Previous valuation research has mainly been studied under the title ‘behavioural valuation’, which includes valuation inaccuracies/variations, client influence, and the use of heuristics. As will be discussed, these issues have mainly been understood in the context of valuer conduct, with little focus on market-related problems that are specific to developing countries, such as limited and unreliable information.
2.1. Valuation Inaccuracies/Variations
Internationally, the issue of valuation inaccuracies and variations between valuations has been the subject of academic and professional debate for decades [
6,
28]. Valuation accuracy is the ability of a valuation to correctly identify the target, i.e., the sale price or rent of the property, while valuation inaccuracy is the converse [
29]. On the other hand, variations in valuations focus on the ability of two or more valuations to produce the same outcome on the same basis at the same time [
26]. Therefore, it attempts to measure the difference(s) between two or more valuations. In most cases, valuation variations are usually used to measure valuation accuracies, where high variations represent inaccurate valuations while low variations represent accurate valuations.
Crosby [
29] found that the courts in the UK have relaxed valuation accuracy by adopting the margin of error concept of between 10 percent and 20 percent, with any valuation outside the bracket attributed to negligence. Crosby suggested widening the permissible bracket to 35 percent, indicating a reduction in valuation accuracy in the UK. Similarly, Bretten and Wyatt [
1] found that variations in commercial property valuations in the UK are inevitable. In support of Crosby [
29], Bretten and Wyatt [
1] found that the margin of error (a legal manifestation of valuation variance) is a fair and reasonable test for negligence. Bretten and Wyatt [
1] further established that the leading cause of valuation variation is the valuer’s behavioural influences.
McGreal and Taltavull de La Paz [
30] found a high level of accuracy in residential property valuations in Spain, with 94.26% of the valuations being within either plus or minus 15%. In essence, unlike Crosby [
29] who suggested a margin of error of 35%, McGreal and Taltavull de La Paz [
30] implied a margin of error of 15%. In the same vein, Bogin and Shui [
2] found that property appraisals in the USA tend to be biased upwards and may overstate the true value of the underlying collateral. They indicated that appraisal bias is particularly pervasive in rural areas, where over 25% of rural properties are appraised at more than 5% above the contract price.
In a comparative study of local office markets in nine cities in the UK, Dunse, Jones, and White [
4] established that valuations in the largest market, the City of London, are more variable despite having more information. They indicate that variability in the property market rather than information is the main source of valuation inaccuracy in the UK. Therefore, Dunse et al. [
4] indicated that, although the UK is characterised by a lot of information, there exist other factors that contribute to valuation variations.
Awuah et al. [
26] investigated the extent of valuation variations in sub-Saharan Africa (SSA). Their findings indicated that valuation variation is relatively high compared to international evidence. They established major causes of valuation variations in their order of importance, including insufficient property market data, lack of standardisation in applying valuation methods, the complexity of properties, and client influence.
Unlike most studies that have studied valuation accuracy from a valuer’s perspective, Aderemi [
15] surveyed valuers’ clients (commercial banks) in Nigeria and established a high degree of valuation inaccuracies, supporting previous studies that primarily focused on valuers. Further, Aderemi [
15] found that valuation inaccuracy in Nigeria is mainly attributed to the behavioural characteristics of the valuer, i.e., negligence and incompetence. Contrary to Awuah et al. [
26], Aderemi [
15] identified inaccurate data as a minor cause of valuation inaccuracy. However, it is essential to note that this is best explained by valuers who are the users of comparable data and not entirely by clients.
Just like Aderemi [
15], Adegoke et al. [
14] studied clients’ (commercial banks) perception of the reliability of mortgage valuations in Nigeria and established the existence of high levels of variations between the valuation of properties on default mortgage and foreclosed values. However, unlike Aderemi [
15], who identified property market data as a minute cause of valuation inaccuracy, Adegoke et al. [
14] acknowledged that insufficient market data and lack of a data bank in Nigeria contribute to valuation inaccuracy.
