RECORD KEEPING

Record Keeping

Record Keeping

Introduction

Managers do not operate with perfect record knowledge, they must follow client instructions, make judgements, analyse information and respond to different pressures when preparing a valuation and all these factors influence the final valuation figure. Values can be difficult to assess due to the heterogeneity of property and the number of transactions that occur at prices that do not represent market values (Brown, Matysiak & Shephard 1998, 1-13). The ability of managers to make effective estimations of value has been subjected to intense scrutiny by academia, the media and the courts and the apparent lack of a coherent and consistent result from the valuation process has damaged the reputation of the valuation profession.

Although the profession has sought to enforce more rigorous mandatory standards, backed by detailed guidance notes, there remain instances where managers have fallen below the required standard. An area of particular vulnerability is the different opinions of value that two or more managers may assign to the same property over the short term. This is known as valuation variance and its implications are far reaching. In particular, the courts have adopted the margin of error concept (the legal manifestation of valuation variance) as a means of establishing whether a valuer has been negligent.

Valuation

The valuation is a procedure of determining the present value of an asset or a firm/organisation. There are different practices that can be used to find out value, e.g. subjective and objective.

Methods and Procedures of valuation

Of all the tasks that a manager in ABC Company is likely to perform, involvement in the valuations process is by far the most important. As mentioned earlier, the exact nature and extent of this involvement is determined by the scope of the “administration agreement”. Hager and Lord (1985) were among the first to report valuation variance in their investigation of the record keeping and property valuations. Since that time there have been several studies of the extent and possible causes of valuation variance. These are considered below.

The existence and extent of valuation variance

Brown (1985) compared one company's valuations against those of another and found that there was no tendency to either over or under value between one firm and another. In essence, one company's valuations were a good proxy for another, suggesting an absence of bias but not eliminating the likelihood of variance.

Hutchison et al. (1996) undertook research into variance in property valuation, involving a survey of major national and local firms. The average overall variation was found to be 9.53 per cent from the mean valuation of each property. They also found evidence to suggest that valuation variation may be a function of the type of company that employs the valuer; whether it is a national or local firm. The study revealed that national practices produced a lower level of variation (8.63 per cent) compared with local firms (11.86 per cent) perhaps due to the level of organisational support, especially in terms of availability of transactional information. Levy and Schuck (1998) also found that access to information ...