, 1973). These standards
include reporting, units of measurements, use of methods of valuation, use of assumptions in
valuation, inspection and referencing of property, purposes of valuation, qualification of
valuers, conflict of interests, bases of valuation (Fernandez, 1999). The aim of having these
standards is to avoid chaos and misunderstandings within and outside the profession.
Standards thus improve communication among valuers in the first place and between valuers
and other professions like accountants, auditors and investment analysts
The Principles of Valuation
Principle of substitution; This principle is the basis for all decisions made by real estate
buyers and should thus be the basis of every appraisal and every appraiser's thought process.
Substitution is the process of identifying alternatives that would satisfy the same need, want,
or desire. A prudent purchaser would pay no more for a home than it would cost him/her to
build or buy another one. Substitution keeps the market in balance. It is an appraisal principle
that holds that the maximum value of a property tends to be set by the cost of acquiring an
equally desirable and valuable substitute property.
This principle of real estate valuation is where you make a choice when you want to buy a
certain real property and the price is high. However you can get another property at a lower
price. You substitute the property you wanted to buy with another one which has a higher
value or a lower price.

Principles of demand and supply; this has been the market force in real estate valuation for
centuries. When supply is high, the price of the property will fall because there are no enough
buyers. When the supply is low and the demand is high, the value of the real property will go
up and so the price will be higher due to excess demand. This principle of real estate
valuation

works

well

because

Group No.11: BSc. LMV2(2015/2016) Page 9

it

is

simple

Principle of highest and best use (IVS 2011); The reasonably probable use of vacant land or
an improved property that is physically possible, legally permissible, appropriately supported,
financially feasible, and that results in the highest value. This economic principle of real
estate valuation is used especially when your property is at the edge of a developmental area.
The market value of an asset will reflect its highest and best use. The highest and best use is
the use of an asset that maximizes its productivity and that is possible, legally permissible and
financially feasible. The highest and best use may be for continuation of an assets existing
use or for some alternative use. This is determined by the use that a market participant would
have in mind for the asset when formulating the price that it would be willing to bid. The
determination of the highest and best use involves consideration of the following:

a. To establish whether a use is possible, regard will be had to what would be

considered reasonable by market participants,
b. To reflect the requirement to be legally permissible, any legal restrictions on the use
of the asset, example zoning designations, need to be taken into account,
c. The requirement that the use be financially feasible takes into account whether an
alternative use that is physically possible and legally permissible will generate
sufficient return to a typical market participant, after taking into account the costs of
conversion to that use, over and above the return on the existing use.

Principle of progression; a real estate valuation theory which states that a property of
lesser value is enhanced through proximity with higher value properties. The principle may
be

evident

during

the appraisal process

whereby

two

or

more

buildings

with

similar amenities are compared; the less marketable property may be valued slightly higher
due to its location. If you are selling an old house but the surrounding houses have been
renovated and increased in value, its value will also be pulled up because of its location.

Principle of Regression ; a real estate valuation theory which states that a property of
higher value is

negatively

affected

through comparison with lower value properties.

The principle may be evident during the appraisal process whereby two or more buildings
with

similar amenities are

valued slightly lower

compared;

the

more

due

to

marketable
its

property

may

be

location

source: http://www.investorwords.com/19167/principle_of_regression.html#ixzz48pQpXcOe

Group No.11: BSc. LMV2(2015/2016) Page 10

This real estate valuation principle is the opposite of progression. If you have the best house
in a neighborhood with weather bit houses, then the value of your house will go down.

Principle of anticipation; This principle holds that value is simply a function of the present
worth of future benefits. That is, people are paying current dollars for future benefits. Value
depends on the expectation of benefits to be derived in the future

Principle of change; This principle holds that as time and market conditions change, so does
supply and demand for real estate, and thus, the value of real estate. All elements around us
are constantly in a state of change. The principle of change asserts that all markets are in a
continual state of change. According to this principle, properties generally go through the
three stages of integration (development), equilibrium (stasis), and disintegration (decline).

