Estate Management and Valuation Practice
What the FEM tests in this domain
Estate Management and Valuation Practice is examined as a single workflow: instruction, terms of engagement, inspection, method choice, computation and a defensible report. Questions combine landlord–tenant management (rent, service charge, repairs, recovery of possession) with valuation of freehold, leasehold and rental interests, so you must know both the law and the arithmetic.
Core rules
- Select the method by interest and evidence: comparison for residential and standard commercial; investment capitalisation for income-producing property; profits for hotels, petrol stations and cinemas; depreciated replacement cost for specialised property; residual for development sites.
- State the basis of value and the valuation date. Under IVS and the Nigerian Valuation Standards, market value is the estimated amount in an arm's-length transaction after proper marketing.
- A leasehold interest is the term plus the reversion: capitalise the profit rent (market rent minus contract rent) for the unexpired term, then add the deferred capital value of the reversion.
- Management: collect rent, keep client money separate, serve statutory notices, maintain a service-charge account and report periodically.
Worked example
A shop is let at ₦1.2m net a year with five years unexpired; market rent is ₦2.0m. Profit rent = ₦800,000. Years' purchase for 5 years at 8% = 3.9927, so term value = ₦3.19m. Reversion: ₦2.0m capitalised at 7% = ₦28.57m, deferred 5 years at 7% (0.7130) = ₦20.37m. Total leasehold value ≈ ₦23.56m. The reasoning is that the investor buys a fixed profit rent now and the full market rent later, each discounted at a rate reflecting its risk.
Traps
Using freehold comparables for a leasehold interest; capitalising gross instead of net rent; calling contract rent "market rent"; overlooking a negative profit rent where the passing rent exceeds the market; omitting the report's assumptions and caveats.