asset valuation as a critical tool in assets …
TRANSCRIPT
ASSET VALUATION AS A CRITICAL TOOL IN ASSETS DISPOSAL BY
AUCTION IN NIGERIA
ATVALUERS ASSEMBLY 2021 ORGANIZED BY ESTATE SURVEYORS AND
VALUERS REGISTRATION BOARD OF NIGERIA
SEPTEMBER, 2021
Being a Paper Presented by TOPE YINKA OJO. B.S c. Estate Management, OAU .M.Com (Dev. Finance) University of Capetown. FNIVS. RSV. FCAI.
DEFINITION OF AN ASSET
• An asset is referred to as any resource (tangible or intangible) that is owned or controlled by the economy and can be used to generate economic value (Sullivan & Sheffrin, 2021).
WHAT IS VALUATION?
• Valuation which is defined as an art and science of determining the worth of an interest in an asset at a given period of time and for specific purpose is an important tool in fixing the guide and reserve price of any asset put up of for auction (Millington, 2006).
Value Proposition
• The word ‘value’ connotes different meaning to different professionals under different circumstances.
International Valuation Standard (IVSC, 2017) explained the concept of value to include
• Market value (value in exchange/value in use), • Equitable value,• Investment value, • Synergistic value, • Liquidation value,• Mortgage lending value, • Rental value • Fair market value.
Concept of Auction
• Oyinloye (2016) defined auction as the public sales of property conducted by a means of oral or written exchanges between the auctioneer and the members of the public.
• Auction is defined as a step by step allocation of resources which is done through bids from participants (Kravets, 2009).
Who is an Auctioneer?
• According to Black’s Law Dictionary, Seventh Edition, An Auctioneer is a person legally authorized to sell goods or services of other persons at public auction for a commission or fee.
• An auctioneer therefore is a trained individual duly qualified and licensed under the relevant laws of the Federal Republic of Nigeria governing auction business (Oyinloye, 2016).
Auction Procedures
➢ Engagement letter of Instruction➢ Scope of the Auction➢ Audit and Inspection of the Assets➢ Preparation of Status Quo report on the Asset➢ Valuation Report (Reserve Price and Guide Price)➢ Agreement on the Auction fee ➢ Auction Marketing Plan/ Market Analysis➢ Terms and Condition for the Auction➢ Health, Safety and Environment➢ Account Payment and Reconciliation➢ Professional Indemnity Insurance
Relevance of Valuation in Auction Process
• The Public Procurement Act 2007 Section 55 (1-4) specifies the needfor valuation before the disposal of public assets. Also, the GlobalStandards as contained in the
• Asset Recovery Handbook (2011) and the Stolen Asset RecoveryInitiative by the World Bank and the United Nation office on Drugand Crime 2017 report on the effective management and disposalof seized and confiscated assets mandated that asset valuationmust be done immediately there is a forfeiture and prior to disposalof the assets. This position is also supported by the United StateDepartment of Justice, Asset Forfeiture Policy Manual, 2021.
Guide Price/ Bid Price/Auction Price
• in the case of Starline (Nig) Ltd & Anor v. Onyeagbocha LPELR- 44268 (CA) the position of the court is that whether a property is undervalued or overvalued, the fair market price for a property at a public auction must be determined by the public assessment of the property.
Auctioneering and Valuation in Other Jurisdiction
• The National Association of Valuers and Auctioneers (NAVA) was established in 1988 in the United Kingdom to bring together like minded professionals from the field of Auctioneering, Valuation and Insolvency.
• Auctioneers and Valuers Association of Australia (AVAA) performing similar professional roles. It is imperative that the Auction Sale Act of 1989 in Ghanathat to qualify as a Registered Auctioneer, the person must passed the prescribed written examination, conducted jointly by the Ghana Institute of Surveyorsand the Ghana Auctioneers Association.
Value-in-use and Value-in-exchange
• The Supreme Court of Pennsylvania, 1992 ruled in the case of F & M Schaeffer Brewery v Lehigh City stated that value in use is not a reflection of fair market value thereby making it not to be relevant in tax assessment.
• Higbee Company v. Cuyahoga County Board of Revision 839 N.E. 2d 385 (2006), the court determined that the business factors and the real property factors must be separated and that property must be valued on the basis of what a willing buyer would pay a willing seller.
• STC Submarine, Inc. v. Department of Revenue, the Oregon Supreme Court stated if the property has no immediate market value, its real market value is the amount of money that would justly compensate the owner for the loss of the property (i.e value in use).
Valuation Standard
• Valuation Standards are quality control principles for valuers under the scope of valuation regulatory body on how to undertake and report valuations especially those that will be relied upon by international investors and other third-party stakeholders (Ajayi, 2009)
• the Basel Accord of 1988 mandated the valuation report as tool used in credit risk by financial institutions. The Royal Institute of Chartered Surveyors (RICS) published the first set of national UK valuation standards in 1976 popularly known now as the Red Book
Environmental Social and Governance (ESG) Consideration
• Anderson (2019), KPMG Advisory Note stated that the incorporation of ESG into business valuation may have direct impact on asset impairment, goodwill, changes in the useful life of assets, and changes in the fair valuation of assets among others.
• The Judge in the case of Okonkwo v. Cooperative & Commerce Bank (Nigeria) Ltd (2003)8NWLR(Pt 822)347 at 422-423 stated that auction sale by its very commercial nature presupposes some reduction of the market value as dictated by the price index
Market Efficiency/ Information Assymetry
• An efficient market is one where the market price is an unbiased estimate of the true value of the asset. This assumes that all available information both public and private is reflected in the market price
• Fama (1971) classified levels of efficiency into under weak form efficiency, which stated that current price reflects the information contained in all past prices; under semi-strong form efficiency where the current price reflects past prices and all public information.
What Auctioneers will like to observe in the valuation report
• The size of the land
• The date of the Valuation
• The land tenure/the unexpired term
• The purpose of the Valuation
• The methodology
• Status of the tenancy
• The location/the physical address/GPS
• The Licences/Patent Right etc
For Plant and Machinery/ Motor Vehicles
• Model• Year of Manufacture• Serial Number• Output/Machine Life• Licences/Patent Right• Machine Life/Mileage• Mode of Registration• Methodology• Maintenance Record• Etc.
• Valuation is both an art and science, the empiricalunderstanding of the art of valuation willdetermine the Scientific methodology to beapplied in the determining the appropriate value,asset pricing and asset allocation . Auctioneerswill rely on the valuation report for advisorypurpose as a pre-condition for a successfulauction. We need to encourage specialisation andcollaboration in both fields.
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