The above studies have mainly explained valuation inaccuracies/variations in the context of valuer conduct with little emphasis on the market-related problems, such as the limited and unreliable information, that characterise developing countries. The studies recommend professional bodies to promote high ethical standards, independence, and professionalism in valuation practice, a review of valuation standards and guidance notes, effective regulatory frameworks, and strict enforcement of standards and regulations. These recommendations mainly focus on improving valuer conduct without emphasising measures to improve problems related to the valuation environment in developing countries.
As discussed, valuation inaccuracy is an international valuation problem. It is predominant in developing nations compared to developed nations. Beale [
28] and Kucharska-Stasiak [
31] believe that, while developing countries represent immature property markets with incomplete and unreliable property information, developed countries exhibit a more structured and mature property market that is more active with greater market transparency. Factors influencing valuation inaccuracies/variations include client influence [
32], inappropriate use of heuristics [
33], and other valuation problems such as limited information, corruption, etc. [
26,
27].
2.2. Client Influence
Client influence refers to the manipulation of the valuation process by clients’ actions to have the valuation outcome to their advantage [
11]. It compromises the valuer’s independence and obligation for objectivity and unbiased reporting, contributing to biased valuation outcomes [
11,
34]. Mooya [
35] believed that valuers’ clients often have a direct interest in the magnitude of the valuation outcome, especially in cases where their compensation depends on reported valuations. Mooya [
35] indicated that clients may not be interested in objective opinions of value but in figures that further their objectives. As will be discussed in this section, client influence is a common problem of valuation practice globally.
Kucharska-Stasiak et al. [
5] found that client influence exists within the valuation profession in Poland. They established that client influence results from various elements of both the client’s and the property valuer’s business environment, including non-compliance with the code of professional conduct. Similarly, in a series of interviews with senior New Zealand registered valuers, Levy and Schuck [
36] found that clients indeed influence valuers. They indicated that client influence can either be positive or negative. While positive influence is essential in providing crucial information, negative influence can lead to valuation inaccuracies. Additionally, Levy and Schuck [
37] interviewed valuers’ clients (senior New Zealand property management executives) and established that clients with expertise and a high level of knowledge of the property market influence valuers through expert and information power. They indicated that the client’s control over the valuation process, including the common practice of permitting clients to review draft valuations before their formalisation, affords opportunities to exert influence.
In a behavioural experiment of real estate appraisers, Worzala, Lenk, and Kinnard [
38] found that client influence exists in the USA. However, they established that appraisers were not influenced by either client size, value adjustment, or the interaction of these two factors. Consequently, Worzala et al. [
38] concluded that appraisers do not succumb despite the high level of client influence in the USA. Unlike Worzala et al. [
38], Achu et al. [
6] found that, although client size and the value adjustment demanded did not affect valuers’ judgment in Malaysia, valuers succumbed to client influence. Their finding indicated that other factors, aside from client size and value adjustment, influence valuers to succumb to client influence. They established that client characteristics and valuer characteristics are the most important factors affecting client influence on valuation. Contrary to the findings of Worzala et al. [
38], Diaz and Hansz [
3] found that residential appraisers succumb to client influence, resulting in biased appraisals.
Wolverton and Gallimore [
39] found that client feedback in the USA negatively influences the valuation profession. On the contrary, Gallimore and Wolverton [
40] established that client feedback in the USA is rare, indicating fewer debilitating effects. The Home Valuation Code of Conduct (HVCC) and its successor, the “appraisal independence standards” in the Dodd–Frank Act, were passed in 2009 and 2010, respectively [
41]. This legislation aims to ensure the independence of residential appraisers from lenders, hence protecting borrowers by avoiding biased value judgments [
41]. The Dodd–Frank Act disconnects lenders and residential appraisers by introducing appraisal management companies (AMCs) as intermediaries, eliminating client influence [
41]. Freybote, Ziobrowski, and Gallimore [
41] found that the introduction of legislation eliminated transaction price feedback, indicating its effectiveness in reducing client influence in the USA. While this study indicates the effectiveness of legislation in controlling client influence, it is essential to note that, unlike developed countries, most developing countries are characterised by weak institutions that may not curb client influence.
