Market Value

According to International Valuation Standards (VS 104) of 2020 Standard 30, this is described as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and willing seller in an arm's length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. The estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as typical financing, sale and leaseback arrangements, special consideration or concessions granted by anyone associated with the sale, or any element of special value.

Mortgage Value

The definition of an open market value understood under this term is a basis for use onlv when valuing for lending purposes and presupposes a value returned with the interest of the lender anticipating a sale in the event of default in the repayment schedules or covenants. It is usually below the current open market value for the very reasons of the likely risk in default and difficulties involved in the eventual sale of the properties held as security.

Forced Sale Value/Reserved Price

This is the highest price at which a properly would reasonably be expected to sell if offered for sale without consent or concurrence of the owner under restricted market conditions. Forced sale value acts as a guide to auctioneers or any sellers and avoids a situation where a property is sold at a price that is too low and/ or unreasonable. Whoever is selling should strive to achieve the highest price possible.

Insurance Value

This refers to the cost used to replace or repair an asset/structure in the event of loss. It is usually based on the principle of indemnity where the
property owner should not be financially better or worse off after loss against which he/she has insured. It is the sum adequate to cover the loss which will be incurred in the event of total loss. This is usually attained through two main approaches: replacement cost or reproduction cost methods.

Replacement cost is the actual cost required to replace an item or structure at its pre-loss condition. This is not necessarily market value of
the item, since it includes a deduction for depreciation. It can also refer to the current cost enough to buy a similar asset that has the same utility as the equipment being valued. The new asset does not have to be the exact same model, but it should perform the same essential functions as the asset being replaced. Reproduction cost on the other hand refers to the current cost of producing a new replica of the asset / structure while using the same or very similar materials. Reproducing an exact replica is often more expensive than replacing equipment.

Book Value

This is the value of an asset according to its balance sheet account balance. It is based on the original cost of an asset less any depreciation, amortization or impairment costs made against the asset. Discounted Cash Flow (DCF) method has been adopted in arriving at the book value of some of the landed assets. This method also assumes continued use of the building is maintained. The DCF Method recognizes non-typical situations through income projections over investment horizons in the order of 5 to 10 years. Thus in respect to the recommendations of the International Valuation Standards and to the terms of engagement, we consider that the DCF Method is a very suitable approach in determining the market value of some of the properties
especially the high rise office blocks. Based on guidelines by the Institution of Surveyors of Kenya (2000), International Valuation Standards Committee (2020), and International Accounting Standards Board (IASB) the following valuation principles are adopted for the different categories:

i. Landed Property (Land and Buildings)

All the properties are physically inspected by a Valuer as guided by the relevant survey documents. An official search certificate is obtained for each title to ascertain the official registered owner of the property, the size of the same and any encumbrances or restrictions. There are three methods that can be used to determine the value of a real estate property: the cost approach, the income approach and the sales comparison approach. Find below an explanation of how each method is operationalized.

Income Approach:

This method takes into consideration the income that a property might be expected to generate if leased out to a stabilized occupancy level, and
applying to that income a capitalization rate reflecting the market standards and the investors' interest in a property of this kind. With the income
approach there are two different techniques of evaluation: The Discounted Cash-Flow Analysis (DCF) and the Direct Capitalization Method (DC).
The DCF method implies income projections of the property in the order of 5 to 10 years. The income flow is then discounted to a present value sum and
added to the present value of the reversion once the income flow stabilizes. This method is mainly used for projects where the existing income may
suffer changes in the future. The discounting rate applied is normally the Operating Inter-Bank rate.

The DC method is based on the capitalization of the present year NOI (Net Operating Income) applying the rate of capitalization running in the market as
at the date of valuation. Applied in the case of properties generating rental proceeds or liable to generate such proceeds. First, the average value of
the rental amount the property may generate is established and then from this value, deduction is done covering the outgoings, vacancy levels and
collection losses. Then the investment capitalization rate that would make the property appealing to a future investor is considered. The CBK rate now
standing at 8.25% and the Kenya Bankers Reference rate now at 8.9% are also considered.

Cost Approach / Contractor's Test:

This approach is suitable for establishing the value of developments but relies on other methods such as the market approach to
establish the value of land on which the buildings are constructed; valuing the land as if vacant.

An estimate of the cost of construction of the building at current condition is made based on current cost of construction rates provided by the Institution of Quantity Surveyors of Kenya (IQSK) and the State Department of Housing and Urban Development. The subject buildings' wear and tear and obsolescence are considered and a reasonable depreciation rate adopted for condition and age. The depreciation is then deducted from the current total
construction cost to establish the current value of the subject building which together with the land value add up to the value of the property.

