Abstract:
Nowadays valuation of a real property is one of the crucial aspects of property in business which is becoming
the critical practice in financial institutes to promote sustainable economic development. As many potential
factors affect the precision of valuation results and investment appraisal, the valuation method as much as
possible should identified, assessed, mitigated and the most suitable approach for the development should be
chosen. To reduce the fluctuation of the result of real property among the financial institutions, which entails
both over and under estimation issues occurred. However, owners and customers faced to dissatisfaction,
inconsistency in property valuation and unbalancing with the current market condition. To come up with, the
aim of the study was to assess the real property valuation methods in Ethiopian financial institutions (banks) in
the case of Jimma zone.
To address the problems, questionnaires were designed and distributed property valuators who directly
participating in valuating property in both private and governmental banks. To supplement the questionnaire,
a desk study was conducted on property valuation method documents. Consequently; analysis of data was
processed using simple statistical approach, examining, tabulating and by using the relative importance index
method (RII) determining the property valuators perceptions of the relative importance of the identified
performance factors and ranking the different performance factor.
The outputs of the overall analysis showed that almost all banks found in the areas use cost approach type of
valuation methods depending on the basis prepared by their organization particularly or Ethiopian Bankers
Association manuals. Private Banks would not use depreciation value of the real property due to the
interference of management and there would be competition between each other to lend their money and treat
their customers. Market condition, construction materials types and the availability of basic utility are the
main factors affecting real property valuation.
The study recommends to the financial institution (banks) to improve real property valuation methods by
following valuation principles and procedures to reduce the over/under estimation might be occurred. The
guideline of the all banks should be prepared nationally by independent organization to avoid the variation
occurred especially between private banks, to follow similar procedures and methods of real property
valuation.