In a comparative study on client influence in valuation in Taiwan and Singapore, Chen and Yu [
42] found that, although client influence in valuation exists in both countries, the degree and extent of the problem are different. They concluded that different market structures, development backgrounds, and modes of doing business impact the factors causing client influence. They further found that the main indication for client influence is the lack of transparent market information in Taiwan, where lack of market transparency was identified as a major problem. They argued that clients tend to take advantage of the subjectivity in valuations without clear market information and often demand an adjustment of up to 10%. As discussed, the extent of client influence varies from country to country, and it is more pronounced in environments with limited information, such as those portrayed in developing countries.
In Africa, Amidu and Aluko [
7] examined client influence in residential property valuations in Nigeria and found that client influence negatively affects the valuation industry. Similarly, Ashaolu and Olaniran [
9] found that client influence is a major problem in Nigeria, with over 80% of the respondents confirming that they have succumbed to client influence. Amidu, Aluko, and Hansz [
43] found that client influence exists in Nigeria, and valuers succumb to this influence. Likewise, Mwasumbi [
17] and Oshiobugie et al. [
12] found that client influence is pronounced in valuation for mortgage purposes in Tanzania and Nigeria, respectively.
Just like the findings of Achu et al. [
6], Amidu and Aluko [
7] found that, while estate surveyors and valuers succumb to client influence, such decisions are not influenced by the client size and the amount of adjustment required. Their findings indicate that, in addition to client size and amount of adjustment, other factors affect client influence in Nigeria. Amidu and Aluko [
8] established the three most significant influencing factors of clients to include the integrity of the valuer or valuation firm, importance of the valuation outcome to the client, and client size. The third-ranked factor, i.e., client size, contradicts the findings of Achu et al. [
6], Aluko and Amidu [
7] and Worzala et al. [
37] who found that respondents were not influenced by either the client’s size, the value adjustment requested, or the interaction of these two factors. Contrary to the findings of Amidu and Aluko [
7], Amidu and Aluko [
8], Amidu et al. [
43], and Oshiobugie et al. [
12] found that, although clients attempt to influence valuation opinions, valuers do not succumb to this influence. This indicates that client influence does not have a significant effect on the valuation profession in Nigeria.
The above studies mainly explain client influence in the context of valuer conduct with little focus on market-related problems such as limited information. They recommend the need for regulatory and professional bodies to continuously ensure strict enforcement of the code of conduct and ethics and improve their efforts in educating clients and other stakeholders on the need for impartial property valuations. Further, they recommend incorporating client influence in valuers’ education to prepare them to react appropriately.
From the literature review, client influence is a major problem of the valuation practice globally. However, it is likely to be more pronounced in developing countries compared to developed nations. This is because developing countries are characterised by immature property markets with poor institutions and limited information. In contrast, developed countries are characterised by mature property markets with superior institutions (e.g., the Home Valuation Code of Conduct (HVCC) and the Dodd–Frank Act that have reduced client influence in the USA). Further, developed nations exhibit better access to information due to the availability of data banks [
28,
31,
41].
2.3. The Use of Heuristics
Heuristics could be defined as rules or patterns (rules of thumb) that help to reduce the complexity of decision making [
44]. They explain how people make decisions, arrive at judgments, and solve problems when faced with complex situations or incomplete information [
45]. Therefore, heuristics play a key role in decision making, especially in environments with incomplete information. Nonetheless, the use of heuristics does not always guarantee desired effects, mainly because of its generality and lack of precision [
46].