Market / Sales Comparison Approach:

The market approach is based upon direct comparison of the subject property with other comparable (similar) properties, which have been sold recently or are currently offered for sale. This provides an indication of value by comparing the asset with identical or comparable assets for which price information is
available. The sales comparison approach to value is based on the principle of substitution, which affirms that a prudent purchaser will not pay more for a property than the price of an equally desirable substitute property under similar conditions.

This approach provides a reliable indication of value particularly in an active market, given a reasonable availability of market data comparable to the subject property. This method may be limited since the subject properties have specialized use which may not directly attract potential investors in
'normal market'.

ii. Motor Vehicle / Motorcyles

Motor vehicles are valued on the basis of depreciated replacement cost (DRC), based on the current cost of purchasing a new asset less deduction for
physical deterioration and all relevant forms of obsolescence (physical obsolescence, technological obsolescence and economic obsolescence) and
optimization using manufacturers and supplier's recommendations and consideration of the client's depreciation policy of motor vehicle lifespan. The
motor vehicle values are further checked for accuracy through a multiple regression model fed in SPSS version 25. Sales of similar motor vehicles and
motorbikes in the market bazaars are put into consideration to attain an informed value.

ili. Plant and Machinery

Values attributed to Plant and Machinery valuation include: Reproduction Cost New; Replacement Cost New; Depreciated replacement Cost; Fair Market
Value: Fair Market Value in Continued use: Liquidation value in Place; Insurance replacement cost - all depending on the purpose for which the valuation
is needed. Plant and machinery are valued on the basis of depreciated current prices for new, using acceptable depreciation rates, and adjusting for
age, and economic life spans of the various assets subjected to macro and micro inspections. For machinery that are still available in the market,
depreciated replacement cost approach is adopted. Where machines are still productive care is taken so as not to depreciate the same to zero value thus,
the remaining economic life is factored in.

iv. Office Furniture and Equipments

These assets are valued on the basis of purchase price and depreciated replacement cost. They are subjected to physical and / or mechanical examinations after which the value of a similar new asset is determined. This value is then subiected to a depreciation rate to obtain the current value. An assumption is made that the assets remain in their working place while surplus assets are valued for a later removal. Surplus assets are accounted for individually or as a "disposal group", i.e., a group of assets to be disposed of together, by sale or otherwise. It is worth noting that the owner's accounting policies especially on depreciation is considered.

v. Asset Register and Asset Tagging

The process of preparing an asset register together with asset coding utilizes customized computer applications / softwares ranging from data collection, transmission, arranging, editing and final printing. A mobile phone data collecting application is used during the field work that allows the Valuer to record the details of all the assets and take a photo of the same. The application is programmed to capture data in five categories namely; Machinery, Office equipment, Office furniture, Motor vehicles and Landed properties.

The recorded data is transmitted to the command center in the office via cloud server in real time which is then stored in a primary and a backup server. All the images of the assets captured in the field are assembled into a common folder that is automatically backed-up. A customized software retrieves
the data of all assets and match them with their respective images then arrange this data into a structured excel report for final editing
and submission. The primary information for each asset is captured in a bar code.


In arriving at a professional opinion of value for landed property in accordance with the client's instructions extensive research is carried out in areas such as title registers, survey records, County Government offices for rates and related for rated properties and a market survey for values and rental levels. Source records include but not limited to land-value indices from Ministry of Lands, Housing and Infrastructure; Construction rates from IOSK; Quarterly market surveys by professional property and investment firms; Kenya National bureau of statistics and general market listings. In the case of Office equipment / plant and machinery - Company records for acquisition and maintenance records/ production out-put (where applicable); manufacturers manual for specification on production capacity, drives and life expectancy; Market survey to determine functional and technological obsolescence besides micro and macro inspections are all put into consideration. In the case of furniture items-: Garden sale prices and conditions of items are major considerations. In preparing Asset registers and tagging of assets, besides going through the valuation of assets process, the clients policy on asset depreciation is of major consideration. Previous asset identification process is evaluated for purposes of either improving or incorporating, into new
identification process. This is the digitized. Reference is made to valuation Practice text books; International Valuation Standards (IVS) Manual, International Financial Reporting Standards(IFRS), Blue Book by ISK, Royal Institute of Chartered Surveyors (RICS) manual; International Conference Papers and academic International Journals among others.