Principle of conformity; The principle of conformity states that the value of a group of
properties will rise to its highest possible level in an area where architectural styles are
reasonably homogenous and surrounding land uses are compatible with the use of the
specified properties.
Principle of increasing and decreasing returns; this principle of real estate valuation is
commonly known as the law of variable proportions. It states that increasing the value of one
part of your real property results in lower value returns. This means the price will go down
and contrary may increase. This principle relates to the principle of balance as well as the
principle of contribution. This principle holds that as capital units are added, a certain point is
reached where the added units do not contribute commensurate with their costs.

MEANING OF GLOBALIZATION; CAUSES AND ITS IMPACTS TO VALUATION

PROFESSION:
Globalization is the interdependence and interconnectedness of the world as a global village
arising from the interchange of world views, products, ideas and other aspects of culture. It is
hard to precisely define globalization since there are different interpretations about what we

Group No.11: BSc. LMV2(2015/2016) Page 11

actually mean, hence there are different factor that explain it, technological advancement
being the main factor.
Causes of globalization:(i) Advancement of information and communication technology includes the use of
computerized systems, the use of satellite maps like Google earth, the use of Global
Positioning System (GPS), use of internets and websites to view different information
all over the world to a high extent it result into globalization. As it simplify the flow
of information from one boarder to another and with this improvement the
technological transmission becomes inevitable.
(ii) Improved transportation technology that made global trade easier. Whereby there is
discovery of advanced and faster transportation systems like air transport enabling
greater movement of people and valuable goods, also marine transport to enable
movement of bulk of goods like machinery.
(iii)

Trade sector improvement which result into multinational trade, with removal
of non-tariff barriers like embargoes, total ban and import quotas . Introduction of
WTO (World Trade Organization) which facilitate global market conductivity, to a
high extent it result to the globalization.

(iv)Capital mobility and labor mobility which facilitate mobility of financial and nonfinancial facilities from one economies to another as well as workers to flow from one
country to another to search for work.
(v) Growth of multi-national companies with a global presence in many different
economies.
Globalization in the field of valuation it has seen to be paramount factor for the growth of this
field in following ways;
(i) Use of advanced methods in conducting valuation and proper method of property
identification example the use of satellite maps like Google earth, and Global
positioning system(GPS) in doing proper identification of properties.
(ii) Helpful in the whole process of report writing in such a way that valuers recently can
take information very simple by recording in their mobile phones from the site and
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thereafter writing report directly in Microsoft word programs with automatic edition
from computer systems which saves time and the process is very easily.
(iii)

Transport advancement which makes easier and less time consuming

movement from one place to another for the purpose of conducting valuation like the
use of air transportation to far places and improved roads transport to nearby places. It
makes the work to be done immediately especially in urgent matters and wherever
there is a lot of works to be done.

(iv)Use of excel program in computing assets, this to large extent has improve accuracy
of calculations as well as make the task very easier with the use of minimal time to
accomplish the task and minimize the occurrence of errors.
(v) Helpful in valuation for financial reporting, with the use of advanced technology it
becomes very easier to register all assets in a particular company or organization
which needs the financial report for that particular year. The work can be done in
short period with high accuracy.
(vi)Easier to do valuation with people outside the country whereby a valuer can take a
full picture of the property by the use of satellite maps and client and valuer can
communicate through emails and send the valuation report through it and payment
can be done in the valuers account.
GENERAL CHALLENGES FACING VALUATION PROFESSIONALS WHEN
UNDERTAKING THEIR DUTIES FOR VARIOUS PURPOSES.
Practitioners of valuation profession are likely to be faced with a number of challenges when
they undertake their duties such as valuation for compensation or mortgage. The following
are general challenges facing valuation profession from globalization and other factors
connected to globalization:Increased fraud cases in valuation practice: fraud refers to a deception done by a person in
order to induce another to give up possession of property or surrender a right. In other
description means an act or course of deception, an intentional concealment, omission or
perversion of truth to gain unlawful or unfair advantage, induce another to part with some
valuable item or surrender a legal right or inflict injury in some manner will fraud is a
criminal offense which calls for severe penalties, and its persecution and punishment ( like
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that of a murder ) is not bound by the statute of limitations. In valuation practices fraud has
been one of the big challenge encounters valuation practice in Tanzania which is committed
in different ways by both professionals (valuers) and clients such