The most researched heuristic is the anchoring and adjustment heuristic. Other heuristics include availability, representative, and positivity heuristics [
25,
44,
47]. Anchoring and adjustment heuristics refer to the practice where valuers rely on an initial reference point as a starting point while adjusting it as further evidence is considered until a final solution is reached [
25,
48]. The anchoring effect appears when different initial values imply different estimated values contributing to variations in property values [
46]. Inappropriate reference points, such as clients’ value opinions and inadequate adjustments, can be sources of bias [
48].
Chinloy, Cho, and Megbolugbe [
49] confirmed the existence of anchoring and adjustment heuristics, where appraisers anchored on the property’s purchase price in the USA. Similarly, Hansz [
50] found that American appraisers anchored towards the pending mortgage reference point, contributing to valuation variations. In a survey of leading fund managers and commercial appraisers in the UK, McAllister et al. [
51] found that appraisers anchor on previous appraisals in assessing commercial property values, contributing to valuation variations. McAllister et al. [
51] established lack of information and the institutional context of appraisals as key factors contributing to the use of anchoring and adjustment heuristics in commercial appraisals in the UK.
Diaz [
52] found that neither apprentice nor expert appraisers operating in familiar geographical settings were influenced by previous value judgments of anonymous experts in the USA. On the contrary, Diaz and Hansz [
53] established that both apprentice and expert appraisers operating in unfamiliar geographical areas were influenced by the valuation opinion of an anonymous expert. Similarly, Diaz and Hansz [
54] found that the value judgments of expert commercial appraisers operating in unfamiliar geographical settings were influenced by various reference points such as the uncompleted contract price of a comparable and subject property and the value opinions of other experts. While the subjects of Diaz [
52] were familiar with the subject area, the subjects of Diaz and Hansz [
53] and Diaz and Hansz [
54] were not familiar with the subject area. Therefore, these studies suggest that unfamiliarity with the market (characterised by limited information) has a role in evoking an anchoring and adjustment heuristic. Seemingly, an anchoring and adjustment heuristic helps valuers to assess market value in situations with limited information.
In a survey of valuers in Poland, Zrobek et al. [
46] found evidence of anchoring and adjustment heuristics, where valuers were influenced by the negotiated transaction price and the property’s previous value. Zrobek et al. [
46] further established that anchoring and adjustment heuristics have little impact in a market with a lot of information on property transactions. Just like the findings of Diaz and Hansz [
53] and Diaz and Hansz [
54], Zrobek et al. [
46] established that anchoring and adjustment heuristics are not widespread in familiar environments but are much greater in unfamiliar environments. This finding confirms that geographical unfamiliarity, characterised by limited information, triggers the use of an anchoring heuristic, while geographical familiarity, characterised by greater market transparency and availability of information, reduces the use of anchoring heuristics.
In a survey of estate surveyors and valuers in Nigeria, Osmond [
25] and Iroham, Ogunba, and Oloyede [
24] established the existence of anchoring and adjustment heuristics. Despite the prominence given to this type of heuristic, see, for example [
50,
51,
52,
53,
54], Osmond [
25] and Iroham et al. [
24] found that it is not the most common type of heuristic but the second, after the availability heuristic. Further, Iroham et al. [
24] established that valuations conducted through an anchoring and adjustment heuristic are somewhat accurate relative to the sale prices. This study suggests that anchoring and adjustment heuristics do not necessarily contribute to inaccurate valuations in Nigeria.
The literature indicates that the use of heuristics is common within the valuation profession globally. While appropriate use of heuristics helps valuers assess market value in situations with limited information, inappropriate use contributes to inaccuracies in property valuation. The use of heuristics is rampant in unfamiliar geographical areas with limited information. Since developing countries are characterised by limited information, the use of heuristics is likely to be more pronounced in these areas than in developed countries.
