Application of multiple regression analysis (MRA) in the Valuation of used motor vehicles. A case study of used saloon cars.

Abstract

Valuation approaches used by motor vehicle valuers are highly dependent on the subjective judgement of the valuer in arriving at motor car values. This is a major cause of value variability and disparities among valuers in Kenya and results in cases of negligence. In this study, the existing motor vehicle valuation approaches, mainly; the Cost approach, Income approach and the Market approach are examined. Their strengths and weaknesses are highlighted. An attempt is made to develop an objective valuation methodology through the use of multiple regression analysis (MRA) that can be used to estimate values of used saloon cars in Nairobi. The advantage of using MRA is that it can model the relationship between the value of a car and the determining factors. The MRA methodology models the factors (variables) in a way wh.ich demonstrates how changes in each variable affect the value of a car. Using this method, the relative monetary contribution of each factor can be estimated. Knowledge of the contribution of each determining factor enables the value of a car to be assessed with speed, accuracy and precision. The procedure in MRA modelling involved first identifying and listing factors that influence the value of used saloon cars. The factors were identified through literature , search, knowledge of the researcher and questionnaires and interviews conducted with selected valuers, car buyers and sellers in the city of Nairobi. From these factors, critical car value influencing variables were chosen aftet.t,a thorough statistical analysis. The critical factors were found to be (1) Condition of the car (2) Mileage (3) Type of drive (4) Engine capacity, and (5) Colour of the car Sample data of used saloon cars were collected from selected second hand car bazaars in Nairobi. In total, a sample of thirty (30) second hand saloon cars was used. The selection of the cars was done using simple random sampling. Each sample unit (second hand saloon car) was inspected and properly identified to obtain information on its actual sales price, its condition, engine capacity, and colour, among other details. The car sales prices were then. used to develop the MRA Car value model. The model was developed from the results obtained after regressing the critical car value influencing variables against the dependent variable, Car price. The regression analysis was done using both the ENTER and STEPWISE methods. The study recommends the use of MRA valuation methodology in the estimation of used saloon car values in order to enhance objectivity, accuracy and efficiency in valuations. The study' further recommends rigorous professional training of motor vehicle valuers through the incorporation of the subject of machinery and motor vehicle valuation in the university education curricula, and formation of a professional body of motor vehicle and machinery valuers to regulate and guide professional practice and standards