Deception on the condition of the property by client to the valuer so as to his property
to earn high value. This can be commonly in valuation for mortgage where the client
may paint the dilapidated property which has undergone physical deterioration in
order to deceive the valuer when trying to ascertain the market value of the subject
property hence may lead to inappropriate value if the valuer not conduct effective and
careful inspection of the property hence finally may lead to several conflicts when the
lender needs to sale the property so as to regain the money which failed to be returned

by the borrower.
In case of valuation for mortgage , valuer in association with the client may overvalue
the property to deceive the lender as the property has reached the required value in
oder to get loan from banks or other financial institutions and has been supported by
bribery so as the valuer to be convinced to abuse the valuation ethics in return for

some amount of money promised by the client.

Fraud may happens in valuation for rating where the valuer collaborates with the
client to demise the value of the property in order to influence the tax collection
authority to levy lower tax on that particular property and this phenomenon has been
witnessed in regions like Dar es salaam where the municipal authorities make

valuation for rating to raise revenue to the local government.

Also fraud exists of the side of the client who may deceive the valuer by showing
another property which was not the subject property required to be valued but this
may occur if the valuer not inspect the property effectively and careful. This is mainly
occurs in case of valuation for mortgage where has been several reported cases in
kinondoni municipalities where clients have been borrowing money from banks,
SACCOS,FINCA,PRIDE while they use to mortgage the properties which are not the
intended ones.

Currently, this challenge has been existed in valuation practices despite being in the
globalization era so there several measures to be undertaken by the responsible practitioners
in association with the respective bodies and organizations like TIVEA, AFRES, RICS so as
to address

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Difficult in estimating the value in use. Sometimes referred as the personal value, can be
defined as the net cash flow or other benefits that an asset generates for specific owner under
a specific use. In US is generally estimated at the use which is less than the highest and best
use and therefore is generally low than market value. In estimating the value in use the valuer
faces difficulties in estimating the value in use because different circumstances influences in
the value in use so the valuer needs extra knowledge in distinguishing and determine what to
include in estimating the value in use and what to exclude in estimate the value of the
property.
The challenges which a valuer can face while estimating the value of the asset or property
are, difficulties in estimating the utilities that the owner gets from that asset, difficulties in
estimating what is the real use of the property, difficult to estimate what the property real
means to the owner, difficult in using the market value in value estimate and also difficulties
to determine which kind of valuation method to use to determine the value whether income
methods of valuation or comparative method of valuation or replacement method of
valuation. This applies most when estimating the property which exist in the environment
which are difficult in estimating its value for the example in remote area or the property
which is difficult to define. Taking an example of the house in the rural area or a slum in rural
area which is not properly located or the house its real market value can be low compared to
the satisfaction derived or the person gets from using the house or property. The valuer will
have difficulties in estimating the value of the property because the actual market of the
property is different from what the property real means to the owner of the in terms of
satisfaction.
The valuer may estimate the value of the property either by seeing the demand of the
property, scarcity of the property, utility of the property and transferability of the property if
easy to transfer or not. Measuring the value of the property according to the utility of the
property is difficult because estimating the utility ones get from using a certain property is
difficult. Since different valuers will estimate the value of the property differently. This is the
challenge because the same property can have different value either high or low depending on
the kind of valuer who estimated the property value, as valuer will base on the adjustments
that he or she will have to face. These adjustments may differ from one valuer to another
basing on the skills and intuition of valuer, since the property itself cannot be determined by
the market value itself as it will have low market value compared to the utility delivered from
that property to that person. This challenge faces many valuers in using different methods of
Group No.11: BSc. LMV2(2015/2016) Page 15