2.4. Other Valuation Problems Specific to Developing Countries
Other than the above-mentioned problems of valuation practice, there are other types of valuation problems related to the nature of the property market in developing countries. Awuah et al. [
26] examined property valuation practice in sub-Saharan Africa (SSA) and established that paucity of property market data is a major cause of valuation variations. Awuah et al. [
26] attributed the paucity of property market data to the lack of a centralised data bank. Sources of property market data in SSA include parties to property transactions, informal property agents, lawyers, etc., who hardly record full transaction details and property characteristics, hence poor and unreliable property market data contributing to valuation inaccuracies [
26]. In contrast, developed nations adopt sophisticated property market data sources such as the UK’s IPD property indexes [
34,
55] and Multiple Listing Service (MLS) [
3,
56]; and the House Price Index (HPI) [
57] in the USA.
To improve the practice of valuation in SSA, Awuah et al. [
26] developed a property market data collection template and provided effective property market data collection guidelines. Further, the study recommends the need for professional bodies to create a property market data bank, provide enhanced regulations, and undertake regular training through continuous professional development (CPD) programmes to enhance valuers’ skills to collect good quality property market data and produce high standard valuations. While Awuah et al. [
26] established valuation problems in SSA, they did not categorise these problems in the context of market-related problems and valuer conduct.
Similarly, in a survey of key informants in Ghana, Rwanda, Namibia, Nigeria, Malawi, Tanzania, Uganda, Zimbabwe, and Kenya, Mutema [
27] found that, unlike the UK and USA, many African nations, except South Africa, do not have property price indices. The lack of property indices in developing countries contributes to the lack of transparent property market price information that aggravates valuation inaccuracies/variations [
27]. Mutema [
27] confirmed that the lack of property information accompanied by valuation variations is likely to be more pronounced in developing countries than in developed nations. Mutema [
27] proposed the need for alternative and more flexible valuation methods that consider the prevailing property market characteristics. Mutema [
27] recognised that attempts to tamper with tried and tested traditional valuation methods are likely to face stiff resistance from the valuation profession that trusts in the mainstream (traditional) valuation methods. While Mutema [
27] recommended the need for flexible valuation methods that consider property market characteristics in developing countries, he failed to identify the proposed methods. Further, Mutema [
27] did not recommend specific measures to improve access to property market data in developing countries.
Further, Awuah et al. [
26] and Mutema [
27] established that the lack of national regulation of the valuation practice and standardisation in applying valuation methods are major challenges that contribute to high levels of valuation variations in Ghana. Awuah et al. [
26] found that this resulted in the proliferation of informal practitioners who often lack the requisite training and experience to practice valuation. Similarly, in Nigeria, Mutema [
27] found that the lack of national valuation standards contributes to valuation inaccuracies. Just like Ghana and Nigeria, most developing countries experience lack of standardisation, poor regulations, and a failure to enforce available standards and regulations. These problems are likely to be rampant in developing countries compared to developed nations.
Additionally, Mutema [
27] and Awuah et al. [
26] found that unstable prices, resulting from high inflation and interest rates, an underdeveloped property market, unqualified valuers, and land tenure issues, negatively impact the valuation profession in Africa. In Uganda, Mutema [
27] established major challenges affecting the valuation profession: high levels of speculation, limited public knowledge of valuation services, inadequate research on pertinent valuation issues, lack of professional integrity, and gaps in the real estate curricular. Challenges that hamper the evolution of the valuation profession in Nigeria include high inflation and an obsolete training curriculum [
3]. Mutema [
27] further established the lack of a proper professional body focusing on valuation as a major challenge in Malawi. Furthermore, in Kenya, Mutema [
27] established corruption and high inflation rates as major challenges to the valuation profession in the country. Although the studies identified valuation problems in developing countries, they did not attempt to categorise them.
Finally, in a survey of the Ministry of Lands (MOL) staff in Kenya, Mwangi [
23] found poor service delivery in terms of speed of service delivery and quality of services. Mwangi [
23] attributed poor service delivery at MOL to poor land information management systems incorporating the manual system of record keeping. Mwangi [
23] suggested the need to computerise the ministry’s land records and implement an integrated land information management system to ensure efficient and effective delivery of services. Mwangi [
23] focused on developing an integrated land information management system but did not discuss the impact of poor land information management on the valuation profession.