A Reconnaissance Study and a Model for Estimating Real Estate Market Value in Inefficient and Unstable Markets: Real Estate Valuation in Sudan

Abstract

Asset valuation is the backbone of the money lending process, it allows banks and financial institutions to inject money into all sectors of the economy, where the proper valuation processes based on professional standards ensure that banks get back their money in the case of a borrower default and re-inject the money back again into the of the economy. Uncertainty is one of the features of the valuation process. Valuation uncertainty is inversely proportional to the market activity: the more active the market, the more credible the conclusion of the valuation. Currently, the market performance in Sudan could be classified as an unstable market. This study sought to identify the sources of uncertainty in the asset valuation process in Sudan and to compare the local professional practice with internationally adopted standards. This comparison was conducted through inspection and examination of a number of local valuation reports against the fundamental requirement of the International Valuation Standards (IVS 2017). I also conducted a survey questionnaire to measure the public trust in valuation professionals in Sudan. The study recommends that local valuation experts should improve their skills in professional reporting, while authorities should constitute a regulatory body to organize the assets valuation profession and to develop national valuation practice standards or adopt any of the international standards. In this study, a mathematical model was developed based on the construction cost approach to estimate the market value of the real estate in Khartoum city in the case of an unstable and inefficient market. This model is a spreadsheet model. The most valuable feature of the model developed in this study is its ability to save time. The model can be used to generate market value for real estate in significantly less time than the classical manual method. It can be used to calculate quantities of construction materials and workmanship for the category of buildings that the model supports. Also, contractors can depend on the model to estimate contract values, especially in lump sum contracts.