valuation in estimating value in use. So from this point of view the improvements should be
done in order to the improve the valuation methods in estimating the value of the assets or the
property. Also the improvements will help to increase the qualities of values.
This improvement should be done specifically in valuation methods and also adjustments in
valuation methods when estimating the value of the assets or property.
Limited supply of valuers to meet high demand for valuation of properties. A valuer is
the trained personnel who use conventional method principles and skills in order to ascertain
the monetary worth of an asset or property. Valuation can be for rating, valuation for transfer
of properties, valuation for compensation, valuation for mortgage, valuation for insurance.
Where by taking example of Tanzania there is limited supply of valuers especially in local
areas since most of valuers want to live in towns where there is availability of tenders also
there few universities which produce valuers in Tanzania. In which the available valuers do
not cater with the need for valuation of properties for different uses.
Some of the municipals in villages and in peri-urban areas have one valuers who should
perform all municipal works concerning with valuation example in Bukoba municipal also
some of them have no valuers example in Ushetu district council in which they have to
borrow valuers, hence due to the limited supply of valuers the valuers become overwork
which restrict them to use one kind of method or principle and lead to some of the methods
and principles remain unapplied. Example most of valuer use the cost replacement method.
Also due to the limited supply of valuers to meet demand for valuation of properties leads or
gives a chance to land officers on which some of them are lawyers to engage in valuation
works since the available valuers does not meet the demand example most of land officers
perform valuation for transfer of properties which is not their profession hence lead to the
water down of the application of techniques and principles of valuation . This is because the
land officers are not familiar with the techniques and principles of valuation to be applied
during valuation which waters down of the application of techniques and principles of
valuation. Example of the principles of valuation that are to be applied in valuation include
principle of substitution, principle of change, principle of regression and progression,
principle of comfort, principle completion and principal demand and supply. The methods or
techniques of valuation include method of cost replacement, method of comparison, method
of residue, method of investment and method of profit.

Group No.11: BSc. LMV2(2015/2016) Page 16

Difficult in estimating the hidden value:This is also can be referred as the intrinsic value. In
this scenario the value is determined or known after selling the property or after being used.
Hidden value can be in form of the asset such as patents, trademarks, or undervalued real
estate. In terms of patents rights and trademarks the value of it is difficult to be determined by
the valuer except after being used or being put to the market. Investors who are value
oriented will always try to identify the company hidden values. Hidden values in most cases
is identified after selling the property or asset taking an example when selling the vacant land,
the hidden or true value of land may not be determined during the time of sell because the
true value of land may be identified after the property being sold. Let us say for the lands
which are located in the same geographical area or nearby plots. The value of the two plots
may be valued or taken as the same basing on the principle of conformity.
But the true plots may differ from each other in great extent in terms of soil quality i.e. soil
fertility. One of the plots may have high fertility while other plot may have low fertility, but
due to the principle of conformity the two plots will be regarded as the same. Since the
different in quality of soil between the two plots will be identified after the cultivation of the
two plots where as one of the plot will produce more than other plot. Hence during the time
of sell the value was not recognized, but after sell the hidden value of the land is known.
Also taking an example which is going to take place on the land, the real property may not
being seen but after selling the plot and the land being used then its true value may be seen
after erecting the building. So from this case one can sell the property currently which will be
low than its future return. The valuer will not estimate the future return of the property rather
he/she will deal with current value, but in reality the real value of the land has been hidden by
the land being vacant. From this point of view the land value should be determined from what
is going to take place or constructed on the land. For example if the place is going to be used
for construction of the high rising building the place or land value should be determined
according to what is going to take place. This is because when selling the vacant land the true
value of the vacant land is difficult to determine. The value of the vacant land may be low
just because it has nothing on land or some other factors like neighbourhood properties, but if
the real value is to be determined then valuer has to predict or estimate its future value,
something which is difficult to attain.
Hence this being a challenging in using different valuation methods in estimating the value of
the property. Hidden value in many cases can be high or low market value depending on the
Group No.11: BSc. LMV2(2015/2016) Page 17

