Surveying & Built Environment Vol. 22 Issue 1 (December 2012)

five traditional methods of valuation,
the Market Comparison Approach is
the most accurate; Cost Approach the
least accurate. In turn, surveyors in
developed economies typically rely
on the Market Comparison more often
than other methods of valuation. In
Hong Kong, for example, market based
traditional econometric models and,
more recently, artificial neural networks
are the most common approaches
used by practitioners and property
researchers (Yip and Lee, 2008).
The situation is rather different in
Ghana. Valuers-in-training normally are
schooled in using the Cost Method of
valuation (Obeng-Odoom and Ameyaw,
2011). Therefore, the majority of reports
prepared for the qualifying examination
for professional membership of the
Ghana Institution of Surveyors draw
on that approach (Ezaah, 2007).
Apart from rating valuation which,
according to section 96 (9) of the Local
Government Act, 462, valuers are
obliged to use the Cost Method, in all
other cases, such as estimating value
for the purpose of sale, forced sale,
insurance, and mortgage, valuers are
at liberty to choose any other valuation
method. However, valuers in Ghana
adopt the Cost Approach for almost all
valuation tasks.
This situation stands in stark contrast
with the situation in Australia, a country
from which Ghana has benefitted
considerably - in terms of valuation 7 .
In Australia, there is an overwhelming
reliance on direct market approaches
to valuation and a positive correlation
Surveying and Built Environment Vol 22, 37-60 Nov 2012 ISSN 1816-9554
between academic qualifications
and valuation methodology. That
is, as valuers advance in academic
qualifications, there is a high tendency
to abandon simple market approaches
to sophisticated market approaches such
as discounted cash flow methods. Also,
as valuers advance in experience, more
simple market approaches are replaced
with discounted cash flow techniques
(Boyd, 1995). None of these is the
case in Ghana where the Cost Method
of valuation is the dominant method,
regardless of education or experience.
In Ghana, the Cost Method ‘is
king’. Sometimes referred to as the
Contractor’s Test, it is based on the
philosophy that the informed purchaser
would pay no more than the cost of
producing a substitute property with the
same satisfaction as the property which
is the subject of valuation (Johnson et
al., 2000). When using this method,
typically Ghanaian valuers go through
three stages. First, they estimate the
gross replacement cost. Next, they
ascertain depreciation. Then, they
assess the value of the subject land,
which is given by two simple equations:
GRC – D =
NRC ………………………Equation 1
NRC + LV =
PV …………………………Equation 2
Where:
GRC is Gross Replacement Value;
D is Depreciation;
NRC is Net Replacement Value;
LV is Land Value; and
7 For example, it was the Australian valuer, John Francis Murray who was commissioned by the UN in
1958 to advise the Ghanaian government on the problems of using the number of rooms and windows as
a basis for rating, and on what alternatives were available. The current system of rating in Ghana is based
on Murray’s ideas (see a detailed history in Adem and Kwarteng, 2007, pp.40-41).
SBE
49