Practice of Real Property Valuation for Collateral: Case Study on Selected Banks
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Date
2020-12
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Addis Ababa University
Abstract
The main aim of this research was to study the base for proper valuation method selection, study if the methods and procedures applied for valuation is consistent and assess the existence of real property valuation policy guidelines, manuals, and current practice. In order to achieve this objective, the practice of real property valuation for collateral was viewed as a phenomenon, taking place in real-life context; hence it qualified to be explored using case study method. Furthermore, the case study method was considered appropriate in collecting data for this study since it allowed interviews of the persons involved in the process. The study includes to find and study local or international literature related to real property valuation, banks and Ethiopian bank association valuation manual on real property and finally for benchmarking the practice of property valuation in Ethiopian banks guidelines, procedures, and criteria were chosen from the result of a structured interview. The study revealed that the base for valuation method selection is the type of property. Method of valuation is restricted to procedures on the valuation manual and in fear of problem in loan recovery due to lack of reliable market data almost 70% of banks use only the cost replacement method while the rest use a combination of cost replacement and income capitalization method with given weightage factor. Moreover, process map starting the minimum document requirements to the valuation process has been drawn. The study recommends in minimizing variation in valuation value, to align valuation method with the generally accepted methods and the property valuator to demonstrate commitment to ethical standards and further recommend the government to take the leading step by teaching property appraisal as a field of study at university level and produce qualified and competitive professionals.
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Keywords
Basis of Valuation, Collateral, Location Value, Method of valuation, Market value, Real property, Valuator maker/checker