market situations. The valuer can estimate the property value and get high value just because
the current market allow so, but after selling the property, the property value drops. In
estimating the hidden value the value at least should have experience in estimating the
property value as it will minimize the distortion. Difficulties in estimating the hidden value
has been facing different valuers especially when estimating companies hidden value like
patents rights and trade marks.
Absence of strong board and legislations for valuation: in Tanzania there is no strong
bodies that regulate the professional conduct of valuers when dealing with their day to day
activities. The existing professional body that is TIVEA which deals with the professional
association for Land officers, Valuers, Property and Facilities managers, Investments Analysts
and Estate Agents in Tanzania is not strong enough to regulate professional conduct of
valuers. There are few valuers who are registered under TIVEA causing it difficult to regulate
their professional conducts and publications of information regarding valuation profession.
Likewise there is only one principal legislation which regulate valuation profession which is
The Bill of valuers Registration Act of 2015 where by the Board established under Section
3 of this Act. The main object of this Bill is to provide for legislative Framework for
Registration and regulation on the Valuers. The absence of legislative Framework for
Registration and Regulation of Valuers has caused that the valuers are operating their
valuation field without binding minimum standard of operation and international practice.
However there is no clear legislation which provides the ways on how the principles and
global techniques can be applied when doing valuation.
Interference of non-profesionals to valuation practices: Valuation is a profession which
needed to be obtained in a formal means with the focus of solving the problems relating to
real estate but not other issues related to other professions but there have been the influx of
other people and professions which are not specialized in real estate but acting as solvers of
valuation problems hence they pose a challenge to this practice. Some no professions which
interfere valuation practices are as follows

Lawyers are the good example of practitioners who interfere valuation sector since
they are sometimes appointed to be land administrators and others when they get
experience from other valuers pretend to be competent with matters associated with
valuation. This case is very common in recent since everyone is motivated by money
desire and greedy hence in several councils like Morogoro, Dar es salaam many

Group No.11: BSc. LMV2(2015/2016) Page 18

lawyers have been acting as practitioners in valuation which lead to poor works as

they lack some essential knowledge which a trained valuer has .

No professional real estate agents(brokers) also have been interfering in valuation
practice in many ways. They are the ones who knows some issues concerning market
values of some areas since they have been roaming in different areas to bring together
buyers and sellers of real properties like houses, plots so when valuer valuing a
particular property may anticipate the value of the property and asking the client that
the value should not be below a certain amount hence this is a challenge since the
valuer may consider other technical factors which makes him to come with different
market value and finally compromising in interests between clients and the valuers

which may sometime lead to conflicts amongst the two parties.

Accountants are the other professionals who interfere valuation practice. They are
commonly interfere when it comes to valuation for mortgage as they may not be
agreed with the market value ascertained by the professional valuers as they can judge
the value in terms of overvalue or undervalue in respect to the way he uses his
ordinary ideas to expect the value. This action may pose problem to the valuers as
might be forced to come up with another value as that proposed by accountants hence
violating the professional principles and methods which enable the trained valuers to
come up with the reasonable market values.

Actually interference of nonprofessionals as explained above has a been the challenge which
makes most of valuations to be conducted in a manner that violate the four ingredients which
enables any value pertaining to real properties to be ascertained which are scarcity, demand,
utility and transferability hence failure to observe these ingredients has been the main cause
of false data pertaining real properties in many councils and some other private firms in real
estate sales and market values of the particular areas in Tanzania, for example during
valuation for compensation at kipawa in Dar es salaam for the purpose of taking some areas
to expand the Mwalimu Nyerere International Airport during 1990s and also in Bagamoyo
district in Coast region where some citizens had to be compensated their properties so as to
be taken for the development of EPZ project but due to the interference of lawyers and
nonprofessional brokers has led to claims to citizens concerning un satisfaction with the
amount of money provided to them with respect to their properties.
This has been leading to poor collection of property taxes and even capital gain taxes since all
these taxes are levied depending on the value of the properties and the disposable income
Group No.11: BSc. LMV2(2015/2016) Page 19

