Examining Heuristics for Building - Work-in-Progress Valuations in Niger State Nigeria

Isaiah Olajide Babatunde

doi:10.2478/remav-2018-0019

Isaiah Olajide Babatunde

Open Access

https://doi.org/10.2478/remav-2018-0019

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Abstract

Abstract Where an investment decision on building work-in-progress (BWIP) is premised on the judgment of value, the technique of assessment must be accurate. The heuristic technique has not been able to achieve this goal. Frequent transactions in BWIP in Niger State necessitate the search for an alternative technique. This paper therefore aims to: – identify and analyze the purposes of BWIP valuations in Niger State, Nigeria, – examine the suitability of using heuristics in determining the cost of building work-in-progress, and – investigate the veracity of the use of the Nigerian Building and Road Research Institute (NBRRI)’s template of elemental percentage rates for the cost of incomplete buildings in the state. Data were obtained from estate surveyors and valuers (ESVs), registered quantity surveyors in the state, the Niger State Housing Corporation and the NBRRI. The analysis showed, among others, that heuristics, although not suitable, was the most prominent technique adopted by the ESVs for costing BWIP. Similarly, the use of NBRRI’s template for costing BWIP for residential bungalows in Minna - the Niger state capital - was validated.

Highlights

The use of heuristics for solving problems has been acclaimed, among others, by operational researchers and management scientists in the early and middle twentieth century (HILBERT 1928; POLYA 1945)
Valuation of building work–in-progress or incomplete real estate is one of the situations where heuristic behavior was conspicuously evident in the practice of property valuation by estate surveyors and valuers (ESVs) in Nigeria (ADEGOKE 2006; IROHAM 2012)
Since only 44.44% of the QS’s work was accurate, it implied that the 8 ESV (P) and the ESV (A) or (36.36% ESVs) who relied on QS’s advice on the cost of buildings in the study area might be 55.56% inaccurate

Summary

Introduction

The use of heuristics for solving problems has been acclaimed, among others, by operational researchers and management scientists in the early and middle twentieth century (HILBERT 1928; POLYA 1945). Valuation of building work–in-progress or incomplete real estate is one of the situations where heuristic behavior was conspicuously evident in the practice of property valuation by estate surveyors and valuers (ESVs) in Nigeria (ADEGOKE 2006; IROHAM 2012). It has been shown that South African property investors often made use of heuristics in their decision-making processes (LOWIES, HALL, CLOETE 2016). Both the International Accounting Standards Board (IASB 2008) and the International Financial Reporting Standards Council (IFRSC 2010) preferred the use of the discounted cash flow (DCF) technique for the valuation of incomplete real estate. Members of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), favor the use of the depreciated replacement cost (DRC) method for such valuations (NIESV 2006).

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