obtained by subtraction of cost of acquiring property from the amount of money received
hence when nonprofessionals interfere in valuation it means will distort the market value.
Overvaluation and Undervaluation of properties; In setting value estimate against which
price negotiation revolves, the issue of accuracy in estimation of value is of central
importance. Any error in valuation is likely to result an overvaluation or under valuation of
state owned enterprises being valued. An under valuation is likely to lead selling state owned
enterprises at low prices that may raise more questions from the government and the citizens.
On the other hand an over valuation of state owned enterprises shall lead to setting very high
reserve prices that would scare away the would be buyers. It is important that the process of
estimating value operates within a margin of error that is acceptable to the valuation
profession. A big margin of error is likely to result in a big disparity between the realizable
price and expectations from the sellers on the one hand and would be buyers on the other
hand.

POSSIBLE MEASURES WHICH CAN BE TAKEN IN ORDER TO KEEP

VALUATION PROFESSION BOUYANT IN TANZANIA.
Promotion for further studies: valuation profession is dynamic; it has
been experiencing some changes from time to time. Evolutionary
evidence portray that, valuation practices during 1980s and 1990s are
somewhat not similar to valuation practices at the moment. As
globalization is considered as a driving force for this dynamic nature of
valuation profession, therefore many things are at continuous changes
too. In Tanzanian context, trainings on valuation profession are provided
at various levels as explained below:-

Certificate level: this level involves training of valuation profession

skills to persons with ordinary level certificates. In Tanzania it is
provided in both private and government colleges; Ardhi Institute of
Tabora(ARITA) and Institute of Land in Dar es Salaam, ILD-Mbezi
respectively, where a basic certificate in Land Management,
Valuation and Registration, LMVR is offered.

Group No.11: BSc. LMV2(2015/2016) Page 20

 Diploma and or advanced diploma level: this is offered to persons

with advanced level entry qualifications or those who had graduated
a basic certificate level. It is also provided at ARITA and ILD.
Degree and Masters Level: this is provided at Ardhi University in Dar
es Salaam to persons who meet minimum qualifications required
from advanced level and diploma from recognized institution. The
Doctorate level is recently offered in abroad.
From above description, it is clear that without further studies valuation
professionals cannot cope with challenges facing them, particularly from
globalization. Due to new techniques, introduction of new technologies
especially information and communication technology, experience for
value assessment procedures resulting from globalization influences,
valuation practitioners must opt for further studies to sharpen their
experiences. For example a graduate of certificate level ought to further
study the levels above in order to be familiar with new experiences he/she
may be lacking, similarly for every professional in other levels.
Nevertheless, both on the job trainings and off the job trainings have to be
carried out to equip valuation professionals with various problem solving
techniques to enable them run efficiently with valuation practices in order
to minimize effects posed by globalization forces. For example, setting
aside a budget to finance; workshops, exhibitions, seminars and
conferences whereby valuation professionals meet from different parts of
the world or Tanzania in particular to share and exchange experiences
they have in valuation practices. This will help to keep valuation
profession in Tanzania to remain buoyant and thus use globalization
challenges as a steering factor towards better performance.
Holding

exhibitions

for

raising

awareness

to

valuation

professionals on global challenges; valuation profession has been

growing from time to time. Globalization influences valuation profession in
many ways such as value assessment approaches. Some approaches are
naturally complicated to some valuation professionals. This fact leads to
use of inappropriate methods for valuation of properties and assets.
Group No.11: BSc. LMV2(2015/2016) Page 21

Hence, there is a need to have a platform for bringing together valuation

practitioners from different parts in order to exchange experience through
exhibitions. Generally, exhibitions will help to demonstrate how various
valuation practices are conducted or how some disputes that may arise in
valuation practices are solved by Valuation professionals from all over the
World. In Tanzania, several exhibitions on real estate have been conducted
periodically in Dar es Salaam and Arusha where professionals of the Real
estate, particularly valuers have been meeting for the purpose of
exchanging experiences among themselves pertaining to valuation
profession.
The Daily News, Newspaper of 28 th May, 2015 reported the biggest fifth
exhibition on real estate known as Tanzania Homes Expo held at Mlimani
City in Dar es Salaam.

According to the director of the exhibition, Mr.

Zenno Ngowi: We expect the fifth Homes Expo to be the biggest that will
bring different people from outside and inside the country. Various
exhibitors from China, German, Kenya are among the delegates.
Furthermore, the purpose of the exhibition was to bring closer different
providers in one location and enable communities to access vital
information.
Besides to this, the Tanzania Best Real Estate Exihibition

event, which

have been held in Arusha from 13th- 15th of May 2016 at New Arusha
Hotel and the other is expected to be held in Dar es Salaam at the
Diamond Jubilee V.I.P Hall from 20th to 22nd of May in this year. All these
are coordinated by the Dar Property Expo whereby various real estate
practitioners including; real estate developers, real estate agents,
mortgage lenders, construction, building service providers, home service
providers and many more meet to exchange and share experience in
valuation profession and other professions. Yet, the purpose for these
exhibition is to expose valuation professionals to global challenges and
thus increase awareness to them as well as coming out with solutions on
how to overcome them.

Group No.11: BSc. LMV2(2015/2016) Page 22

Recruitment of more Valuation professionals to meet the demand:

due to globalization influences, majority of citizen in many parts of the
world, particularly in Tanzania become aware of Valuation practices. For
example due to advancement of information technology, IT people are
able to get information concerned about real estate through internet and
other social media. Hence the need of valuation for purposes like
mortgages, and transfers is increasing pressure on the need for valuation
practices. Given the fact that, the number of Valuation professionals is still
limited in Tanzania, and this situation leads to challenges like; delays in
valuation and assessment of properties and poor valuation practices due
to high pressure of unmatched demand for valuation services.
Deliberate efforts should be put in place in order to increase the number
of valuation professionals employed in both the government sector and
public sector. Recruitment of professionals should rely on various factors
but not limited to such factors like accountability, transparency, efficiency,
integrity and competency. This is to ensure that standards, rules and
ethics which govern valuation profession are regarded in discharge of
services by valuation professionals.
For example, challenges arising out of inappropriate valuation practices
such as under-valuation and over-valuation of properties, copying and
pasting reports of previous valuation projects and fraud cases could easily
be eliminated through setting out strict criteria for recruitment of
valuation professionals.
Abiding in the principles and standards of valuation; Principles of
valuation includes Principle of substitution, Principle of progression and
regression, Principle of competition, Principle of conformity, Principle of
change, Principle of demand and supply. this principles gives directions to
valuer on which method of valuation can use example comparative
method of valuation relies on the principles of substitution as comparative
method relies on making comparisons between the property being valued
(Subject property) and similar properties (comparable properties or
comparable) sold recently in order to determine the Market/Rental value
Group No.11: BSc. LMV2(2015/2016) Page 23

of the property being valued and principle of substitution when the

property/asset can be easily replaced by another the value of that
property tends to be set by cost of acquiring an equally desirable
substitute property/asset. Therefore when the valuer follows this principle
of valuation may reduce challenges such problem like over value and
under value of the property.
Standards of valuation, these are international standards that consist of
various actions required during the undertaking of a valuation assignment
supported by technical information and guidance. These standards are
under The International Valuation Standards Council (IVSC) The IVSC is
responsible for developing the International Valuation Standards and
associated technical guidance. To ensure that the public interest is
effectively protected it also engages with other bodies active in the
regulation of the financial markets to ensure that valuation issues are
properly understood and reflected. The IVSC works cooperatively with
national

professional

valuation

institutes,

users

and

preparers

of

valuations, governments, regulators and academic bodies, all of whom

can become members of the IVSC and play a role in advising the Boards
on their agenda priorities. The IVSC Standards Board is responsible for
the

development

and

maintenance

of

the

International

Valuation

Standards. The Board is independent and solicits public comment by

issuing

discussion

papers

and

exposure

draft.

The objectives of the IVSC are to strengthen the worldwide valuation

profession by:

Developing high quality international standards and supporting their

adoption and use;

Facilitating collaboration and cooperation among its member

organizations;
Collaborating

organizations;
Serving as the international voice for the valuation profession

When a valuer

and

cooperating

with

other

international

abide on that standards of valuation can solves the

challenges of valuation since can estimate the value of property well

Group No.11: BSc. LMV2(2015/2016) Page 24

neither to overvalue nor undervalue, this also reduce the corruption in

other valuation purpose such in valuation for mortgage, valuation for
transfer by either reduce or increase the value of the property. Therefore
the valuer must abide in that standards and principles of valuation so as
to solve such challenges in valuation
Enactment of laws, regulation and strong bodies perspective for
valuation:

This another measure which help to solve the challenges

valuation in Tanzania, the valuation must work under the valuation act
such as valuation act 1913 and was amended in 2015. The act was the
brainchild of ICC commissioners Charles A. Prouty and Franklin K. Lane. Its
objective was the setting of fair rates for freight shipments. It was a
classic piece of Progressive Era legislation designed to find a scientific
basis for setting tariffs (shipping charges) by determining the correct
value

of

each

railroad's real

property and assets.

Members

of Congress assumed that with this information, the ICC would be able to
set rates according to the principle of a reasonable rate of return on the
real value of each railroad and the industry as a whole, this tends to solve
the valuation challenges
But also use of A Bill for Valuer which provides the valuation license to the
valuer and use statutes in making valuation, the statutory valuation which
is done accordance to with statutes ( Acts of parliament) and they are to
approved by

the government

chief valuer

example valuation

for

compulsory purchase guided under land acquisition act 1967 and

valuation for Rating guided by urban Authorities (Rating) Act 1983 and for
non-statutory valuations a valuer not bound to use a particular method
the requirement procedures are not set out by statutes.
Also formation of strong valuation board example in Tanzania there
valuation board which is TIVEA Tanzania Institution of Valuers and Estate
Agents (TIVEA) was officially established on April 4th 1997 after years of
debate and months of preparations. 140 valuers and estate agents met at
the University Collage of Lands and Architectural Studies UCLAS
(currently known as Ardhi University) in Dar es Salaam. The meeting was
Group No.11: BSc. LMV2(2015/2016) Page 25

in response to a call by a steering committee which had been set up

during the National Valuation Workshop held on December 4th-5th 1996
to work out modalities of the formation of TIVEA.
TIVEA was formed mainly due to the lack of a forum for members of the
land economy surveying disciplines and secondly in response to rampant
and sometimes unethical professional practices in the country. The
Institution of Surveyors of Tanzania (IST) was in existence bringing
together land surveyors and land economy surveyors. However, it was felt
that time had come for the land economy surveying profession to exert
more influence in the economy in general and the operations of the
property market in particular, especially in view of the changing socioeconomic circumstances which are ushering in the private sector as the
engine of growth after decades of central state control of the economy, by
the formation of that board helps to solve the valuation challenges in
valuation and valuers should register to that board.

REFERENCES
Brett, Michael (2002). Valuation Standards for the Global market

Group No.11: BSc. LMV2(2015/2016) Page 26

Fatma, A. (2015, May 28th).Dar to Host the Real Estate Exhibition. The
DailyNews.

Retrieved on 16th, May 2016. Retrieved from:

http://www.zoomtanzania.com
Glossary of Property Appraisal and Assessment Second edition,International association of
assessing officers 2013.
International Valuation Standards, (2011) International Valuation Standards Council
Lyon, S (2005). An Introduction to Valuations; Real Estate, Seleman Note.
Samwel M. S. W,(2008). Privatization Process and Asset Valuation. Stockholm: Tryck &
Media, Universitetservice US-AB.

Group No.11: BSc. LMV2(2015/2016) Page 27